A private limited liability company or private LLC is one of the most popular types of organizations that you’ll find in Hong Kong. This type of company is preferred by many because of its flexibility. Its corporate governance is relatively easy to understand.
The benefits of private limited companies have increased since the publication of the New Companies Ordinance. If you’re struggling with this new ordinance, you can hire expert company secretarial services.
Every private LLC contains several individual shareholders. The capital structure of such a company will determine how these shareholders contribute to the organization’s affairs.
If you wish to run or be a part of a private limited liability company, learning about share capital structure and how it works is essential. This piece will explain the all the important details about share capital Hong Kong business owners must know.
What Is Share Capital Hong Kong?
Before delving into the meaning of share capital Hong Kong, let’s review the meaning of shares, shareholding, and share capital.
What are Shares?
A share is defined as a unit of ownership within a company. It represents a claim on the company’s worth and assets. Depending on the company and scenario, there are two types of shares: ordinary and preference.
Ordinary shares refer to the unit of ownership that allows an individual to vote, offers the right to participate in dividend sharing, and offers the right to share dividends when the company liquidates.
Holders of preference shares will enjoy more priority in dividend sharing and return of capital. However, these shares do not offer voting rights.
If an organization is built to have more than one class of share, the right of each shareholder class must be clearly stated in the Article of Association. Anyone can buy shares from a company, either individuals or corporate entities.
The buyer may also reside within or outside the country.
What is Shareholding?
Shareholding describes the legal power of the shareholder. Shareholding is a concept that applies in Hong Kong and other parts of the world. Shareholding power may vary depending on how many shares the individual owns.
If a company practices a joint ownership structure, it’s owned by all its shareholders.
If an entity (individual or organization) owns up to 50% of a Hong Kong company’s shares, it would have more power over others. In such cases, they are called the ‘majority shareholder.’ Such an entity can adjust the Article of Association or even change the company’s name.
The majority shareholder may also reduce the share capital of the organization. They may even request that the Hong Kong company buy back its shares from others. That’s not all.
When an entity (individual or organization) owns 100% of a Hong Kong company’s shares, they have complete control. The entity can control company regulations and other crucial aspects.
What is Share Capital?
To understand the peculiarities of Share Capital Hong Kong, you need to understand what the term means.
The share capital of a company refers to the total amount of contributions remitted by its shareholders. These contributions may be in the form of cash or property received from shareholders in exchange for company ownership.
The share capital will form a source of funds for the company to sponsor its growth and operations. Limited companies are the organizations that have access to this type of capital. There’s no minimum requirement for share capital Hong Kong.
Depending on the company’s nature, it may be as small as $1 per share. But companies are expected to have at least one ordinary share at $1 – issued during its formation.
Share Capital Structure In Hong Kong
The New Companies Ordinance was introduced to Hong Kong in 2014. These new regulations created more flexibility in share capital Hong Kong. Now, firms can handle their share capital anyhow they deem fit.
There’s no authorized amount (minimum or maximum) for share capital. There’s also no par value, which can be issued in any currency.
Hong Kong companies must disclose their share capital and shareholding when filing their annual returns. The annual returns are filed and sent to the Companies Registry. This information will be released to the public and is accessible through the Companies Registry database.
Removal of Par Value
In the years preceding the new Companies Ordinance, Hong Kong companies were required to have a nominal value, also known as par value, for their shares. The nominal value represents the final amount at which shares can be issued.
The new Companies Ordinance of 2014 abolishes nominal or par value for all companies. This law applies even to those established before the regulation was published. The abolishment of nominal value offers increased to companies.
Everyone can now determine their share capital and enjoy a free business environment.
Hong Kong’s move to remove the par value is similar to what you’ll find in several other jurisdictions. Par value was introduced as a way to protect creditors and shareholders. But it’s been generally accepted that nominal value no longer serves its purpose.
Other jurisdictions that have canceled nominal value include Singapore, New Zealand, and Australia.
Any amount a Hong Kong private LLC receives is recorded as a part of its share capital. Also, companies now have the right to issue as many shares as they want. There’s no restriction on the amount of share capital gained by any firm.
Alteration of Share Capital
Because of the removal of par value from the Companies Ordinance in Hong Kong, companies now enjoy greater flexibility in altering their overall share capital. A company may increase its share capital, even without issuing more shares.
They can also increase or reduce the number of shares they have without changing their share capital.
Furthermore, a company can capitalize on its profits without issuing new shares. They may also issue bonus shares without affecting the share capital. Shares that are yet to be purchased, or have been forfeited may be canceled.
If your company wishes to alter its share capital in any capacity, they need to issue a statement of capital and submit it to the Companies Registry.
Reduction of Share Capital
If you wish to reduce your share capital Hong Kong, the process is relatively straightforward. Before now, companies could only reduce their share capital after a resolution by shareholders and court approval. It’s been simplified by the latest Companies Ordinance.
