The contribution and involvement of shareholders are crucial in not just the incorporation but also the successful operation of a business. Shareholders are one of the deciding authorities of company management. If a shareholder wishes to transfer his shares or the company decides to transfer a share among the existing shareholders, there is a checklist of items to be followed. If you are a shareholder wondering how the transfer of shares in Hong Kong companies works, what the documents to be submitted for share transfer in Hong Kong are, or the timelines for payments and details regarding stamp duty share transfer in Hong Kong, this article is a must-read.
Transfer of shares in Hong Kong Companies
Shareholders hunt for options to transfer ownership of shares for varied reasons. Sometimes the company may decide to transfer shares from one to another, depending on the fluctuations in profits or ownership. When such a share transfer in HK takes place, the company and the buyer of shares must ensure that all the legal conditions and restrictions mentioned in the Companies Ordinance are met. You can find these guidelines in the Articles of Association.
Understand the transfer of shares
Transfer of shares in HK Companies happens when a shareholder wishes to sell his shares in a company (usually referred to as a transferor), to another shareholder or entity (referred to as the transferee) either as a result of individual concerns or under the influence of the company. A thorough understanding of the limitations/restrictions in the AoA is required before getting into the transfer of shares procedure.
The company must also pass a resolution regarding the share transfer through a meeting and get approval from all the other shareholders of the company. The share transfer can take place between one shareholder and another or one shareholder to a third party. The members involved in the share transfer in HK must be wary of the pre-emptive rights of all shareholders, liabilities, and finances of the company in consideration.
Why transfer shares in an HK company?
A shareholder or company may transfer ownership of shares in one or many of the following cases.
- A company may wish to raise more capital
- The company may be undergoing a restructuring process
- The company plans to remove a shareholder
- Changes in profit generation or ownership is likely to happen
- A company may cease to exist
- One of the shareholders leaves the company or dies
- There may be plans to sell the company
- The share may be gifted to another person like a spouse or legal relative
- The company goes through a period of bankruptcy and wants to sell shares in return for cash
- The company wishes to add a new partner to the business
Limitations of share transfer in HK companies
The Companies Ordinance directs the transfer of shares procedures with certain limitations. The regulations should be studied and promptly followed to avoid penalties. For example, according to section 47, when a share is sold, the concerned company cannot provide any assistance. If such a situation arises, the company should take up a solvency test to qualify to offer help. Even if the solvency test is positive, the company can offer not more than 5% of the amount in the shareholder’s fund.
Another member with at least 5% voting rights and is a representative body of the organization, can seek help to cease the financial assistance. In some cases, the company directors may want to refuse the share transfer in HK. Then, the company, according to section 151 of the Companies Ordinance, should notify the transferor and the transferee in two months. If the transferee needs a reason for the refusal, he can request a statement of reasons in the next 28 days. Failing to produce these details on time may cause the companies and all their members to pay penalties of up to HKD25,000 and HKD700 as a fine per day.
How to transfer shares in Hong Kong companies?
You can transfer shares in HK companies by maintaining accurate reports and financial records and adhering to the legal requirements of share transfer in HK. Firstly, you must be vigilant of conforming to the restrictions and limitations in the AoA. You must then file appropriate documentation for share transfer. These documents include the accounts, resolutions, agreements, and liabilities. After the HK government reviews and approves the files, you will receive the share certificate.
It can be exhausting to get all the audits and reports in order. Seeking the assistance of a professional service provider can help lessen the burden of share transfer.
Required document to transfer shares in Hong Kong
The most imperative part when you transfer ownership of shares is to file the essential documents meticulously. These documents should be submitted to the Inland Revenue Department (IRD). The following are the prerequisites to share transfers in a company.
- A letter seeking approval to transfer shares
- The most recent audit report (of the last 6 months)
- In the occasion of a missing audit report, you can produce a management account (of the last 3 months)
- The identity proofs of the new shareholder (residential address, ID cards, passport)
- The name of the transferor
- The count of shares
- Share certificate
- Company resolution (containing the data regarding dividend distribution)
- The details of land property
- The Sales and Purchase Agreement (Equity Transfer Agreement)
- The audit reports of the company branches or certified management accounts
- The Articles of Association
- Sold and Bought notes
- Consent forms of all the shareholders in the company
- Stamp duty
- Share transfer fees
Time frame for processing a share transfer in Hong Kong
Depending on the prompt availability of required documents and approval, the entire process of share transfer will take only 3 to 5 business days. You have to collect vital information concerning all the accounts, documentation, and agreements. Then draft the Sold and Bought notes to ensure the standard transfer of shares procedure. This is followed by the transferor and transferee signing the files. The procedures for fulfilling the stamp duty are done, and all the records are updated for the approval of the Companies Registry.
