Keeping a company going
It is vital to know what all you must perform to keep your company going.
Now that you have opened your business or are about to open your business, it is vital to know what all you must perform to keep your company going. Right now you might have accomplished the starting points of running a business and taking care of its initial concerns. Or you might be ready to handle all these things along with the yearly requirements of Hong Kong companies.
Let us say that you have a product or service that you would be offering the audience at an excellent rate. The price at which you are selling the product or service is getting enough profits for you. Moreover, you are planning to increase the operations of the company so that it grows into a huge business where you are not just working on a hobby, but on a full time business.
But there are yearly requirements of Hong Kong companies that have to be fulfilled. Do you know about all the obligations and are you prepared to fulfill the requirements? Here you would learn the various things that you might come across while running a business in Hong Kong.
Note: Unless otherwise notified, the Hong Kong company in this article refers to a private company limited by shares incorporated or registered following the Hong Kong Companies Ordinance.
When you incorporate a company in Hong Kong, it does not matter if you are not in the country for the whole year or the sales have been less or even if the business has not commenced, there are yearly requirements of the Hong Kong companies that has to be followed.
Obligations of a Company
A business is a separate legal entity, which means that it is like an individual legal person who has its own rights and is different from its owners. The advantages of a limited liability by operating as a limited corporation bears with it, responsibilities. These are many, and the organization has to comply with several provisions of the Companies Ordinance as per the laws of Hong Kong.
The commitments comprise of the timely reporting and declaration of detailed data regarding the business, its officers, and the shareholders, etc. This also includes any modifications in such information. All these have to be reported to the Companies Registry for the members to have ready access to the latest data of the organization.
Obligations as Officers of a Company
Each officer of a corporation, which also includes its directors, company manager or secretary, has the obligation to assure that the organization has followed all the terms of the Companies Ordinance. In case a business fails to follow the requirements of the Companies Ordinance, every person who is responsible for the company, as well as the business, would be liable to prosecution and any penalties.
There are rules that are made for the directors of the company. If you have doubts about the obligations and the nature of the director’s responsibility, you can seek professional advice or independent legal advice from companies like Startupr. You would not only get help for incorporating a business, but would also be able to easily find out information regarding the yearly requirements of the Hong Kong companies.
How to Fulfill Your Obligations?
The basic obligations and yearly requirements of Hong Kong companies need to be followed and the process is as follows:
- Deliver documents to your local agency in Hong Kong for the registration following the Companies Ordinance conditions.
- Maintain your business filings and make sure that the organization has provided the Companies Registry with the annual return and any other notices of modifications regarding the company secretary, directors, and address of registered office, Hong Kong Changing company structure, etc. With the help of agencies like Startupr, you can check if all your company’s details are accurate and up to date for the public records.
- Notify your agent if you find that any particular of your business is not right or has been edited by mistake.
In addition to the yearly filings for the company, you may need to file other changes to your company structure or necessary filings with the government.
Yearly filings and costs
As per the Inland Revenue Department (IRD) and the Hong Kong Companies Ordinance, after a company in Hong Kong has been incorporated, the yearly requirements of the Hong Kong companies has to be followed and each Hong Kong incorporated company needs to:
- Arrange an audit of its annual financial statements
- File certain returns
- Prepare financial statements
- Regularly update its books of accounts
The certain returns mentioned above, are filled with both the Inland Revenue Department that is the tax authority and the Hong Kong Companies Registry that is the company registration authority. Here, you would find out the brief explanation of these compliance requirements.
The annual costs of maintaining a private company limited by shares that have been registered in Hong Kong and has a good standing can be divided into two portions. The first part is a fixed part that is considered as the minimum cost required or the basic charges needed. The second part is different and determined by the nature of the company, the volume of transaction and also the amount of turnover along with a few other factors.
Let us discuss about these in details.
Annual Maintenance Costs
As soon as a business gets officially registered in Hong Kong, there are some yearly requirements of the Hong Kong companies that have to be followed. These obligations can be put into two different categories as mentioned above, where one is the fixed cost and the other has variable costs.
As per the yearly requirements of the Hong Kong companies, the fees to be paid are:
Compliance Requirements with Fixed Fees
- Business Registration Certificate renewal fee
- Annual Return statutory filing fee
- Provision of the Company Secretary
- Provision of the Registered Office
- Annual General Meeting
Compliance Requirements with Variable Fees
- Updating books of accounts
- Financial statements statutory audit
- Tax computation and filing of profits tax return
- Filing of Employer’s Return (per employee)
- Company restructuring
Note: The agency that you choose to take care of your company in Hong Kong would be providing you with the registered office and the company secretary service. And with that, they would also help you with the yearly requirements of the Hong Kong companies.
