Hong Kong Company Incorporation for First-Time Entrepreneurs

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Are you opening a company in Hong Kong for the first time?

Are you opening a company in Hong Kong for the first time? This is a beginner’s guide to opening a ‘private company limited by shares — the most common form of company in Hong Kong. 

Here we delve into: 

  • The legal framework for companies
  • The key individuals involved in the running of a company
  • The way that shares are dealt with in Hong Kong. 

What is a Hong Kong Company?

Hong Kong adopts its concept of a company from the ‘common law’ legal tradition that it shares with the United Kingdom, the United States, Australia, Canada, and New Zealand, among other nations. 

Under these legal systems, a ‘company’ is a distinct legal person, with an identity distinct from that of the owners of the business (the shareholders), and those responsible for running it (the directors). Having a separate legal identity means that a company can: 

  • Own assets and acquire liabilities
  • Enter into contracts
  • Enter into leases
  • Take out securities over its own assets (e.g., floating charges or liens). These should be listed by the company in a ‘register of charges’
  • Take legal action against other parties, and have legal action brought against it

Exist as a going concern — it survives the resignation or death of directors or shareholders.

Companies Law and Rules in Hong Kong

The key legislation for companies in Hong Kong includes the: 

  • Companies Ordinance
  • Companies (Winding-Up and Miscellaneous Provisions) Ordinance
  • Securities and Futures Ordinance (SFO). 

If a company is to employ workers in Hong Kong, it also needs to comply with a range of employment laws (e.g., Hong Kong minimum wage laws). 

The fundamental internal rules of the company are set out in the ‘Articles of Association’ (Articles). This is the fundamental company document in Hong Kong: It sets out all the foundational rules and regulations of the company, including the relationship between directors and members, and the relationship between members themselves.

There are certainly required clauses in the Articles, such as restrictions on the right to transfer shares 

This document must be lodged with the Companies Registry when the company is set up. 

There used to be an additional requirement to provide a ‘Memorandum of Association’, but this is no longer required.

The Role of Directors

The directors have overall responsibility for the running of the company. They set the strategic direction of the company, and appoint the company’s top managers who run the company on a day-to-day level. Sitting cumulatively, directors are known as ‘the Board’ of the company. 

They are appointed by the shareholders of the company, or where the company’s articles allow it, by co-option of the existing Board. 

In Hong Kong, there must be at least one director, though they need not be Hong Kong residents. In many countries (such as the United States), the director must be a real or ‘natural’ person. This is not the case in Hong Kong. A company (including a foreign company) may itself be the director of a Hong Kong company. However, it is a requirement that at least one director be a natural person 18 years and older (I.e., if one director is a company, there must be at least two directors). 

Directors have a range of duties under the Companies Ordinance including: 

  • The duty to act in good faith and in the interests of the company
  • The duty to exercise due care, skill, and diligence
  • A duty to maintain the books and company records
  • A duty to avoid conflicts of interests
  • A duty not to improperly take advantage of their position as a director

A failure to perform their duties can result in criminal or civil penalties. In addition, duty breaches may lead to directors being banned from acting as a director. 

Shareholders and Members

A shareholder is someone who has an ownership interest in a private company limited by shares. The shareholder may be a natural person, or they may themselves be a company: For example, a Hong Kong company can be a subsidiary of a foreign company where that company holds a majority of the shares in the Hong Kong company. 

Where the company turns a profit, the shareholder is entitled to a share of those profits in the form of ‘dividends’. 

Shareholders appoint the initial directors of the company and are the ultimate source of power in the company with an ability to modify the Articles and to replace directors. There is usually at least one meeting of shareholders per year (the Annual General Meeting or ‘AGM’), but meetings may also be called on an ad hoc basis when required. 

In addition to dividends, shareholders generally have: 

  • A right to vote in meetings 
  • A right to proceeds in the event of liquidation
  • A right to information 
  • A right to call meetings for the purpose of passing resolutions. 

Once a shareholder is registered in Hong Kong, they become a ‘member’ of that corporation. The total number of members for a private company in Hong Kong is limited to 50. 

Note, there are Hong Kong companies that have members but do not have shareholders (‘private companies limited by guarantee — companies that are set up for non-profit purposes).

It is also important for first-time entrepreneurs to realize that it is possible for one individual to be both the sole director and sole shareholder of a Hong Kong company limited by shares. 

The Role of Officers

Under the Hong Kong Companies Ordinance an ‘officer’ is anyone who is a director, manager, or company secretary of a body corporate. 

This is slightly different from the use of the term in other countries, such as the UK, US, or Australia where only the highest-ranked managers are counted among the officers of the company (hence the terms ‘chief executive officer’ and ‘chief financial officer’). 

If you are deemed under the law to be an ‘officer’ of a Hong Kong company, you have a wide range of powers and obligations under the law including:  

  • The power to certify alterations to the company’s Articles
  • An obligation not to authorize the use of an improper company seal
  • An obligation not to intentionally or recklessly misrepresent creditors or amounts owed to them
  • The obligation not to knowingly and willfully authorize or allow for false entries into the company’s ‘register of charges’. 

The Role of the Auditor 

All Hong Kong companies must appoint an auditor. This individual cannot be an officer of the company. Their task is to provide an auditor’s report accompanying the company’s financial statements for review by the shareholders. In this report, the auditor will give an opinion as to whether the financial statements are a true and accurate reflection of the company’s financial records. 

The Role of the Company Secretary 

All Hong Kong private limited companies must have a ‘company secretary’ that is a local resident. They can be an individual, or they can themselves be a company.

The company secretary is responsible for: 

  • Recordkeeping. This includes meetings of the board and shareholder meetings
  • Filing necessary documentation with the Companies Registry and Inland Revenue Department
  • Ensuring that the books and financial records are properly maintained
  • Generally ensuring compliance with corporate law. 

Number of Shares and Share Capital

There must be at least one share in a private company limited by shares, but there is no specific required financial investment.  

Share capital can be in any major denomination and can be of any amount. Note, where the share capital is over HKD 10,000 there is a duty of 0.1 percent payable. This duty is capped at HKD 30,000. 

Conclusion 

Most companies considering opening up a Hong Kong business will be looking into a private company limited by shares.  This can be an intimidating prospect for first-time entrepreneurs who do not have a good understanding of company laws and regulations. The most important things to consider are the different roles related to the company (director, shareholder, officer, company secretary, management, auditor, etc), and the requirements for shares and share capital.

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