While the process is still fairly similar, a new alternative has been created for quicker results. It’s a court-free process that only requires a solvency test. The steps to carry out this new method are as follows:
- All directors must sign as parties to a solvency statement. This is crucial for the entire process of reducing share capital. The solvency statement will eliminate the need to seek court approval. It’s proof from the directors that the company will be able to pay off its debts after reducing its share capital Hong Kong.
- The company should gain the approval of all its shareholders. They can pass a special resolution to this effect.
- The company must release a publication in the Gazette and other newspapers about approving share capital reduction.
- Shareholders and creditors have five weeks to object to the share capital reduction in court.
Importance Of Share Capital Structure For Your Company
There are many reasons why a company needs to pay attention to the nature of its share capital. First, a good share capital Hong Kong will increase the company’s value.
In this scenario, the share capital will increase the value of securities and shares. This would affect the company’s value in the long run.
A good capital structure would allow the business to properly utilize any available funds. When a Hong Kong company has a clearly defined share capital, its financial requirements will be highlighted.
It is also possible to properly plan how to utilize raised funds. This type of system will help the firm avoid over-capitalization and under-capitalization.
Another reason why every firm needs to organize a good share capital Hong Kong relates to returns on shareholdings. A good share capital structure would allow the firm’s management to increase its profits. To do this, they would offer a higher return to their equity shareholders.
By trading on shareholders’ equity, there would be an increase in the amount earned per share. If the return on capital employed exceeds the interest paid to shareholders, the organization benefits.
Furthermore, a good share capital structure would increase shareholders’ wealth by minimizing the share capital cost. The company must incorporate long-term debt capital into its capital structure to achieve this.
The cost of debt capital is considerably lower than equity or preference share capital because the interest paid on debt is taxable. Also, a good capital structure would prevent the company from raising too much debt capital.
What Are Shareholders’ Rights?
Next, let’s review shareholder rights according to the stipulations of share capital Hong Kong. The shareholder rights that apply to different organizations are written in the company’s Article of Association. Here are some shareholders’ rights as follows:
- Shareholders will receive dividends on their contributions when the company earns profit from its activities.
- If the company liquidates, shareholders are entitled to any remaining assets after settling debts.
- If the company has different classes of shares, certain shareholders may gain the right to vote on future decisions if their asset class allows it. Unless specified otherwise, each share is worth one vote at general meetings.
How Our Company Secretarial Services Can Help You
There are many reasons why a company has to pay attention to its capital structure. To a large extent, it can decide a company’s long-term future. What’s more? The share capital of a company is an ongoing concern. You may need to review this aspect as long as the company exists.
Without the right technical know-how, handling matters relating to the capital structure without infringing on guiding laws and principles is difficult. That’s why every firm needs help to handle their share capital Hong Kong.
Are you a Hong Kong company struggling to set up your capital structure? Why don’t you hire SJH Global to handle it for you?
SJH Global is a business consultancy firm. Our job is to ensure that we can support every business to grow We have teams of experts that will work hand-in-hand with you to design a good capital structure.
We have an impressive track record of working with companies in various industries. When we’re done with your capital structure, we’ll provide company secretarial services related to shares.
For instance, we will help you update your statutory records to indicate changes in company shareholders. We’ll also help with the transfer and distribution of shares, including the handling of correspondence for this process.
Our experts will determine any limitations to the transfer and distribution of shares. And we’ll follow the process till its complete.
Aside from helping with share capital Hong Kong, SJH Global also offers a plethora of services. Our job is to support small, medium, and large enterprises in whatever capacity they require. The needs of every company are different.
That’s why we have created a team of experts and a lineup of services that offer value for money. We also offer company incorporation, accounting, taxation, and secretarial services.
Share Capital Hong Kong – Frequently Asked Questions
Section 170 of the new Companies Ordinance states that all firms can increase their share capital Hong Kong without issuing new shares. They can also convert shares into a smaller or larger number without affecting share capital.
To increase share capital Hong Kong, the company’s directors and shareholders must reach a resolution.
Shares refer to a unit of ownership that offers entities rights to a company’s profits. These shares can be purchased with cash and other means by individuals or other organizations.
On the other hand, shareholding explains the power vested on any entity by its share ownership. It’s measured by the number of shares in the entity’s possession.
The share capital Hong Kong companies contribute refers to the total worth of the contributions by its shareholders. These contributions may be in cash or property. But they are paid in exchange of shares.
The government allows companies to handle their share capital Hong Kong as they want.
Reducing share capital Hong Kong is simple. There are two methods to reduce share capital Hong Kong.
The first method involves a shareholder resolution, followed by court approval. The second method involves a shareholder resolution and solvency test. The solvency test will prove to legal authorities that your company can sort its debts for the next 12 months.