Below are the services that are normally provided by the agencies that help with startups in Hong Kong and maintaining the business in Hong Kong (taking Startupr as an example):
The annual payment for the provision of the Company Secretary covers the following services:
- Filing of notice of change of registered office; preparation of minutes;
- Preparation and filing of Annual Return;
- Provision of one Corporate Company Secretary (Startupr acts as Company Secretary);
- Filing of notice of change of secretary.
The annual payment for the provision of Registered Office covers the following services:
- Provision of one street address as Registered Office of your Hong Kong company;
- Receipt and notification of government mails for the company
Please note the Registered Office is not to be used for business purpose unless otherwise agreed by the agency (here Startupr).
The annual maintenance or the compliance fees are expected in the second year and after that for the yearly requirements of the Hong Kong companies. Moreover, the variable costs mentioned above are for general reference only. It basically represents the minimum that you need to budget to maintain a Hong Kong company and keep it in good standing.
Annual Maintenance for the Company
Now that you are clear with the fees that you would have to budget up for maintaining a business in Hong Kong, below are the important documents to be submitted for the yearly requirements of the Hong Kong companies:
Renewal of Business Registration Certificate
Every year, you would also have to renew your Business Registration Certificate that would be due for the renewal around one month before it gets expired. At present, the business registration fee is HKD 2,250 in a year. And if it is late for renewing the Business Registration Certificate, you would have a penalty for the late filing.
If you have opted for the services of maintaining your business in Hong Kong to fulfill the yearly requirements of the Hong Kong companies from an agency, you would normally be notified of the due date.This would be done at least one and a half months before the due date for processing the annual renewal.
Filing of Annual Return
One of the next yearly requirements of Hong Kong companies is the annual return that has to be filed within 42 days after the incorporation anniversary of the company. This would be along with the statutory filing fee.
Annual Statutory Audit and Filing of Profits Tax Return
Each company would be obliged to have the profits tax return filed, and its financial statements audited with the Inland Revenue Department which is the Hong Kong Tax Authority. This would be required about 18 months after incorporation for the first accounts, and annuals after this for the company accounts.
Renewal of Registered Office and Company Secretary
With the agency that is taking care of your company in Hong Kong and its yearly requirements, you would also have to renew the package with them on the anniversary of incorporation. This is for the agency to act as a company secretary and for the registered office services. Moreover, the fees for these services would have to be paid one month before the anniversary date.
Changing company structure (add/change directors & shareholders)
For a company to keep going, along with the yearly requirements of the Hong Kong companies, there are some other obligations that has to be followed properly. In Hong Kong, the changing company structure is something that happens a lot. And when it does, the company is obligated to notify the government agencies about this. These agencies are the IRD and the CR.
The changes in the company can be about anything, from the alterations in the company particulars to the changes in the articles of association, name of the company, directors of the business, or even the shares of the company. The details of everything has been shared below briefly in details.
Filings of The Changes in Particulars
There are some obligations that need to be followed in filings of the changes in particulars of any person or thing of the company. The company needs to file the relevant particulars with the Registrar within the given time limit. This is in event of:
- any allocation or issue of new shares
- any increase in the authorized share capital
- any alterations in the location of the registered office
- any change in the particulars of any existing directors or secretary, or the directors or secretary itself
These filings should be conducted and reported to the Companies Registry. Otherwise they would not be valid for the company, and any unrecorded transactions would not legally represent the changes for the company.
Change of Company Name
In Hong Kong, changing the company structure also includes changing the name of the company. The changing can be abandonment or the adoption of a formal Chinese version of the title or English translation. For this:
- the new name must be registered with the Registrar
- the shareholders need to approve of the change in the name by special resolution
It usually takes about 14 working days for the time of filing the special resolution for the certificate of incorporation on change of name to be issued. And the change in name is valid from the date of such certificate.
Increase in authorized and issued share capital
If there is an increase in the authorized share capital of the company, this needs the approval of the shareholders. The articles of association of a firm typically provides for the rise of the authorized share capital of the company through ordinary resolution.
For any increase in authorized share capital of a company, it would attract a government fee. Along with this, the notice of the raise has to be filed with the Companies Registrar with a signed copy of the resolution.
