Hong Kong Company Incorporation Guide (4) – Qualification, Rights and Obligation of shareholders

1. Minimum and Maximum Numbers of Shareholders

In accordance with the Hong Kong “Companies Ordinance”, a private company limited by shares must have at least one shareholder and but could not have more than 50 shareholders (members). Employees and previous employees holding shares in the Company are not to be treated as shareholder. In addition, two or more persons hold shares in common is deemed as one shareholder.

2. Qualification of Shareholders

Both individual and corporation could be shareholder of a Hong Kong company. Also, the shareholders can be of any nationality and be resident anywhere in the world and meetings can take place anywhere. The Companies Ordinance requires that an individual must be over the age of 18 to hold shares in a Hong Kong company.

3. Disclosure

The name and occupation and residential address of the shareholders must be registered with the Companies Registry and entered the Register Members of a Hong Kong company and once registered, these become public information and is open for public inspection.

Anonymity can be achieved by the use of offshore company where a company registered in some other offshore jurisdictions will be holding shares in and acting as director of the Hong Kong incorporated company.

4. Rights of shareholders of a Hong Kong incorporated company

A. They are entitled to dividend payment of the company when profits are made.

B. If the company is closed (i.e. wound up), they are entitled to the surplus of assets of the company after all the debts incurred by the company have been paid off.

5. Obligations of shareholders

A. They subscribe to the shares of a company to ensure that the company can have a capital to run the business. As long as the shares are fully paid, that is the end of the shareholders obligation to the company. However, if the shares are only partly paid at the time it was subscribed, the shareholders would have the liability to pay the balance when the company calls the shareholders to pay, or when the company is wound up.

B. They may have personal liability. A company must have at least two shareholders. If a company carries on business without having at least two shareholders and does so for more than six months, a person who is a shareholder of the company and knows that it is carrying on business with only one member is liable to pay the debts of the company incurred from the expiry of that 6 months period. The liability is joint and several with the company.

6. Relationship between Shareholders and Directors

It is true that the general powers of managing a company are usually vested in the board of directors. The directors may exercise all powers of the company not required by the Company Ordinance or the articles to be exercised by the company in general meeting. If the directors act within the powers given to them by the Articles of Association. They are not bound to follow resolutions passed by the shareholders in general meeting.

However, the shareholders can control the exercise of the powers vested by the articles in the directors by alteration of articles, removal of directors, or refusing to re-elect the directors concerned. For certain events, the approval of the shareholders in general meeting is required:

 Alteration of the company’s memorandum and articles of association
 Alteration of the company’s capital, e.g. increase or reduce the company’s capital
 Appointment and removal of the auditors
 Removal of directors
 Payment to directors for loss of office and retirement
 Winding up

The approval will be given in the form of a resolution at the shareholders general meeting (Annual General Meeting or Extraordinary General Meeting). There are three kinds of resolutions:

Ordinary resolution – the proposed resolution is accepted by a simple majority (i.e. more than 50%) of those members present and entitled to vote at the general meeting. A period of not less than 14 days’ notice has to be given to each member before the meeting. For example, an ordinary resolution is required for the increase of capital of the company.

Special resolution – the proposed resolution is accepted by not less than 75% of those members present and entitled to vote at the general meeting. A period of not less than 21 days’ notice has to be given to each member before the meeting. For example, a special resolution is required for alteration of the company’s Memorandum and Articles of Association.

Written resolution – the proposed resolution is approved and signed by all the members of the company. Such a written resolution will be regarded as a resolution duly passed at a general meeting and, where appropriate, as a special resolution.