Hong Kong Companies Ordinance For New Business Owners

If you're starting a new business in Hong Kong, it's crucial to understand the Companies Ordinance. This key piece of legislation governs the establishment and operation of companies in the region.

So, let's dive in and demystify the Companies Ordinance for you.

Why Is the Companies Ordinance so Important?

The Companies Ordinance in Hong Kong plays a pivotal role in enhancing to enhance corporate governance, ensuring better regulation, and fostering a conducive business environment. It's like the backbone of the legal framework for companies in this jurisdiction, keeping Hong Kong competitive on the global stage.

This legislation is part of what makes Hong Kong such an attractive place for entrepreneurs. It's a testament to Hong Kong's commitment to maintaining its status as a premier international business and financial hub.

Who Needs To Follow the Ordinance?

Every company incorporated in Hong Kong, including foreign companies registered here, must adhere to the Companies Ordinance. This includes newly established businesses like yours.

But don't worry if this seems daunting. Incorporating a company can be a complex process, but you're not alone. Spare yourself the headache – with our company secretary services in Hong Kong, our experts can help you with any incorporation and compliance matters, and our accountants are ready to lend a hand when you need it.

What Is the Difference Between the Old and New Companies Ordinance?

The Companies Ordinance in Hong Kong has evolved significantly over the years. The latest version, effective from 3 March 2014, introduced more flexibility for companies in providing statements. It allows more kinds of non-public companies to opt out of full reporting and prepare simplified financial statements instead.

Key changes include:

1. The deregistration process
2. Financial statement reporting
3. The company restoration process
4. The capital reduction procedure
5. The conduct of general meetings of company members
6. New rules for proposing, passing, and recording written resolutions
7. Companies can no longer have a corporate body as a sole director

For a complete list of changes introduced by the new Companies Ordinance, click here.

Cap. 32 (the Old Ordinance)

Before 3 March 2014, Hong Kong companies were governed by the old Companies Ordinance, Cap. 32. This legislation had been around since 1933, and despite numerous amendments, it had become somewhat of a relic — complex, outdated, and a bit of a hurdle for companies wanting to do business in Hong Kong.

That's when the new Companies Ordinance (Cap. 622) stepped onto the stage, aiming to streamline the legal framework and make it easier and more cost-effective for companies to operate in Hong Kong.

Cap. 622 (the New Ordinance)

Enter Cap. 622, or the new Companies Ordinance. This legislation, which came into effect on 3 March 2014, replaced the old HK Companies Ordinance and set out to achieve four major initiatives: enhance corporate governance, modernise the law, facilitate business, and ensure better regulation.

Check out the outline of the new HK Companies Ordinance here.

What You Need To Know Under the Companies Ordinance

As a new business owner, there's more to setting up shop in Hong Kong than just the company incorporation process. So, let's go over some key points under the Companies Ordinance.

1. Registered Office Address

Your company needs a registered office address in Hong Kong, which is where all official communications will be sent. This is something you'll decide during the incorporation process.

2. Corporate Director

Your company must have at least one director who's a natural person. That means a corporate body can't be your sole director — a change from the old Ordinance.

Find out more about directors’ duties in Hong Kong.

3. Share Capital

Your company's share capital is calculated by multiplying the share price by the number of issued shares. Thanks to the new Ordinance, shares don't have a par value, giving companies more flexibility when determining share prices.

Share Capital = Share Price x Total Issued Shares

4. Meeting of Members

Under the old Ordinance, any member's meeting that wasn't an Annual General Meeting (AGM) was called an Extraordinary General Meeting. But with the new Ordinance, these are now simply General Meetings, and they can be held at multiple locations or even via video call — but you still need to give a notice period for a meeting of 21 days.

5. Shadow Director

A shadow director is someone who operates under the directions or instructions of the company's directors. Under the new Ordinance, penalties applicable to actual directors can also be applied to shadow directors in some cases.

6. The Financial Year of a Company

Your company's financial year starts on the date of incorporation and ends on a date decided by the directors. If no date is chosen, it defaults to the last day of the month of your company’s first anniversary of incorporation.

If you want to learn more about choosing a financial year-end for your company, click here.

A key change with the new Companies Ordinance is that it allows more non-public companies to opt out of full financial statements and directors’ reports by fulfilling size criteria and/or by getting unanimous members' consent.

7. Directors’ Reports

These reports, which are required unless your company is exempt, provide information about the company that isn't included in the financial statements — like principal activities of the company, directors’ service contract, directors’ right to acquire shares in the company.

8. Primary Accounting Reference Period (PARD)

The PARD is a term used in the Hong Kong Companies Ordinance — it’s the period for which a company must prepare its financial statements.

Your company gets to call the shots on the length of the financial year, which can be any duration up to 18 months, but the PARD is fixed and can't be changed by your company. It starts on the date of incorporation and ends at the close of the first financial year.

What Are Reporting Exemptions?

The new Companies Ordinance is like a breath of fresh air, making reporting less of a headache for private or eligible guarantee companies. It's relaxed the rules, allowing you to prepare simplified financial and directors’ reports.

Here's what it means if you're eligible for these exemptions:

• You can ditch assets or liabilities at fair value or deferred tax from your report.
• Say goodbye to the statement of cash flows.
• No need to disclose the auditor’s pay packet in your financial statement.
• Your auditor doesn't have to give a 'true and fair view' in the financial statement.
• You can opt to leave out subsidiary undertakings.
• No requirement to disclose directors' significant material interests in the financial statement.
• You can skip the business review, charity donations, reasons for a director's departure or not seeking re-election, and material interests of directors in significant transactions or arrangements.

What Is the Auditor’s Role With the New Companies Ordinance?

Let's not forget the auditor's role. Regardless of the reporting exemptions, every company needs their financial statements audited. That means you need to appoint an auditor for each financial year. If your auditor resigns, it's crucial to inform the company's members, beneficiaries, and the Company Registry.

The departing auditor should send a resignation notice and a statement of circumstances to your registered company address. This statement should spill the beans on any issues that led to their resignation. Once you get this notice, you've got 15 days to submit a specific form to the Companies Registry.

In the new Companies Ordinance, this statement of circumstances has been extended to cover removal of auditors from office and retirement of auditors, not just resignations. So, it's not just about the who, but also about the why and how!

Hong Kong Companies Act

Think of the Hong Kong Companies Ordinance as the rulebook for businesses in Hong Kong. It sets the do's and don'ts for how companies can operate in Hong Kong.

Here’s the Companies Ordinance for you to read at your leisure.