Shareholder Rights and
in Hong Kong
15 minute read
Every incorporated company in Hong Kong is required to have at least 1 or more registered shareholders. The shareholder(s) may or may not be a resident in Hong Kong. A shareholder may be a person or a legal entity, such as a company, liquidator, or sole proprietor.
Let’s discuss shareholder rights in Hong Kong for LTD companies. The issuing of new shares in a private limited incorporated company in Hong Kong involves:
- The allotment of shares by company directors to particular persons.
- The issuance of shares to these persons after their relevant particulars is entered into the company’s register of shareholders.
- The allotment of other shares requires the prior approval of shareholders in the general meeting. Shareholders may give their approval concerning a particular allotment or in general. If not revoked earlier, the shareholder approval expires when the next general meeting takes place.
- The return of allotment of shares (Form NSC1) must be filed with the Registrar of Companies within one month after an allotment of shares. This includes disclosing the names of members and their shareholdings. This form may be used for allotments made on a single day or over a period of time (within one month).
Shareholders Rights In Hong Kong For LTD Companies
The Companies Act of Hong Kong requires private companies issue share certificates to its shareholders. Shareholders’ rights are set out in the company’s article of association. For shareholders holding shares of the same class, the rights of shareholders rank equally.
The general rights of shareholders include:
- The right to vote at the shareholders’ general meeting.
- The right to receive dividends declared by the company.
- The right to receive the audited accounts with the directors’ report and the audited report of the company.
- The right to receive a distribution in a liquidation once the creditors have been repaid.
- The right to make decisions to influence management of the company.
- The right to appoint a proxy.
Right To Vote
The right to vote includes electing directors and proposals for fundamental changes affecting the company such as mergers or liquidation. Voting takes place at the company’s general meeting. Most shareholders voting rights equate to one vote per share owned, resulting in greater influence from shareholders who own a larger number of shares.
Right To Dividends
As partial owners of the company, shareholders have the right to participate in a company’s profitability as long as they own the shares. Shareholders can earn dividends as part of profit-sharing. Dividends are not guaranteed. If the board of directors declare a dividend in a certain period, then shareholders have the right to receive it.
Right To Receive Accounts And Reports Of The Company
Shareholders have the right to receive and examine documents such as the audited accounts with the directors’ report and the audited report of the company.
Right To Receive Distribution In A Liquidation
While shareholders of Hong Kong incorporated companies are entitled to receive dividend as part of profit sharing, they are also entitled to distribution of assets after the creditors have been paid off when liquidation.
Right To Make Decisions
Shareholders are required to make or sanction certain decisions in a general meeting by passing an ordinary or special resolution. While a special resolution requires 75% majority, an ordinary resolution requires only a simple majority.
Right To Appoint A Proxy
One statutory right of a shareholder in a limited company in Hong Kong is to appoint a proxy on their behalf to attend and vote at any meeting they are entitled to attend. Shareholders not attending a company’s general meeting may vote their shares by proxy by allowing someone else to cast votes on their behalf. The proxy may or may not be a member. However, the shareholder must make a statement in this regard in the notice of all general meetings.
Can The Rights Of Shares Be Altered?
The rights of shareholders can be varied by amending the Articles of Association. Any amendments to the company’s article must be done by special resolution.
The Companies Ordinance gives shareholders of a class statutory protection against the alteration of their rights. In order to alter the Articles of Association, the following documents are required to be delivered for registration:
- A copy of the special resolution for the alteration;
- A notice of alteration in specified form (i.e. Form NAA1 or Form NAA2);
- A certified copy of the altered Articles of Association.
Classes Of Shares
Hong Kong law is flexible to the types of shares that can be issued by companies. The main types of shares are ordinary shares and preference shares. The differences between them will be explained below. Among different classes of shares within a company often have the following rights:
- Voting rights
- Dividend rights
- Capital rights
Common Classes Of Shares
Ordinary shares are the most common type of shares that are issued by the company. Companies mostly only issue ordinary shares. Holders of ordinary shares are entitled one vote per share and only receive dividends at the discretion of the company.
Preference shares carry a preferential right to dividends and/or distributions in a liquidation ranking ahead of ordinary shares.
Can shares be converted from one class to another?
There is no statutory provision to convert shares of one class to another. But if all shareholders give their consent to the conversion by passing a special resolution, it might still be possible. The consent of all shareholders is required because this might affect the rights of all shareholders. In Hong Kong, you may sell your existing shares to buy another class.