There may be times when you want to change the share structure of your company; either by adding new shareholders or by changing the existing proportion of shares between shareholders – this is most commonly performed via share transfer. A share transfer is the process of transferring existing shares from one person to existing shareholders or third parties either by sale or gift and is a common exercise performed by Hong Kong companies. In this article, we look to provide insight as to what the Hong Kong share transfer process involves, stamp duty on transferring shares and what other considerations must be made.
What you will learn:
1. When Do You Need to Make a Share Transfer?
There are many factors that can trigger a share transfer. Although this list is not all inclusive, the most common reasons are:
- To facilitate the restructuring of a company. For instance, transferring the shares of a company from one parent company to a new entity
- Changing the existing proportion of shares between shareholders due to new profit sharing or ownership arrangements
- When a business owner is contemplating selling their business, or wants to take advantage of an opportunity to cash out by selling some, or part of their shareholdings
2. What is the standard Hong Kong share transfer process?
The Hong Kong Companies Ordinance states that all Hong Kong private limited companies must include in their articles of association, a provision detailing their restriction of share transfers. The conditions listed in these provisions must be met before a transfer can occur.
The typical process can be completed in approximately 3 to 5 working days. The process is as follows:
1. Ensure that any pre-emptive rights stated in the company’s articles of association have been satisfied or waived and obtain approval to conduct the share transfer from the company’s shareholders
2. Prepare share transfer documentation required for the transfer to take place
3. Prepare all related documents (contract notes, resolutions, sales & purchase agreements, management accounts etc.) for stamping by the Hong Kong government
4. Upon successful stamping of documents, the process is considered completed
Often during a transfer to a third party, it is necessary to establish the terms via a Share Purchase Agreement. These contracts set out in detail the terms of the purchase, including the price and conditions and assurances from the transferor regarding the finances and liabilities of the company in question.
3. Required Documents
The following documents are required to be submitted:
- The original copy of the company’s latest audit report (dated within 6 months of the share transfer) if the company has previously conducted business operations
- A certified management account can be provided if an audit report has not been prepared within the 6 months before the date of the share transfer)
- A copy of the residential address, passport or identity card of the new shareholder
- Name of the share transferor
- The number of shares to be transferred
- A company resolution detailing the distribution of dividends (if applicable)
- Land property information (if any)
- Sales & purchase agreement detailing the share transfer (if any)
- The company’s subsidiary’s audit report and/or the most recent certified management accounts (if any)
- A copy of the company’s Articles of Association
To ensure a successful share transfer process, it is vital to make sure that all documents to be submitted to the Hong Kong government have been properly prepared, and that your company has taken the necessary steps to adhere to local laws and regulations.
For those who are unfamiliar with Hong Kong’s company laws, it is best to engage a professional service provider who is certified to assist in these matters. The FastLane Group has extensive experience assisting our clients in all matters related to company secretarial services and can help prepare and submit all documents related to Hong Kong share transfers on your behalf.
4. What is stamp duty?
Stamp duty is a tax on documents and will be imposed during a share transfer. The Stamp Duty Ordinance outlines that stamp duty will be imposed on the sale or purchase of any Hong Kong stock. The rate at which stamp duty is charged is dependent on the amount or value of the consideration.
Each form will be liable to a stamp duty fee of HKD 5 whereas the Sale Agreement Form will be subject to a consideration paid at a rate of 0.2% on its net asset value, whichever is higher.
Please click here for more details on the Hong Kong stamp duty procedure for the transfer, or sale of Hong Kong stock.
5. What are the limitations surrounding a transfer
The Hong Kong Companies Ordinance lists limitations, specifically prohibiting Hong Kong companies from providing financial assistance in the acquisition of their shares.
When a person is acquiring shares of a Hong Kong company, or proposes to acquire them, the Hong Kong company in question (or any of its subsidiaries) are prohibited from directly or indirectly providing assistance in the acquisition.
For instance, if a person who acquires shares of a company incurs any debt, the Hong Kong company and its subsidiaries cannot reduce, or relieve the debt burden. To the extent that assistance is provided, the company will be liable to potential penalties and fines.
Having assisted many clients address a variety of company secretarial matters, we understand that the process of rectifying issues of non-compliance can be incredibly costly for businesses. As the FastLane Group is a licensed Hong Kong company secretary. We understand the statutory obligations that Hong Kong companies are subject to and what steps must be taken for a Hong Kong company to remain compliant.
Whether your business is looking to complete a share transfer or wants to address other company secretarial matters, please contact the FastLane Group for your enquiries.