A shareholder may or may not be from Hong Kong. It may be an individual, or possibly a legal entity, such as a liquidator, individual owner or a company. Given the different ways to sell shares in your company, it can be difficult to determine the type of structure you want for your shares. Between one and fifty individuals are allowed to be shareholders in a company in Hong Kong, if it is a limited liability company. In addition, the minimum number of directors required is one, with no cap.
What is Hong Kong share ownership?
Investors who buy shares are granted a certain degree of control over the company they have invested in. This power is proportional to their level of investment, which means that the larger their stake in the company, the larger their shareholding. In other words, everyone who bought shares jointly owns the company.
In return for their investment in a company, shareholders receive certain privileges that may vary depending on the percentage of shares they own.
- If a person owns a majority stake in a company (50%), he or she has the power to make critical decisions, such as appointing members to the board of directors;
- If a person owns about three-quarters of the shares (75%), he or she can change the name of the company, buy more shares from other investors, reduce the share capital or close the company;
- If a person owns all the shares (100%), he/she is considered the sole shareholder, which gives him/her absolute power according to the company’s rules.
The procedure for becoming a shareholder is to draw up a paper contract that describes the privileges applicable to this particular type of shares, which are then included in the articles of incorporation of the organization. It is useful to know the disparity between each type of share so that shareholders can make an informed decision.
The procedure in detail
The company’s directors offer shares to potential buyers. The exact number of shares is distributed to the investors upon their registration in the company’s share register. A further distribution of shares must take place at a general meeting with unanimous consent. Shareholders can give their consent for a specific share or in general. Once the shares have been allotted, the NSC1 must be completed within 30 days to obtain confirmation of the allotment of the shares from the Registrar of Companies. This involves disclosing the identity of the shareholders and the amount of shares they own. The form can be completed for grants made on a single day or over a period of time.
Main types of shares issued by the company in Hong Kong
- Preference shares: Another type of share is the preference share, which gives its holders preferential rights over ordinary shareholders. This may include priority in the payment of dividends and liquidation proceeds. These shares have more power over dividends and liquidation distributions than ordinary shares. The number of dividends allocated to a shareholder is proportional to the value of the shares. The same is true for voting preferences, where only preferential votes can be valued in certain cases;
- Convertible securities: In certain circumstances, a company may issue convertible securities, such as convertible bonds or convertible preferred stock. As the name implies, these are securities that can be converted into common stock at a later date;
- Rights Stock: In some cases, a company may also issue rights stock that gives current shareholders the power to purchase additional shares of the company at a reduced cost;
- Non-voting shares: These have almost all the rights of common shares, except that they do not have voting rights;
- Deferred shares: They carry only a set number of rights to distributions and dividends. Deferred shares are a type of non-voting share and rank behind preferred and common shares.
What are the obligations for shareholders?
A shareholder must disclose their name to be listed in the company’s register and provide personal information such as their address or telephone number.
When the company starts earning money, they are entitled to their dividends. In the event of dissolution, shareholders are entitled to a portion of the remaining resources (if any) after all debts have been paid.
The rights of the shareholders of a Hong Kong company
Certain types of rights are included in the articles of association. Here are some of the rights added in the articles of association:
- Shareholders have the right to receive a specified portion of dividends when profits are available;
- When the corporation is liquidated, shareholders receive surplus assets after debts are paid;
- Some shares allow voting only at meetings. In general, each share has one vote, but some shares have no votes or have more than one vote in exceptional circumstances;
- Shareholders have the right to appoint a proxy;
- They also have the right to make decisions to appoint the company’s management personnel;
- They receive a share of the liquidation once the debt is repaid;
- They can request the audited accounts as well as the director’s report and the audited report of the company.
Merritt Asia has been present in HK since 1998 when we registered our first company. We can assist you in setting up your company, keeping your accounts or opening your bank account. If you would like to know more about company formation and shareholding in Hong Kong, please contact us at email@example.com.