Change in Shareholders
Just like the shares can be increased, shareholders can be removed from a company or added to a business in Hong Kong, changing the company structure. This is called a share transfer. There are no distinct restrictions on share transfers and so, the most popular ways for changing the shareholders in a company are:
- A shareholder is removed or resigned, and the shares are offered to the existing shareholders the provision of rights
- The second way is where each share transfer has to be pre-approved by the Board
Two types of changes in the shareholders of a company and they are:
- Transfer of existing shares – The shares that are in the company and it is given to a person who is already a shareholder or connected with the business.
- Issuing new shares – The shares are allotted by the directors to specific people and the issuance of new shares to these people after it has been entered into the register of the company’s shareholders with the relevant particulars.
The process to change the shareholder of the company or transfer the shares are:
- Make sure that the rights obligations are waived or fulfilled.
- Complete the share transfer form to get it signed by both the buyer (transferee) and the seller (transferor).
- Give the underlying share(s) and the shares transfer form to the business
- Prepare the share transfer form and the sale agreement for stamping.
- Prepare the updated company audit report or accounts, in the case the company has commenced business.
- After the transfer, the buyer’s particulars have to be confirmed, and the shares have been stamped for registration into the CR, which is the official proof of the company share transfer.
Changes in Directors
In Hong Kong, changing of the company structure can also include the changing of the directors. There are situations that may occur, one is where the director is removed, the second is the director resigns, and third is when the company appoints a new director.
Removal of Directors
A company in Hong Kong has the right to remove a director from the business before their end of the director’s terms in the office. This is possible only if the director who has held office for life since 31 August 1984.
A special notice is required for a resolution:
- to remove a director; or
- to appoint somebody in place of a director so removed
- at the meeting at which the director is removed.
If the vacancy that was made when a director was removed during the meeting, it can be filled with a casual vacancy. The time for the next person taking a removed director’s place would start when the previous director’s time ends, or the day they are removed.
Moreover, in Hong Kong, changing the company structure is not easy. So, the sudden removal of a director can be objected by that director itself, if they have solid proof that they are not guilty of the alleged wrongdoing.
Resignation of director
A person who is a director of a company has the rights to resign from their position, unless it is in the terms of the company that they cannot at some point of time. And if the director resigns, a notification has to be sent to the CR. Also, if the director feels that the notice would not be given to the CR, the director would have to do this himself/herself.
The notice that has to be delivered, needs to state:
- if notice is so required, whether the notice has been given following the requirement; and
- if the resigning director is needed by any agreement with the company or by the articles of the company to provide notice of resignation to the company.
In case the notice of the resignation of a director is needed to be given by any agreement or the articles of the company, the resignation would come in effect only when it is given in writing by the director:
- in accordance with the requirement;
- by sending it to the company in electronic form or in hard copy form; or
- by leaving it at the registered office of the company.
Appointment of a new director
The last option for a company can be to appoint a new director for the company. This would require the approval of the directors and confirmation through a special resolution for the appointment. Once all the directors have approved the appointment of a new director, the company would need to acquire the information of the new director.
The information required for the appointment would be:
- The new company director’s name, as it appeasr on their passport
- The company director’s permanent address
- The signed director’s resolution
After these documents are collected and provided, the company secretary can process these documents and file the necessary changes to the Companies Registry. Adding a new shareholder is a straightforward process, and much less complex than removing a company director.
Changes to Articles of Association
Again, in Hong Kong, changing the company structure can also include any change in the company’s Articles of Association by special resolution. But there are limitations to this rule. A company that has issued many different classes of shares can change one class subjected to the articles of association only by the approval of 75% of the shareholders of that class.
This means that the member would have to agree in writing about the change in the articles of association that needs the person to increase his liability or subscribe/take more shares. This is to add to the company’s share capital or contrarily pay money to the organization.
A signed copy of every resolution varying a provision and every special resolution in the Articles of Association has to be filed with the Companies Registrar. Additionally, attach this to each copy of the business’s Articles of Association issued consequently for any other alterations. The Articles of Association needs to be reprinted after the amendment, and filed with the Companies Registry. Overall, in Hong Kong, changing the company structure is only applicable uptil this.
Making my company dormant
In case you opened a company and it is inactive or your work in that country has paused or finished, and you might need that business for future projects, it is a cost-effective idea to declare it in dormant status. If the company is dormant, it does not need to fulfill the yearly requirements of the Hong Kong companies. And this eventually saves both time and money.
