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Change of company shareholders

For a corporation in Hong Kong, you can easily change the company shareholder or transfer them as well.

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The shares of a company is the equity of the company, and it also represents the ownership of a business. For a corporation in Hong Kong, you can easily change the company shareholder or transfer them as well. But it is not so simple to just pass it on to a new shareholder. There are a lot of things that have to be kept in mind while transferring shares or if you want to change the company shareholders in Hong Kong.

Introduction

As per the Hong Kong Companies Ordinance obligations, all Hong Kong private limited companies have provisions in their articles regarding the transfer of its shares. However in the Companies Ordinance, there are no particular constraints on share transfers, thus the most common ways to change the Company Shareholders are as follows:

  • Each and every transfer of the share has to be pre-approved by the Board.
  • The shares have to be offered to the existing shareholders at first with the provision of rights.

The process to Change the Company Shareholders in Hong Kong or transfer the shares is:

  1. Ensure that the preconditions for rights are satisfied or waived.
  2. Prepare the Share Transfer Form for it to be signed by both the seller (transferor) and the buyer (transferee).
  3. Give the Shares Transfer Form and the underlying share(s) to the company, and;
  4. Wait for the Board of Directors approval on the share transfer.
  5. Prepare the Sale Agreement and the Share Transfer Form for stamping.
  6. Upon the transfer, the shares that have been stamped and the buyer’s particulars have to be confirmed for registration into the Company Registers. This is the official proof for the transfer of the company’s shares.

Change of company shareholders – Transfer existing shares

This when the shares are already there in the company and you want to transfer it to a person who is already associated with the business or is already a shareholder. The following lets us know about the process:

  • At first, the transfer has to be according to the articles of association. This means that for the Change of the Company Shareholders, it has to be approved by the other shareholders.
  • After the approval has been obtained, the documents are prepared for the transfer to take place. And these documents are: contract notes (bought and sold note), instrument of transfer, resolutions, sale & purchase agreement, or management account etc.
  • The company would also have to give the latest audit report of the company if they have conducted business in the past. In case the audit report have not been prepared within 6 months before the date of transfer, a certified management account (within 3 months) of the company is required.
  • After these have been collected, the contract notes or instrument of transfer need to be stamped by the government and a fee has to be paid. This is called the stamp duty.
  • This stamp duty payable would be imposed based on the Total Net Asset Value of your company OR the Consideration, whichever is higher.
  • As soon as all the documents have been collected, they have to be sent to the Stamp Office. The process of the change of Company Shareholders in Hong Kong is completed after the documents have been stamped.

Another way to change the company shareholders – Issue new shares

Issuing new shares in a Hong Kong company includes the allotment by the directors of the shares to the 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 distributions of shares, other than allotments compatible with offers to existing shareholders proportionately to their existing holdings, can be done with the approval of the shareholders before this in a general meeting. This authorization might be given either concerning a specific allotment or allotments in generally.

A return of the allotment of the shares, disclosing the shareholders and the members need to be filed with the Companies Registry within one month of the date of the assignment. And if the time is not met, there are chances that the Registrar would refuse to approve the return of the allotments for the filing of the Change of the Company Shareholders in Hong Kong. An application would have to be made to the court for the leave to file the return after the time has passed.

A share can be owned beneficially by someone else other than the holder who is registered. Moreover, for a private company, it is not necessary for others companies or any other authority to know or even for it to be a public record about the beneficial owner. However, a subsidiary company is obligated to state in its accounts the name of its ultimate holding company.

Documents required for processing

For preparing the documents or for Startupr to prepare the documents to change the Company Shareholders in Hong Kong for your business, the following documents and information have to be given:

  1. Original of the latest audit report within 6 months (and/or certified latest management accounts within 3 months, if business has started)
  2. A copy of the passport or identity card and residential address of the new shareholder (transferee).
  3. Name of the seller (Transferor).
  4. The amount of shares to be transferred.
  5. Land property information (if any).
  6. Sale & Purchase Agreement (if any).
  7. Subsidiary’s audit report and/or certified latest management accounts (if any).
  8. Resolution of distribution of dividend (if any).
  9. A copy of Articles of Association of the company.

Time Frame for Processing a Share Transfer

The transfer of shares or for the process to change the Company Shareholders in Hong Kong, it takes about 3 to 5 working days to get completed, depending on your schedule. The process works like this:

  1. You would give the documents and the information that is needed for the transfer as per your schedule.
  2. It takes us (Startupr) about one day to prepare the Bought and Sold Note, and the Instrument of Transfer along with the other documents.
  3. Then the transferor and transferee are arranged to sign the transfer documents which is again as per your schedule.
  4. All the original transfer documents together with the supporting documents are collected, then will be submitted to the Stamp Office for assessment. Along with this, you would have to provide stamp duty payable as well, which is also given to the Stamp Office.
  5. The new share certificates are prepared and they are updated with the Register of Members, while the rest of the document set is delivered to the you.

