Hong Kong Companies Ordinance

The Companies Ordinance Cap. 622 has simplified procedures and increased flexibility for companies of all sizes.

Already considered a leading jurisdiction, Hong Kong furthered its appeal to investors and entrepreneurs worldwide from the 3rd March 2014 when the Companies Ordinance Cap. 622 came into effect. The new ordinance ushered in a business orientated legislative regime. Major changes are reviewed below.


 

General meetings and other administrative changes

 

There were several changes aimed at easing the administrative burden on Hong Kong companies. Under the new Ordinance single-member companies are exempt from holding Annual General Meetings. Shareholders of other companies may opt to remove the requirement to hold an AGM by passing a unanimous resolution to this effect. The resolution remains binding until revoked.

When general meetings are to be held the Ordinance allows for the use of electronic technology to connect members in two or more locations. The ability to pass a written resolution in lieu of a general meeting when all members are in unanimous agreement remains unchanged, however the new Ordinance introduces guidance on proposing and passing written resolutions. Further flexibility is offered to companies by making the use of a common seal optional, this combined with a clarification on the rules regarding the execution of documents allows companies to conduct business confidently and with less difficulty.

Directors – requirements and duties

 

Shareholders find themselves better protected as a result of the significant changes and enhancements made to the role of directors. The most notable change is that all companies must now have at least one natural person acting as director. Furthermore the new law codifies the director's duty to exercise reasonable care, skill and diligence when carrying out their role with a two tier test being implemented to establish when these duties have been breached. Directors will also remain bound by other un-codified common law and fiduciary duties, offering yet another layer of protection to the company and its shareholders.

Nil-value shares

 

The new Ordinance overhauls the treatment of shares and share capital. Par-value shares were abolished and associated terms such as nominal value, share premium and authorised share capital ceased to be relevant. Companies wishing to limit the capacity of directors to issue shares will be able to limit the maximum number of shares in the Articles of Association. Directors will be responsible for setting the issue price of shares and the proceeds arising from an issuance will form part of the share capital. For existing companies, any articles that purport to attribute specific value to shares were deemed to be deleted and any existing share premium was attributed to the share capital.

Reducing share capital and other share related transactions

 

Parallel to these changes to par value, the capital maintenance doctrine was also reformed to offer companies more flexibility in their use of company funds. In addition to the existing court-based procedure, a court-free procedure was introduced for those companies wishing to reduce share capital. The new procedure allows the directors to reduce share capital where they are confident that the company satisfies a solvency test. Funds arising from reduction in capital can be regarded as realised gains and distributed to shareholders if so desired. The solvency test can also be used to fund share redemptions and buy-backs as well as to provide financial assistance for the purchase of a company's own shares.

Abolishment of the Memorandum of Association

Another notable change was the compulsory retirement of the Memorandum of Association. From the commencement date of the new Ordinance the Memorandum of all existing companies will be deemed as forming part of a company's Articles of Association. Any newly incorporated companies will be formed without a Memorandum and all clauses traditionally located within this document will be written into the Articles. Most companies will now also have the option to operate without an objects clause thus removing some constraints on the director's ability to conduct business, once again reflecting the flexible nature of the legislation.

The new Companies Ordinance Cap. 622 further enhances the worldwide reputation of Hong Kong companies and surely cements its position as a gateway to China. In order to fully enjoy the benefits of this new, flexible yet advanced company law regime it is recommended that existing companies update their constitution. Should you have any queries relating to the above points or wish to form a new Hong Kong company then please do not hesitate to contact Jordans Trust Company Limited.

 

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