There must be at least one shareholder in every Hong Kong company, whether an individual or a corporation. The rights and duties of these shareholders are set out in the Companies Ordinance (Cap. 32) and the common law.
Among the rights, shareholders are entitled to vote on company matters, receive dividends, and inspect the company’s books. Additionally, they must act in the company’s best interests and disclose any material interests they may have in transactions the company has entered into.
Therefore, shareholders need to know their rights and responsibilities to protect themselves from contract breaches. Be sure to seek legal advice if you are or plan to become a shareholder in a Hong Kong company.
What is a shareholder?
A shareholder is an individual or organization that owns at least one share of the company’s capital and is typically entitled to voting rights and dividends.
In Hong Kong, shareholders have to meet certain requirements to hold the company’s shares. For example, they must be residents of Hong Kong or possess a valid Hong Kong work visa.
As the company prospers and makes money, the shareholders can get more profits through dividend distributions. However, as soon as the company takes a hit, the share price drops, and shareholders can lose money.
Paying dividends is an efficient way to return capital to shareholders without selling company assets, but there are details to consider.
Learn more about how dividend payments work in Hong Kong.
What are the roles of a shareholder?
It varies from company to company what a shareholder’s responsibilities are. More often than not, they decide how the company is run and can cast their votes on important decisions, such as the election of directors and the appointment of auditors.
The common roles of shareholders in Hong Kong are briefly summarized below:
Elect the board of directors
Shareholders are responsible for electing the board of directors, who oversee the company’s management. Directors’ salaries and scope of power are also determined by these shareholders.
Cast a vote in general meetings
If the company puts forward a resolution at the general meeting, the shareholders can take part in the voting process.
Approve major decisions
Shareholders may be asked to vote on major business matters, such as the sale or merger of a company, a director’s removal, or a change in the enterprise’s name.
Monitor and examine the company’s financial statements
This role includes ensuring that the statements are accurate and reflect the company’s financial position accurately. Shareholders can do this by directly reviewing the financial statements, or they could hire an accountant or auditor.
Avoid costly mistakes regarding financial statements
A financial statement is a report card that demonstrates the financial performance of your company. Take into account the requirements of Hong Kong financial statements to avoid unfavorable penalties.
What are the shareholder rights?
As owners of the company, they are granted particular rights and protections under the law. For instance, they can approve or reject certain transactions, such as a merger or acquisition.
Shareholders are capable of bringing a derivative action if they believe that the company has been harmed. In addition, they can also request to obtain confidential information or documents (e.g. audited financial statements), as well as attend general meetings to cast their votes.
Other rights for Hong Kong shareholders include:
- Buying new shares from the company, depending on the procedure
- Getting part of the share capital once the company is dissolved
- Receiving dividends and other benefits from the company
- Submitting a petition in court if the rights have been violated
- Suing the company for a wrongful act
What is an annual general meeting?
As its name suggests, the annual general meeting (AGM) is a yearly meeting of the shareholders or members of a company, usually at the end of a company’s accounting reference period. This is where important decisions are made about the company’s future.
Read more on the requirements of an annual general meeting in Hong Kong.
How do you issue shares to shareholders in Hong Kong?
The procedure for issuing shares in a Hong Kong company is relatively simple. The company will prepare a prospectus, a document that provides information on the company and the proposed share issuance.
The prospectus must then be approved by the Securities and Futures Commission (SFC), the Hong Kong government agency that regulates the securities market.
Once the document is approved, the company will file a Form F with the SFC to notify them of the proposed share issuance. The SFC will then publish a notice in the Hong Kong Gazette announcing the proposed share issuance.
Shareholders have a period of at least 20 days to object to the decision. If no objections are received, the company can proceed with the agreed share issuance.
The company will then execute a Share Issuance Contract with shareholders who have agreed to purchase shares of the company. The Share Issuance Contract sets out the price at which the shares will be sold, the number of shares issued, along with rights and obligations of the company and the shareholders.
The company will then register new shares with the Hong Kong Companies Registry. Once the shares are registered, they will be tradable on the Hong Kong stock exchange.
At this point, you may have gained a fundamental understanding of shareholders in Hong Kong as well as the relevant rights and duties to fulfill.
To help you organize the information better, we’ve summarized a list of key points of this article as follows:
- The roles of shareholders include attending and voting at shareholder meetings, electing directors, and being informed about the company’s operations
- Shareholders also have the right to receive dividends and to participate in the company’s assets upon liquidation
If you are considering becoming a shareholder in a Hong Kong company, either an existing or a newly established one, don’t hesitate to get in touch with our friendly consultant for practical advice.
Drop us a message via firstname.lastname@example.org for any concerns and questions concerning your business.
Disclaimer: While BBCIncorp strives to make the information on this website as timely and accurate as possible, the information itself is for reference purposes only. You should not substitute the information provided in this article for competent legal advice. Feel free to contact BBCIncorp’s customer services for advice on your specific cases.
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