The process of deregistration of a company in Hong Kong is a significant and often emotional topic.
The reluctance to discuss it is understandable, as closing down a dream business signifies the end of a chapter filled with hard work, dedication, and perhaps setbacks. It marks a time of reflection, transition, and anticipation of what lies ahead.
However, closing a business is a multifaceted process that extends beyond paperwork. This guide serves as a comprehensive resource, providing all the necessary information related to the deregistration of a company in Hong Kong, allowing you to go through the whole process with ease.
Deregistration of a company in Hong Kong
The deregistration process of a company in Hong Kong allows a private company to be removed from the Companies Registry if it meets certain criteria under the Companies Ordinance. This process is an alternative to formal liquidation for a defunct solvent company that has ceased business operations. In other words, deregistration is the appropriate final step if a Hong Kong company is no longer conducting business and has no outstanding debts or legal issues.
However, not every company is eligible for deregistration. The ordinance outlines specific requirements in its miscellaneous provisions: the company must be a local private company or a local company limited by guarantee and not one of the types of companies specifically excluded under section 749(2) of the ordinance.
In summary, the deregistration of a company in Hong Kong is a straightforward method of ending business operations, similar to the ease of company making and registration.
Reasons for deregistering a company in Hong Kong
So, what are the main reasons for the deregistration of companies in Hong Kong? Here are some of them:
1) Cessation of business operations
A company may deregister in Hong Kong if it has ceased all business operations and no longer requires a legal entity. This could be due to the business being unprofitable, the owners retiring or pivoting to a new venture.
This has happened to business owners who started a Hong Kong company with grand plans but then realised the market wasn’t there or the costs were too high. Rather than keep the dormant company on the books, some have decided to cut their losses and deregister.
2) Non-compliance with annual filing requirements
Another reason for deregistration is if a company fails to comply with its annual filing requirements. In Hong Kong, companies must file annual returns and hold annual general meetings.
If a company falls behind on these filings required by the Inland Revenue Department, it risks being struck off the Companies Registry. To avoid this, some companies have proactively chosen to deregister instead.
3) Restructuring or merger
Deregistration can also be relevant during corporate restructuring or mergers. For instance, if a Hong Kong holding company consolidates its subsidiary’s assets, and one of those subsidiaries is no longer needed, it can be deregistered to streamline the overall structure. A subsidiary’s assets consist:
- Tangible Assets: Property in Hong Kong, such as office buildings, machinery, equipment, and inventory.
- Intangible Assets: Intellectual property like patents, trademarks, copyrights, and licenses held by the subsidiary, as well as goodwill associated with the subsidiary’s brand name or customer base.
- Financial Assets: Cash held in bank accounts in Hong Kong, investments, and any accounts receivable owed to the subsidiary by customers.
- Contracts: Agreements with suppliers, vendors, employees, or customers specific to the Hong Kong subsidiary’s operations.
Facilitating the deregistration process is the most advisable way to maintain efficiency for Hong Kong companies with large business ventures deemed redundant within the new structure.
Eligibility criteria for company deregistration in Hong Kong
Having covered some of the reasons for deregistration, let’s explore the eligibility criteria. Not every company can deregister in Hong Kong; specific requirements must be met.
1) No outstanding liabilities
One key requirement for deregistration is that the company has no outstanding liabilities. This means all debts and obligations must be settled before the application can be made.
Imagine a company as a ship ready to dock for the last time. Before it can do so, the crew must ensure everything is in order. For business, this means taxes were paid to the Inland Revenue Department, crew wages and severance were all sorted out, and supplier invoices and rent were all settled.
2) No immovable property
Another criterion is that the company can’t own any immovable property in Hong Kong, either directly or indirectly, through a subsidiary. These generally refer to land and buildings.
So, if your Hong Kong company owns a factory, a retail shop, or even a small company’s registered office, it won’t be eligible for deregistration. First, any real estate holdings need to be properly disposed of.
3) No ongoing legal proceedings
Make sure you’re not involved in any legal proceedings. That’s right: there are no pending lawsuits, court orders, arbitrations, or legal battles.
If the company is involved in any legal battle, whether as the plaintiff or defendant, it will need to see those proceedings through to the end before it can apply for deregistration. The goal is to have a clean break with no lingering liabilities.
4) Approval from shareholders or directors
Finally, deregistering a company requires a nominated person to get approval from the shareholders or directors. It is a must that the shareholders of the company agree to the deregistration through an ordinary resolution.
If the company doesn’t have any shareholders, then the directors must give their approval. Either way, the decision to deregister needs to be properly documented and approved by the key stakeholders.
Before applying for deregistration, it is essential to ensure that all requirements are met. This decision should not be made lightly; once there is a consensus to close the company permanently, verifying that the company meets all the eligibility criteria outlined in the Companies Ordinance is crucial.
Key Takeaway:
Deregistering your company in Hong Kong is a straightforward option for defunct solvent companies that have stopped business, settled all debts, and met specific legal criteria. It’s a neat way to wrap things up without the hassle of formal liquidation.
Step-by-step guide to the deregistration of a company in Hong Kong
Sometimes, the most prudent course of action is closing a business permanently. However, before this can be officially finalised, a specific process must be followed.
1) Obtain approval from shareholders or directors
First and foremost, obtaining approval from shareholders if they issue of shares or directors is essential. This decision cannot be made unilaterally and requires documented approval, typically through an ordinary resolution. It is advisable to have an open and transparent discussion with all parties involved, clearly presenting the reasons for deregistration and addressing any concerns directly.
2) Clear all outstanding liabilities
It is necessary to settle all debts and taxes with the Inland Revenue Department (IRD), employee wages, supplier invoices, and other outstanding obligations. Ensure that every financial detail is thoroughly accounted for. Although this step may not be the most exciting, it is crucial to avoid any unforeseen issues in the future.