In any case that you or both the transferor and transferee could come to Hong Kong and sign the share transfer documents, everything can be done in 1 or 2 working days. There is a special expedite service provided by Startupr for some cases, and any additional expedite service fees will be applied.

Companies ordinance – time limit

There is a time limit to when you can pay for the stamp duty and get the stamp for the change of Company Shareholders in Hong Kong. If this is processed late, there are penalties to it. The timings for this is:

  • Contract Note for sale or purchase of any Hong Kong stock – payment has to be made in 2 days after the sale or purchase if effected in Hong Kong.
  • Contract Note for sale or purchase of any Hong Kong stock – payment has to be made within 30 days after the sale or purchase if effected elsewhere.
  • Transfer operating as a voluntary disposition inter vivos (i.e., gift) – payment has to be made 7 days after execution, if in Hong Kong.
  • Transfer operating as a voluntary disposition inter vivos (i.e., gift) – payment has to be made 30 days after execution if executed outside Hong Kong.
  • Transfer of any other kind of documents related to the change of Company Shareholders in Hong Kong – payment made before execution.
  • Transfer of any other kind of documents related to the change of Company Shareholders in Hong Kong – payment made 30 days after execution if executed outside Hong Kong.

Late stamping is subjected to penalty payment as mentioned below:

  • Stamping delay not exceeding one month – Penalty is two (2) times the amount of stamp duty.
  • Stamping delay exceeding one month but not exceeding two months – Penalty is four (4) times the amount of stamp duty.
  • Stamping delay in any other case – Penalty is ten (10) times the amount of stamp duty.

In case there is a request for the remission of the late penalty, it has to be made in writing with complete explanations of the delay with enough supporting evidence. And if everything seems right to the collector, the person might remit entirely or partly the penalty payable depending on the individual circumstances.

Commencement of business vs no commencement of business

If the Hong Kong company is a new one and wants to change the company shareholder in Hong Kong, two situations can arise here. One is where the company has commenced business since it started and the other situation can be where the company has not yet commenced the business.

If the company has commenced business, the following documents would be needed:

  • Latest audit report of the company and its subsidiary.
  • Certified management accounts of the company and its subsidiary. This has to be from the last date of the latest audit report made up to a date within 3 months prior to the date of transfer. This happens only if the audited accounts are not up to a date within 6 months before the date of this transaction.
  • A copy of the resolution of meetings of directors for dividends paid or that is payable if any. This is after the end date of the latest audited accounts and also has to specify the date on which the members of the company were entitled to the dividend.
  • A copy of the Return of Allotments for an increase of the share capital, if any, after the end date of the latest audited accounts.
  • Any other information and documents, where necessary, in individual cases.

On the other hand, if the company has not commenced any business as of yet and has no audit report prepared since it has been recently incorporated, a written confirmation along with a supported copy of the certificate of incorporation of the business is needed.

As per our experience, a number of government agents of the IRD would request the director to sign a declaration that would be given to the IRD stating that the company has never conducted any business and does not have any subsidiaries or assets. Nevertheless, if the IRD ultimately finds that the director deliberately made a false report by declaring this, the business would be criminally liable for it.

Hence, it is better to have an experienced agency who would take care of your needs just like Startupr does. We can advise you on the specifics for the transfer of share documents needed, and how to report the accounting and financial statements in proper due diligence to the government.

Stamp Duty Fee

As seen above, there is a stamp duty that is needed on each Instrument of Transfer that costs about HKD 5. On the other hand, the Sale Agreement, you would have to pay compensation or the sales of shares that is at the rate of 0.2% over the net asset value, depending on whichever is higher.

For calculating the net asset value of the transfer shares, you would have to submit the documents mentioned above to the IRD assessor for the process to change the Company Shareholders in Hong Kong.

After the documents are collected, the amount of the stamp duty is calculated as:

[Amount of Consideration (or net assets of the subject company x % of interest to be transferred) x 0.1%] x 2 + HKD5

Let us take for instance, in case a business has a net asset of HKD 10,000, and half of total shares will be transferred. Then the amount of stamp duty payable would be:

(HKD10,000 x 50% x 0.1%) x 2 + HKD5 = HKD15

Conclusion

In case you are not sure on how to go about it, Startupr can always help you out just like it did for the incorporation process. Even though we have outlined the transfer of shares process, there can be mishaps with documentation along the way, which may delay or fail the application with the government. The professionals at Startupr would assist you at every step so that you find the processes easy and the process is completed on time without any hassle.

Order – Change of company shareholders

Fee (Issue new share to existing or new shareholders) – NSC1, Increase of Shares (Allotment) USD 150, Resolution of Director(s)/Shareholder(s) USD 55

Shareholder Agreement and Deed of Adherence Template

The shareholder agreement template sets out the terms of how corporate shareholders will interact with each other and what happens if one or more want to get out of the business, or something happens that forces exit of a shareholder or shutdown of the company.

A Deed of Adherence is a document by which a person/entity becomes a party to an existing Shareholders’ Agreement.

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