With a view to enhance corporate governance, facilitate business operations and modernise the legal infrastructure for incorporation and operations of companies in Hong Kong, a complex new Companies Ordinance (“CO”) was enacted and 12 pieces of subsidiary legislations on technical and procedural matters were introduced. The new CO is expected to come into force on 3 March 2014. All existing holders of Hong Kong companies and intended users must be aware of the changes in this milestone new legislation.
We set out below the main changes relating to private limited companies :-
Abolition of Memorandum of Association (“MA”)
Under the new CO, the requirement for a company to have a MA as a constitutional document is abolished. The new section 67 provides that a person may form a company by, amongst other things, delivering to the Registrar of Companies (“Registrar”) for registration an incorporation form in specified form and a copy of the company’s Articles of Association (“AA”). There are no transitional arrangements for abolition of the MA. The deeming provision under the new section 98 however provides that provisions of the MA of an existing company will be deemed to be regarded as provisions of the company’s AA.
Table A in the First Schedule to Cap. 32, in so far as not modified by the provisions of the new CO, will continue to apply to those existing companies who had adopted Table A as their AA.
Abolition of Par Value of Shares
The new CO will adopt a mandatory system of no par value for all local companies with a share capital and relevant concepts such as “authorised share capital”, “share premium” and “nominal value” will be abolished. As a result of the migration to no-par, (1) any provision which states the amount of share capital with which the company proposes to be registered or is registered; and (2) any provision that divides the share capital into shares of a fixed amount, are considered deleted.
Under Schedule 11 to the new CO, there are transitional and deeming provisions relating to the move from par value shares to no-par value shares. The provisions are intended to provide legislative protections to ensure that contractual rights defined by reference to par value and related concepts will not be affected by the abolition of par value.
In addition, due to the migration to no-par, any such condition which states the amount of share capital with which the company proposes to be registered or is registered is regarded as deleted and any such condition that divides the share capital into shares of a fixed amount is also regarded as deleted in the AA (section 98(4)).
All existing Hong Kong companies should review their particular circumstances to determine if they need to introduce changes to their company’s constitutional documents, contracts entered into by the company, trust deeds involving the company and share certificates issued by the company. All Hong Kong private companies should in addition review the mandatory articles specified under the new CO and the model AA against their existing AA.
Restricting Corporate Directorship
Under the new CO, it requires that every private company to have at least 1 natural person as director with a view to strengthen the accountability and transparency of directors. There will be a 6 month grace period from commencement of the new CO for compliance with this new requirement. In case of appointment of new directors, the appointment should be filed within 15 days.
According to section 458 of the new CO, the Registrar of Companies (“Registrar”) may direct a company to appoint a natural person as director in compliance with the new requirement. If a company fails to do so, the company and every responsible person commit an offence and is each liable to a fine of HK$100,000 and a further fine of HK$2,000 for each day for a continuing offence.
Use of Common Seal and Official Seal
Under the new CO, the keeping and use of a common seal by a company is optional. Due to the above change, new provisions regarding the requirements for execution of documents by a company has been included in the CO. In particular, a company can execute a document by having the document signed by the director (where the company has 1 director) or by 2 authorised signatories (where a company has 2 or more directors) and the document will have effect as if it had been executed under the company’s common seal (Sections 127 (3) and (5)).
Deregistration and Restoration
Apart from the three conditions specified in the existing CO, namely (1) the company has not commenced or has ceased operation or business; (2) it has no outstanding liabilities; and (3) all the members agree to the deregistration, three additional conditions for deregistration are included in the new CO (section 750(2)) :-
(1) the company is not a party to any legal proceedings;
(2) it has no immovable property in Hong Kong; and
(3) none of its subsidiary’s assets consist of any immovable property situate in Hong Kong (in case the company is a holding company).
A new “administrative restoration” procedure to administratively restore a company to the Companies Register by the Registrar without the need for recourse to the Court as required under the existing CO has been introduced by the new CO.
A local company dissolved pursuant to striking off action by the Registrar may apply to be administratively restored if the following conditions set out under the new section 761 are met :-
(1) the company was in operation or carrying on business at the time its name was struck off the Companies Register;
(2) if the company has any immovable property in Hong Kong which has become vested in the Government as bona vacantia and the Government has no objection to the restoration;
(3) the applicant must bring up to date the company’s records kept by the Registrar; and
(4) any other conditions imposed by the Registrar as he thinks fit.
Restricted Disclosure of Residential Addresses and Identification Numbers
Under the new CO, the residential address of a director and the full identification numbers of any person will not be available to the public for inspection. Instead, directors will be required to provide correspondence addresses in addition to the usual residential addresses and only directors’ correspondence addresses will be shown on the Companies Register. Partial identification numbers (for instance, A123***(*)) will be available for public inspection on the Companies Register. These new changes seek to strike a balance between protecting data privacy and the need for public to access personal data.
Facilitating Simplified Reporting
New provisions have been incorporated in the new CO to facilitate more small and medium enterprises to prepare simplified financial and directors’ reports. A private company that qualifies as a “small private company” and a holding company of a group of companies that qualifies as a “group of small private companies” will qualify for simplified reporting.
All private company owners should consider if they qualify for this simplified reporting.
Communications in Electronic Form and Hard Copy Form
The new CO also introduced new rules governing communications between natural persons and companies in electronic form. The new CO provides that a document may be sent to a company in electronic form if the company has so agreed, generally or specifically, or is regarded as having so agreed under the provisions of the new CO. The agreement may be revoked by giving a notice of revocation and such notice must be given no less than 7 days or such longer period as specified in the company’s AA, instrument creating the debenture or any other agreement, where applicable.
For hard copy documents or information sent or supplied by post to a company by a natural person, such documents or information are deemed to have been received by the company on the second business day after posting or otherwise as specified in the company’s AA, instrument creating the debenture or any other agreement, where applicable. If a document is sent by hand, such document is deemed to have been received by the company when the document is delivered.
If you have any queries regarding the above e-News or on what needs to be done to comply with the new CO, experience lawyers in our Corporate & Commercial department will be happy to assist you.