After the approval, you must notify the CR about the details of all the directors, members, shareholders, and the number of shares in a month. If this rule is violated or the notification is delayed, the CR has the power to reject the approval. If you still wish to proceed further, you can only do it with the help of the court.
Transfer of shares procedure in Hong Kong
As stated by the Companies Ordinance (section 11), there are three main restrictions found in the Articles of Association. The transfer of shares in HK companies needs the approval of all the directors of the company. The directors’ refusal is a major concern in the share transfer. The pre-emptive rights discussed in the AoA demand that the existing shareholders should be approached first for the share transfer. There are three main steps involved in the transfer of shares procedure. Read on to know what they are.
Step 1: Pre-transfer
The foremost process of transferring shares is to ensure that all the provisions concerning the share transfer in HK are fulfilled. You must make certain that all the relevant forms and agreements of the share transfer are drafted and ready to be produced. The official proofs of share transfer are crucial in the process.
- Sign advance notice and sale agreements- The agreement between the transferor and transferee, must contain information about the names of the parties involved, the number of shares, the price of every share, the date of the transfer, and the signature of both parties. The transferor must send all the information to the shareholders of the company to proceed with the pricing and stamp duty procedures.
- Let the shareholders know about preemptive rights– the transfer of shares in HK companies must first be discussed with the existing shareholders. The shareholders of the company shall decide if they want to purchase the shares. Only upon their refusal can a share be purchased by a third party. You must ensure that all the members concerned are aware of such preemptive rights before you wish to transfer ownership of shares.
- Get shareholders’ consent– it is important to get written consent from every shareholder. This can be decided by raising a resolution in a general or annual meeting. Without the consent of every shareholder, you cannot go forward with the transfer of shares procedure.
Step 2: Application
The application for the transfer of shares in HK companies must be submitted to the Companies Registry. After receiving the approval, you will receive a share transfer form. You must ensure the documents are signed by both the transferor and transferee before they are sent for the verification of ownership of shares. Once the approval is done, you will receive the share certificate.
Step 3: Post-transfer
The changes after the share certificate are issued must immediately be reported to the Companies Registry. The directors will also update all the company members regarding the transfer of shares within 2 months.
Tax implication on the transfer of shares in Hong Kong
There are a few taxes levied during the share transfer in HK. Capital gains tax is incurred when a certain amount of profit is generated from selling the shares. Stamp duty is an allowance levied on sales documents when a stock is purchased or sold. Withholding Tax is an amount withheld from the payments of company owners or people earning an income using Hong Kong resources.
Stamp duty tax is the most common type of tax levied during share transfers. Read on to know more about it.
What are stamp duty and fees?
The Stamp Duty ordinance defines stamp duty as a tax incurred during the sale or purchase of a stock. The rate of stamp duty applied to the transferor and transferee is 0.1% each. So, the standard fee of HKD 5 along with 0.2% of the considered sale price or net value is collected during the stamp duty share transfer in Hong Kong. If the purchase or sale applies to a criterion outside of Hong Kong, the payment must be made in 30 days. Similarly, if inside Hong Kong, you will be required to pay on the same day. There is no need to pay stamp duty for public companies. Accurate filing of audit reports and management accounts to compute the net value of a company to decide how much Stamp Duty can be levied.
Penalties for late stamp duty
Stamp duty must be paid within 14 days of the share transfer. If the payment is delayed but resolved within a month or less, you must pay double the stamp duty as a penalty. If the payment date extends to 2 months, four times, the stamp duty payment will be incurred. In other scenarios, 10 times the said stamp duty will be extracted. To help save time and effort, it is recommended to have updated audit reports and account management handy.
How can Startupr help with the share transfer procedure in Hong Kong?
Startupr ensures all your company documentation and share details comply with the laws of share transfer in HK. You will never have to wonder what your stamp duty fee is going to be or get worked up in your mind about the deadlines because we have a qualified team of experts to guide you through incorporation to share transfer procedures with precision and accuracy. You can leverage our Eqvista tool for issuing shares online. It is less time-consuming, easy to use, and accurate. Count on Startupr to never miss a deadline. Not sure how to begin? Set up a free consultation call with us and get your queries resolved.