News Update
The new Companies Ordinance (“the new CO”) abolishes the requirement to have a Memorandum of Association (“MA”) as a constitutional document of a local company.
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A company incorporated in Hong Kong under the new CO is only required to have Articles of Association (“AA”). Under the new CO, the information which was required to be contained in the MA under the Companies Ordinance (Cap. 32) (“the old Ordinance”) are set out in the AA.
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The AA of companies incorporated under the new CO must contain the following mandatory clauses (the “Mandatory Articles”) :
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Company name (section 81)
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Members' liabilities (section 83)
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Liabilities or contribution of members (for limited companies) (section 84)
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Capital and initial shareholdings (for companies with a share capital) (section 85(1) and section 8 of Part 5 of Schedule 2 to the new CO)
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For an association to be incorporated with a licence granted under section 103 or a limited company granted with such a licence, its AA must state the company’s objects whilst the licence remains in force (section 82).
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The new CO empowers the Financial Secretary to prescribe Model Articles for companies. These replace Tables A and C set out in the First Schedule to the old Ordinance and apply to companies incorporated after the commencement of the new CO. A company may adopt any or all of the provisions of the Model Articles appropriate to the type of company being formed and the appropriate Model Articles will apply in so far as the articles registered by the company upon incorporation do not exclude or modify them (section 80).
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The Model Articles will be in addition to the Mandatory Articles that a company is required to have.
The new Companies Ordinance (Cap. 622) ("the new CO") adopts a mandatory system of no-par for all local companies with a share capital and retires the par value of shares, in line with international trends and to provide companies with greater flexibilities in structuring their share capital.
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Par value (also known as "nominal value") is the minimum price at which shares can generally be issued. Before the implementation of the new CO, companies incorporated in Hong Kong and having a share capital are required to have a par value ascribed to their shares. The Administration has legislated for the migration to mandatory no-par. Relevant concepts such as nominal value, share premium, and requirement for authorized capital are no longer necessary and are abolished.
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The "no-par" regime has become effective upon commencement of the new CO on 3 March 2014. The migration to no-par shares applies to all local companies.
To facilitate business, the new Companies Ordinance (“the new CO”) as amended by the Companies (Amendment) (No. 2) Ordinance 2018 (“the Amendment Ordinance”) relaxes the criteria for companies to prepare simplified financial reports and directors’ reports (i.e. the “reporting exemption”).
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Private or guarantee companies (other than certain companies specifically excluded) that are qualified for the reporting exemption are exempted from certain specific requirements relating to the preparation of financial statements, directors’ and auditor’s reports. The accounting standards applicable to companies falling within the reporting exemption are less complicated than the standards applicable to listed, public or other companies not qualified for simplified reporting. However, audit of the financial statements is still required for all companies, except dormant companies (section 447), under the new CO.
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The size criteria for determining eligibility to prepare simplified reports are –
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A small private company (with the exception of a bank/deposit-taking company, an insurance company or a stockbroker) / holding company of a group of small private companies that meets two of the following three conditions in a financial year –
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total revenue / aggregate total revenue not exceeding $100 million;
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total assets / aggregatetotal assets not exceeding $100 million;
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employees / aggregate employees not exceeding 100.
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(sections 359(1)(a), 359(2), 361, 364 and Schedule 3 sections 1(1), (7) and (8))
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A small guarantee company / holding company of a group of small guarantee companies with total revenue / aggregate total revenue not exceeding $25 million in a financial year.
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(sections 359(1)(a), 359(3), 363, 366 and Schedule 3 sections 1(5), (12A) and (13))
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A private company or a group of private companies which does / do not satisfy the above size criteria but meets a higher size criteria (eligible private company / group of eligible private companies) and if the members of the holding company holding 75% of the voting rights so resolve and no member objects.
