Need To Know Regulations Of Share Capital When To Create A Company In Hong Kong

Share capital refers to the funds of the HK company formation that comes from issuing shares in return for cash or other considerations. There are different regulations of share capital mentioned in New Companies Ordinance under the Department of Justice of Hong Kong. As an investor you need to know more rules before you want to create a HK company formation.

Let’s have a deeper look at some of the regulations of share capital with regards to a HK company formation.

Nature of Shares

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Share of a member in the company is its personal property and can be transfer according to company’s policies. Every share in a company must be distinguished by a specific number, except if all share in the company or shares of a particular class are paid completely and rank equally in all circumstances. If the terms of new shares issued by the company are such that within a short period not more than 1 year, their rank will be equal to all other existing shares in every circumstance and fully paid, than neither the new shares nor the existing ones are required to have a distinguished number, but share certificates of new shares must be appropriately worded. This share certificate can be used as a proof of share for a member of the company in the absence of contrary evidence. Different regulations have been issued regarding issuing stocks and share warrants. According to regulations, companies can neither convert its share into stocks nor issue a share warrant. But before the initiation of this section, the bearer of share warrant is entitled, and on surrendering it for cancellation, the company is responsible to enter the bearer name in the register of members of the company along with the date. Special measures should be taken that no name entered in register without share warrant surrendered and cancelled, otherwise the company will be responsible for any loss suffered by the person. Depending on the company’s article, the bearer of share warrant can be regarded as a member of a company to full extent or for some purpose, all depends on company’s article.

Allotment and Issue of Shares

Different regulations have been issued regarding allotment and issue of share. According to regulations, directors of a company cannot exercise any power to allot shares or grant rights but only under some circumstances or conditions the regulation can be violated. If an offer or bonus is given to the member of the company in proportion to their shareholdings, shares and rights can be allotted to them, but the offer should not be made to a member whose address is in area where the offer is not permitted under the law of that place. The founder member of a company can be allotted with shares once signing the company’s article. If directors allot shares or rights at conditions not mentioned in above points, then it’s an offence and the director is liable to a fine at level 5 and imprisonment for 6 months. Above conditions does not affects the validity of allotment and other transaction.

Companies can give approval to let the directors have the power to allot shares or grant rights and that approval can be varied by resolution of the company. Company can also give approval of particular exercise of power under certain conditions or may be unconditional. Directors can still allot shares or grant rights even after the expiration of approval if they had made any offer or agreement with the company before approval expire.

Return of allotment:

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A return of the allotment must be delivered by a limited company to the Registrar within one month after allotment of shares. Failure of delivering to the registrar results in an offence and the company along with every responsible person will be liable to a fine of level 4, and continuing offence results in a fine of $700 per day. Following are some conditions to be fulfilled while delivering to the registrar:

  • Statement of Capital.
  • Number of shares allotted.
  • Name and address of each allot.
  • Amount of increase in share capital (if any).
  • Return must be in specific form.

If a company fails to deliver above material within one month of the allotment then upon application of company Court can extend the time to deliver only if the company shows that the delay was accidental or due to inadvertence.
If shares are allotted for cash consideration whether totally or partly or non-cash consideration then:

  • Mention the amount paid or un-paid (if any) on each share.
  • Attach particulars of the contract for sale, services or other consideration in respect to which the shares were allotted in case of non-cash consideration.

If allotted shares are credited as fully paid with or without capitalization then:

  • Mention the amount paid on each share.
  • Attach particulars of the resolution authorizing the capitalization.

It’s the responsibility of the company to deliver the certificates of all the allotted shares within a period of 2 months. Failure to deliver the share certificates result in commit of offence and the company including responsible people will be fined at level 4 and continue offence can result in $700 fine on daily basis. The regulations have also given the authority to the shareholder to send a notice to the company to deliver the certificates within 10 days’ notice, only if they fail to deliver certificates within 2 months. If the company still fails to deliver, the person can apply to Court for an order. The Court may make an order to direct the company to deliver the certificates within specific time limit mentioned in order and all the cost of application to be borne by the company or responsible officers.

The company, creditor of company or holder of share can contact Court for the validation of any issue or allotment. Issue or allotment can be invalid for any reason or the terms of allotment are not authorized by the ordinance or company’s article. Once the copy of order from the Court is delivered to the registrar, the order has effect from the time of the purported issue or allotment.