3) Notify creditors and employees
The next step is to inform your creditors and employees about your intention to deregister the company. Creditors must be able to object if they believe they have not been fully paid. Employees should receive their final paychecks and any statutory severance for their remaining working days. Although this step may be challenging, transparency and clear communication can significantly ease the process.
4) Submit the application to the Companies Registry
The applicant must submit Form NDR1, the “Notice of Intention to Deregister a Private Company,” to the business registration office. Don’t forget to include the required fees and the Notice of No Objection.
5) Publish gazette notice
After submitting your application, a notice must be published in the Hong Kong Government Gazette. This notice informs the public about the business owner’s intention to deregister and provides an opportunity for any objections.
6) Deregistration certificate issued
If all goes well and there are no objections, the Companies Registry will issue a Certificate of Deregistration. This is the official confirmation that the company has commenced operations and has been removed from the list of registered businesses.
Consequences of deregistering an HK business
Now, let’s discuss the consequences of a Hong Kong company’s deregistration. There are significant implications to consider.
Removal from the Companies Registry
A deregistered company will be removed from the Companies Registry’s public records and E-search services. This means it will no longer appear in a public company search as if it never existed from a corporate standpoint.
Cessation of legal existence
Once you’re deregistered, your company ceases to exist legally. It can’t enter into contracts, sue, be sued, or carry on any business in its own name.
Assets become bona vacantia
A noteworthy term to understand is “bona vacantia,” which means “ownerless property.” This term applies to any assets your company still owns during deregistration. According to the Companies Ordinance, these assets are transferred to the Hong Kong government by statutory power. For instance, if a business owner overlooks a small bank account under the company’s name, the government will take possession of those funds.
No longer required to file annual returns or pay fees
On the positive side, filing annual returns or paying annual registration fees is no longer needed, which can be a significant relief. However, it is important to note that it is a must to retain the company’s books and records for at least six years after deregistration in case they are needed for any future inquiries.
Alternatives to the deregistration of a Hong Kong limited company
Before you commit to deregistering your Hong Kong company, consider some alternatives:
Dormancy
One option is to make the company dormant, meaning it remains registered but ceases all business activities. Annual returns and fees will still need to be filed, but the costs of a full audit can be avoided. This route is often chosen when there is uncertainty about permanently closing the business, as it provides the flexibility to restart operations later without starting from scratch.
Liquidation
If a company does not meet the strict criteria for deregistration, liquidation or winding up might be the appropriate alternative. This process is more comprehensive, involving the dissolution of the company, settling liabilities, and distributing remaining assets to shareholders. While not the easiest or cheapest option, dissolving defunct businesses can provide a clean break, especially if the company’s situation is more complex in the public and government offices’ eyes.
Selling the Company
Another option is to sell the company rather than deregister it, a process often called a “shell company” sale. In this case, the buyer acquires the company’s pre-existing legal structure, saving time and the cost of incorporating a new entity.
Ultimately, the best option will depend on the unique circumstances of the business owners. It will be beneficial to seek legal advice or consult with other business owners managing a company dissolved for different reasons. Remember, closing one chapter does not mean the entrepreneurial journey is over; new opportunities may await on the other side of deregistration.
Key Takeaway:
Ready to close your Hong Kong company? Get shareholder approval, clear debts, notify stakeholders, and submit Form NDR1. Remember to publish a Gazette notice before getting your deregistration certificate. Consider the consequences like legal non-existence and asset forfeiture but know you’re also free from annual filings. Think about alternatives like dormancy or selling if full closure isn’t right for you.
Conclusion
The process of deregistration of a company in Hong Kong may seem complicated at first, but it doesn’t have to be. By following the steps outlined above and seeking professional advice, you can confidently facilitate the future process of deregistering a company.
Before you hit submit on that application, double-check that your company is squeaky clean—there are no outstanding liabilities or legal troubles lurking in the shadows. Get the green light from shareholders and directors, and you’ll be sailing through the approval process and seeing your name in the Gazette in no time.
So, deregistering your Hong Kong company can be smooth and efficient whether you’re moving on to new business ventures or simply closing a chapter. With the right guidance and patience, you’ll be able to bid farewell to your company and embrace the exciting opportunities that lie ahead.
FAQs in relation to the deregistration of a company in Hong Kong
Here are some frequently asked questions to help understand what is involved in the deregistration of a company in Hong Kong:
What is the difference between deregistration and dissolution?
Deregistration is a simplified way to close down a company with no outstanding liabilities or assets. Dissolution, on the other hand, is a more complex process that involves liquidating the company’s assets and settling any outstanding debts.
How long does the process of deregistration of a company in Hong Kong take?
The process of deregistration of company in Hong Kong typically takes around 5 to 6 months from start to finish. This includes the time it takes to prepare and submit the necessary documents in the e-services portal and the statutory waiting period for any objections to be raised.
What are the requirements for the deregistration of a Hong Kong business?
To be eligible for deregistration, the company must meet the following criteria:
- It has not commenced business or operation, or has ceased to carry on business or operation for more than 3 months
- It has no outstanding liabilities
- It is not a party to any legal proceedings
- It has no immovable property in Hong Kong
- All members agree to the deregistration
What happens after the company is deregistered?
Once the company is deregistered, it will be struck off the Companies Register and cease to exist as a legal entity. The company’s name will be available for registration by others, and any assets that remain under the company’s name will be vested in the Hong Kong Government.
It’s important to note that deregistration is not a way to avoid any legal or financial obligations.
Does a deregistered business undergo a restoration process when the situation changes?
Yes, a deregistered Hong Kong business can potentially be restored.
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