Definition of Dormant Company
“Dormant” here means that the Hong Kong company, in legal terms, has “no significant accounting transactions” during a financial year and it is not the same as the “non-trading company.” Here, the “no significant accounting transactions” means that there are no entries in the company’s accounting records.
Also the fee that is paid for the shares when a company is formed, and the other costs of the company that might come up to keep a company registered with the Companies Registry, do not come in the records.
Reasons for applying for the Dormant Status
The reasons are many, but the main reason is to protect the name of the company so that it can be used in the future for other projects. It can also be to hold an asset or intellectual property. Moreover, a company can stay dormant for as long as necessary, even if you do not want the company name to be taken by someone else.
The main reason making a company dormant is to reduce the yearly costs of the company if there aren’t any accounting transactions.
The responsibilities are the same just like any normal company of renewals, meetings, etc. The only thing that you would not need to do if your company is in the dormant status is the filing of the annual returns, auditing and bookkeeping, reducing the need to fulfil the yearly requirements of the Hong Kong companies.
Application for Dormant Status
For making the company dormant, the directors would have to deliver a statutory declaration to the Companies Registrar for treating the company as dormant. And it would be eligible to apply only if the company has not had any “relevant accounting transaction,” since a specified date. The transactions here is spending or receiving payment by selling or purchasing liabilities, assets, service, and/or goods.
Moreover, the company would still need to pay the registration and other fees, as it does not fall under the accounting transactions. And if the company wishes to cease the status, the directors would have to deliver a further statutory declaration stating that the company intends to enter a relevant accounting transaction. In this case, all the yearly requirements of the Hong Kong companies would be applied again.
Continuing Obligations of Dormant Companies
A dormant company would still have to:
- Maintain one director, a company secretary, one shareholder, and a registered office
- Pay the annual Business Registration fee of HKD 2250 to the Government
- File an Annual Return within 42 days after the anniversary day
- Report any changes in its officers or registered office to the Registrar
If your company is dormant, but hasn’t been deemed as dormant by the Companies Ordinance, you would still have to fulfill the yearly requirements of the Hong Kong companies until it has been specified as dormant.
As soon as the directors of the company delivery the statutory declaration to the CR in Hong Kong, the company would be taken as dormant from that date or the specified date in the declaration.
Moreover, if you do not want the company anymore, you can arrange to get it de-registered. There are two ways in this case: if the company has affairs to wind up, the business can be put into “voluntary liquidation;” or if the business has no debts or other liabilities, the ‘voluntary striking-off and dissolution’ can be applied for without going through formal insolvency proceedings. You can learn more about this from the next guide.
Late filings and the consequences
Now that all is clear, and if you failed to pay the taxes or ignore the taxes due date any moment, you would be liable to pay the penalty and may even get prosecuted for non-filings. You might also be asked to pay more tax, as your grants and allowances wouldn’t be deducted.
Moreover, if you receive the tax assessment and the first installment has not been paid, the second installment would be made immediately due. Additionally, the complete balance of the total tax payable in the notice of the assessment that remains to be paid can be deemed to be immediately recovered.
Other than this, the commissioner of the IRD would initiate the recovery actions that includes the imposition of 5% surcharge on the complete balance, issue of the recovery notice to a third party and initiation of the legal action that might mean a court case.
Consequences of Filing late or Not Filing
As mentioned above, if the yearly requirements of the Hong Kong companies are not fulfilled by the due date, the fees would be doubled. The registration fee payable for the late delivery of an annual return is shared below.
In case the annual return is delivered:
- within 3 months but more than 42 days of the anniversary of incorporation: HKD 870
- within 6 months but more than 3 months of the anniversary of incorporation: HKD 1,740
- within 9 months but more than 6 months of the anniversary of incorporation: HKD 2,610
- more than 9 months after the anniversary of incorporation: HKD 3,480
Other than the annual return, the business registration is due for renewal around one month before it is expired where the fee is HKD 2,250 for one year. The late fine for this would be HKD 300. And further delays would result in extra fines and court proceedings. For the profits tax return, the late fine would be HKD 1,200, and further delay would result again in court proceedings along with the extra fines.
Opening a business is not easy, but running it and keeping it going needs as much efforts as opening it. You would have to take care of all the yearly requirements of the Hong Kong companies and make sure that they are fulfilled as per the rules of the government agencies: Inland Revenue Department (IRD) and the Companies Registry (CR). If you need any help with the processes, Startupr can also provide the assistance that you need or are looking for. All you need to do is connect with us at Startupr and we can assist you with maintaining your company and keeping it in proper order.