Every company in Hong Kong must have at least one shareholder, who may be an individual or a corporation. The rights and duties of shareholders are set out in the Companies Ordinance (Cap. 32) and the common law.
Shareholders have a number of important rights, including the right to vote on company matters, the right to receive dividends, and the right to inspect the company’s books. They also have certain duties, such as the duty to act in good faith and in the best interests of the company and to disclose any material interests they have in transactions entered into by the company.
It is important for shareholders to be aware of their rights and duties, as they can be held liable for contract breach. If you are a shareholder in a Hong Kong company or are thinking of becoming one, make sure you seek legal advice for understanding your rights and duties.
1. What is a shareholder?
A shareholder is an individual or organization that owns at least one share in 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 ordinarily residents in Hong Kong or have a valid Hong Kong work visa.
If the company is thriving and making money, the shareholder can get more profits through the distribution of dividends, but when the company takes a beating, the share’s value will drop, and shareholders can lose money.
2. What are the roles of a shareholder?
The roles of a shareholder can vary from company to company, but most of the time they have a say in how the company is run and may be able to vote on important decisions, such as the election of the board 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 are responsible for overseeing the management of the company. The shareholders can also decide on directors’ salaries and scope of power.
- Cast a vote in general meetings
If the company put forward a resolution at the general meeting, the shareholders can take part in the voting process.
- Approve major decisions
For major business affairs such as whether to sell the company or merge with another company, shareholders may be asked to step in and approve that matters.
- 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 reviewing the financial statements themselves, or by hiring an accountant or auditor.
Discover how you can avoid costly mistakes with Hong Kong financial statements in our related article.
3. What are the shareholder rights?
As shareholders are owners of the company, they are entitled to rights and protections under the law. For instance, they are typically given the right to approve or reject certain transactions, such as a merger or acquisition, and may be able to bring a derivative action if they believe that the company has been harmed.
In addition, shareholders also have a right to obtain information about the company, including its financial statements, as well as to attend general meetings to cast their votes.
Other rights for Hong Kong shareholders include:
- Buy new shares from the company, depending on the procedure
- Get part of the capital once the company is dissolved
- Attend and participate in the company general meeting, as well as vote on issues affecting the company
- Obtain audited financial statements
- Receive dividends and other benefits from the company
- Submit a petition in court if the rights have been violated or sue the company for a wrongful act
The annual general meeting is an important event for the company’s shareholders. Find out about this event in detail here.
4. How to 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, which is a document that provides information about the company and the proposed share issuance. The prospectus must be approved by the Securities and Futures Commission (SFC), which is the Hong Kong government agency that regulates the securities market.
Once the prospectus 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 proposed share issuance.
If no objections are received, the company can proceed with the share issuance. The company will then execute a Share Issuance Contract with the shareholders who have agreed to purchase shares in the company. The Share Issuance Contract sets out, among other things, the price at which the shares will be sold, the number of shares being issued, and the rights and obligations of the company and the shareholders.
The company will then register the 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’ve gained a basic understanding of shareholders in Hong Kong, as well as the rights and duties to fulfill.
We’ve summarized a list of key points to help you organize your thoughts better:
- 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 want to become a shareholder in a Hong Kong company, either an existing one or a new one, get in touch with our friendly consultant for practical advice. Or, drop us a message via firstname.lastname@example.org for any concerns and questions you may have.
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