New Hong Kong Company Law Ordinance

A new Company Ordinance was first introduced in July 2012 which has effectively revamping the old company law enforced since the early 80s with an aim to maintain Hong Kong city’s status quo as one of the most attractive business and financial centre in the world. After 2 years of ongoing debates and joint efforts by the Hong Kong Legislative Council and different business industries, a new Companies Ordinance has came into force on 3rd March this 2014 which aims to put in place a better and convenience to follow regulations to support small and medium size businesses. Thus, the new Ordinance is set to modernize the existing company law by amending a number of document requirements and regulatory compliances for the convenience of new entrepreneurs and business investors who are looking to form a company in Hong Kong. Whether you are planning to form a new enterprise or already have a portfolios of Hong Kong companies, it is important to take a note on the changes bring by the new Ordinance and how does it affect your administration of the company (ies).

We highlight few key important changes which are likely to be asked:

Constitutional Documents

The previous template Memorandum and Articles of Association should no longer be used.

Under the new CO, only the Articles of Association are required. The new Ordinance mirrors

the company law framework operates in the UK which has prescribed a set of model

Article of Association which companies can adopt or tailor made a bespoke company

Article of Association.

Share Capital

Under the new CO, the shares of a private company will not have any par value attached

to the share and it may now issues company shares at a price lower than their par value

Directorship Appointment

Under the previous Ordinance, a corporation is allowed to be appointed to as the sole

director in a private company. Under the new Ordinance, now at least one director must

be a natural person.

The law applicable to listed companies and their respective subsidiaries under the existing

law remain unchanged and are not allowed to appoint corporate directors.

If your existing private company only has one corporate director as the sole director of the

company then a natural person must be appointed to the company board within 6 month

grace period.

The Use of Common Seal

The requirement that legal deeds are required to executed by affixing its common seal

which are often considered as impractical. Under the new Ordinance, the use of a

common seal becomes optional therefore a deed can be executed without affixing the

common seal.

Any existing companies wish to dispense with the common seal requirement or to set out

any particular requirement in executing a legal deed under the new Ordinance then

amendments must be made to the Company Article of Association to effect the changes.

Dispensing with the Annual General Meetings Requirement

Private Companies now have an option under the new Ordinance to dispense with the

AGMs simply by passing a shareholders resolution.

Note that if your existing company Articles of Association contains any provisions on

company to hold an AGM then these provisions must be amended before the company

can opt to dispense with the AGMs requirement.

Simplified Reporting for Small Private Companies

The new Ordinance broadens the exemption on small private companies to prepare

simplified accounts and financing reports based on the SME Financial Reporting Framework

and Standard if it is

Whether a company is qualified for this exemption will depend on its group’s annual

revenues, assets and number of employees.

Business Review

Generally, public companies and private companies (other than those qualified for

simplified reporting or a wholly owned subsidiary company) are required to prepare a

business review as part of the annual directors’ report. Under the new Ordinance now all

private companies can opt out of this requirement by passing a special resolution (75%

votes)

Overviews on Company Internal Contracts and Procedures

There are a number of amendments bring by the new Ordinance which should be noted

as to how it affects any existing contracts or internal policies and procedures.

We highlight below few important ones:

Directors’ Duties

When the New Company Ordinance was first came in force in 2012, the Legislative Council

ruled out the idea to codify director’s duties (which is one of the principle company law

form part of the UK Companies Act 2006) as it was considered as unnecessary due to the

safeguards afford by the common law rules. However, under the new set of ordinance now

provides that the standard of care a director must exercise has now been codified into

statutory duties.

In deciding whether a director has fulfilled his duties of care, skill and diligence, his conduct

will be considered based on both the subjective and objective tests

(i). Subjective test – the director’s own general knowledge, skill and experience; and

(ii). Objective test – the general knowledge, skill and experience that a person in that

position is expected to have

Loan to Directors

Companies can make a loan to a director. The new Ordinance set out a more detailed

provisions mirrored the UK Companies Act 2006 that the loan agreement should be

reviewed if a loan to a director or to any connected person to a director (i.e. Relatives and

business partners etc.,)

Service Contract

The approval of the company board and its members in a prescribed manner is required

under the new ordinance for any guaranteed term of employment of a director for longer

than three years.

Any contract with a guaranteed term over three years without members’ prior approval is

void unless members grant approval on the contract. To thrive, the new changes

introduced under the new Ordinance will help to enhance the accountability of directors

and corporate governance and will certainly enlightened the shareholder value within the

corporation.

It is also worth to note that the new ordinance will also benefit the general public as it

empowers the Companies Registry’s in ensuring the public have access to accurate and

updated information about companies.

Thank you!

Archers Corporate Services

www.archerscs.co.uk