Jan. 29 – With the aim to modernize Hong Kong’s Company Law and further enhance the region’s status as a major international business and financial center, a comprehensive rewrite to the existing Companies Ordinance was initiated in mid-2006. This long and arduous process began to bear fruit on July 12, 2012 as the Companies Bill was eventually passed by the Hong Kong Legislative Council.
The new Companies Ordinance consists of more than 900 sections and 10 schedules, and has four main objectives:
- Enhancing corporate governance
- Ensuring better regulation
- Facilitating business
- Modernizing the law
Highlights of the revisions to the current Companies Ordinance can be found as follows:
Enhancing corporate governance
- Every private company is required to have at least one natural person to act as director and should clarify that individual’s duty of care, skills and diligence.
- The threshold requirement for members to demand a poll shall be lowered from 10 percent to 5 percent of the total voting rights.
- The procedures to deal with directors’ conflicts of interests shall be improved and ratification of director conduct by disinterested shareholders is required.
- The “headcount test” will be replaced with a not more than 10 percent disinterested voting requirement for privatizations and specified schemes of arrangement.
- An auditor is empowered to require a wider range of persons to provide information or explanations reasonably required for the performance of the auditor’s duties.
Ensuring better regulation
- Additional conditions will be imposed for the deregistration of defunct companies: Namely that the applicant must confirm the company is not party to any legal proceedings and that neither the company nor its subsidiary has any immovable property in Hong Kong.
- The enforcement regime shall be strengthened in relation to the liabilities of company officers for the companies’ contravention of the new Companies Ordinance, including lowering the threshold for prosecuting an offence by introducing a new formulation of “responsible person.”
- Companies are allowed to dispense with Annual General Meetings by unanimous shareholders’ consent.
- All types of companies (whether listed or unlisted) are allowed to provide financial assistance to another party for the purpose of acquiring the company’s own shares or the shares of its holding company, subject to a solvency test.
- Simplified financial reporting shall be facilitated for small and medium-sized enterprises.
- Small guarantee companies and groups of small guarantee companies, which have a total annual revenue of not more than HK$25 million, shall be allowed to qualify for simplified reporting.
- The use of a common seal shall be made optional and the requirements for a company to have an official seal for use abroad shall be relaxed.
- Rules governing communications to and by companies in electronic form shall be set out.
Modernizing the law
- A mandatory system of no-par for all companies with a share capital shall be adopted.
- The power of companies to issue share warrants to bearers shall be removed.
- New provisions for withholding directors’ residential addresses and full identity card/passport numbers of individuals from public inspection shall be introduced in order to foster the protection of personal data.
- The rules on the indemnification of directors against liabilities to third parties shall be clarified in order to remove the uncertainties at common law.
The new Companies Ordinance is expected to take effect in 2014 and over 10 subsidiary legislations will be promulgated to facilitate its implementation.
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Hong Kong and Singapore Holding Companies
In this issue of China Briefing Magazine, we take a closer look at the benefits of both Hong Kong and Singapore holding companies, how to establish and maintain a company in each of these jurisdictions, and the relevant double tax agreements.
Setting Up and Operating a Company in Hong Kong
China-Hong Kong to Promote Further Liberalization under CEPA
China Approves Policies for the Qianhai Shenzhen-Hong Kong Modern Services Zone
CEPA Rules of Origin for Hong Kong-Mainland Trade in Goods
IIT Calculation for Hong Kong and Macau Residents’ Mainland-Derived Income