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(sections 359(1)(c), 359(2), 360, 362, 365 and Schedule 3 sections 1(3), (10) and (11))
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A holding company of a group of companies comprising one or more small private companies / eligible private companies and one or more small guarantee companies (mixed group) provided that the holding company and all of its subsidiaries meet the prescribed size criteria, and (where any member of the group is an eligible private company but not qualified as a small private company) the members of the holding company holding 75% of the voting rights so resolve and no member objects.
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(sections 359(3A), 360, 366A and Schedule 3 section 1(8), (11) and (13))
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The group of small private companies / small guarantee companies / eligible private companies or the mixed group as mentioned above may include non-Hong Kong body corporates.
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For a company formed under the new CO, it falls within the reporting exemption if it meets the size criteria in its first financial year.
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For an existing company, it falls within the reporting exemption if it satisfies the size criteria in its first financial year after the commencement of the new CO or in the financial year that immediately precedes that first financial year.
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For a mixed group, it falls within the reporting exemption if it satisfies the qualifying criteria in its first financial year after the commencement of the Amendment Ordinance or in the financial year that immediately precedes that first financial year.
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For a group of companies comprising non-Hong Kong body corporates or a mixed group, the reporting exemption applies in relation to a financial year beginning on or after the commencement of the Amendment Ordinance and in every subsequent financial year, until it is disqualified for the exemption.
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Otherwise the company, whether it is a new company or an existing company, has to meet the size criteria for 2 consecutive financial years in order to qualify for the reporting exemption.
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Other private companies (not being a member of a corporate group) may adopt simplified reporting with unanimous members’ written agreement with respect to a financial year (section 359(1)(b)).
Financial Year
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A company’s first financial year after the commencement of the new CO begins on the first day of its first accounting reference period and ends on the last day of that period, or another date within 7 days before or after the end of that period as specified by the directors (section 367(1)). An accounting reference period is the period by reference to which the company’s annual financial statements are to be prepared.
Business Review
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Public companies and the larger (i.e., companies that do not qualify for simplified reporting) private companies and guarantee companies are required to prepare a more comprehensive directors’ report which includes an analytical and forward-looking “business review”. The business review will provide useful information such as information relating to the company’s environmental policies and performance and an account of the company’s relationship with its employees that have a significant impact on the company. Private companies are allowed to opt out of the requirement to prepare a business review by passing a special resolution to that effect.
Summary Financial Report
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Under the new CO, all companies (other than those qualified for simplified reporting) are given a choice of sending a copy of the summary financial report instead of a copy of the full reporting documents to their members. Members’ consent is not required before a company can send a copy of the summary financial report (section 441). The option of seeking members’ intent on receiving a copy of the summary financial report before sending out copies of the summary financial report or the full reporting documents is also retained (section 442).
Under the new Companies Ordinance (Cap. 622) ("the new CO"), the annual return of a public company or a guarantee company will no longer be filed with reference to the date of Annual General Meeting ("AGM") as an AGM may be dispensed with under section 612 of the new CO.
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The requirement is to deliver the annual return in respect of every financial year of the company instead of in each calendar year.
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Pursuant to sections 662(3) and (4) of the new CO, the annual return of a public company or a guarantee company should be filed (together with certified true copies of the relevant financial statements, directors' report and auditor's report) within 42 days after the company's return date. The return date for a public company is 6 months after the end of the company's accounting reference period while the return date for a guarantee company is 9 months after the end of the company's accounting reference period. The accounting reference period is the period by reference to which the company's annual financial statements are to be prepared. For example, if a company prepares its financial statements up to 31 December every year, the accounting reference period is from the 1 January of a year to 31 December of the same year.
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Further, section 2 of Schedule 6 to the new CO provides that a listed company is only required to provide the particulars of members who held 5% or more of the issued shares in any class of the company's shares as at the date of the return.
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There is no change in the requirement to file annual returns of private companies. Pursuant to sections 662(1) and (2) of the new CO, the annual return of a private company must be delivered for registration within 42 days after the anniversary of the date of incorporation of the company.
