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Share Capital of Hong Kong Companies

The vast majority of Hong Kong companies are companies limited by shares. A company limited by shares is a corporation and like corporations in many other jurisdictions, the liability of a shareholder is limited to the amount unpaid on the shares held by that shareholder. In this article, for ease of reference, we refer to a Hong Kong company limited by shares simply as a "Hong Kong company".

Ownership Restrictions

Hong Kong laws do not generally restrict ownership of the shares of a Hong Kong company.  There are, for example, no restrictions on the extent of foreign ownership of shares and it is possible for a non-Hong Kong person to own 100% of the shares of a Hong Kong company. However, ownership of certain regulated industries, including financial services and telecommunications businesses, may be subject to regulatory approvals.

Minimum Shareholding

A Hong Kong company must have at least 1 shareholder. Except in certain regulated industries, there are no minimum requirements as to issued or paid-up share capital and it is possible to incorporate a company with HK$1 of issued and paid-up share capital. There are no adverse tax consequences for a Hong Kong company as a result of thin capitalization. 

Nature and Classes of Shares

With effect from 2014, shares of a Hong Kong company no longer have a nominal or par valuel. Shares of the same class may therefore be issued in different series, each series requiring a different amount to be paid thereon.  

Shares may be divided into different classes. Generally, a Hong Kong company will have a class known as "ordinary shares". An ordinary share will typically have the right to vote, the right to participate in distributions from profits and the right to participate in liquidation dividends on a winding-up of the company.

Other share classes will have rights set out in the articles of association. These rights may, for example, include preferences as to dividends or super voting rights. It is possible to establish classes of redeemable shares but redeemable shares can only be issued if there is at least a class of issued shares that is not redeemable. Hong Kong company law however, restricts the ability to redeem shares in order to protect creditors.

Issuance of Shares

Generally, the directors of a Hong Kong company may allot and issue shares in the company or grant rights to subscribe for, or to convert any security into, shares in the company.  However, if shares will not be issued to existing shareholders in proportion to their existing shareholdings, then the directors must first obtain the approval of the shareholders.

There are no fees payable to issue shares. With effect from 2012, Hong Kong abolished capital duty on the allotment of new shares.

With effect from 2014, Hong Kong no longer requires a company to state its authorized share capital. The authorized share capital refers to the maximum amount of capital that a company may issue. With the removal of this requirement, shares may be issued in unlimited amounts.

Shares may be issued for cash or non-cash consideration.

A Hong Kong company must register each allotment of shares (other than the shares allotted to the persons named as the founder shareholders in the articles of association) with the Companies Registry.

Transfer of Shares

Shares of a Hong Kong company are transferrable in accordance with the articles of association of the company.  The articles of association of a Hong Kong private company will normally provide that any transfer of shares will be subject to the approval of the board of directors of the company.

Transfers of shares of a Hong Kong company are normally subject to Hong Kong stamp duty.  Under the Stamp Duty Ordinance, the rate of ad valorem stamp duty is 0.1% of the amount of the consideration for the transfer or the value of the shares being transferred, whichever is higher. Stamp duty is payable by each of the transferor (seller) and the transferee (buyer).  A transfer must be supported by an instrument of transfer signed by both the transferor and the transferee and delivered to the company.  The instrument of transfer must be endorsed by the Commissioner of Stamp Duty to indicate that ad valorem stamp duty has been paid, failing which the company should not register the transfer.

Unlike allotments of shares, there are no requirements to file a notice of a transfer of shares with the Companies Registry.  As a result, details of the current shareholders of a company may not be available from a search of the Companies Registry.  However, every Hong Kong company must maintain a register of shareholders.  The register is available for inspection by the public.

Cross-Holding of Shares

Under the Companies Ordinance, except in limited prescribed circumstances, a corporation cannot hold shares in a Hong Kong company if the corporation is a subsidiary of the Hong Kong company.  So, for example, if A Co., a Hong Kong company, owns 100% of the shares of B Co., B Co. cannot own any of the shares of A Co.

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