Owning a Private Limited Company that is incorporated in Hong Kong, you will be entitled to quite many benefits. The sound taxation policies and the strong regulatory system Hong Kong applies provide certainty to all investment and entrepreneur activities in the jurisdiction, which is good for the economic welfare. Furthermore, given that the required prerequisites for the Hong Kong entity are low, it is the most common form of business in the city. However, naturally, it is a business platform of China too because it is located very close and has a more similar system as Western countries.
The company ownership is limited by shares in the limited company type as it’s the main characteristic. However, the question arises when the business multiplies in size and there comes the requirement of increasing the share capital of the company to create an opportunity. In this article, we will be discussing what percentage shares are for private-public limited companies and how to do a share allotment, what steps to follow to go through the process of increasing the share capital of a limited company.
What is Share Allotment?
Share allotment is the official process by which a company issues new shares to existing or new shareholders. In Hong Kong, this process is commonly used by private limited companies to raise capital, bring in new investors, or adjust ownership structures.
Why Is Share Allotment Important?
Share allotment is crucial for a company’s growth and financial flexibility. It allows businesses to:
- Raise additional capital without taking on debt
- Onboard new investors or business partners
- Reward key employees through equity participation
- Restructure ownership to reflect changes in company strategy
This process supports long-term sustainability and investor confidence, making it an essential tool in corporate finance.
Share Allotment and Hong Kong Private Limited Companies
For private limited companies in Hong Kong, at the time of incorporation, the founders declare the number of shares to be issued as the company’s initial share capital. The minimum requirement is at least one share with a nominal value of HK$1.
As the business expands, it may decide to issue additional shares to raise funds or increase shareholder participation and this is where share allotment comes into play.
Types of Shares in Hong Kong
When forming or managing a Hong Kong private limited company, understanding the different types of shares is essential for effective decision-making and investor relations. The most common types are equity shares and preference shares.
What Are Equity Shares?
Equity shares which are also known as ordinary shares, represent ownership in a company and carry full voting rights. Shareholders are entitled to receive variable dividends, depending on the company’s profitability and the Board of Directors’ discretion.
Key Features of Equity Shares:
- Voting Rights: One vote per share, mandatory voting rights for all equity shareholders.
- Dividends: Not fixed and based on company performance and board approval.
- Capital Repayment: Last in line during company liquidation.
- Ownership Rights: Equity shareholders are the actual owners of the company and share in profits and losses.
Equity shareholders bear more risk but also benefit the most when the company performs well.
What Are Preference Shares?
Preference shares offer priority rights over equity shares in terms of dividend payments and capital repayment during liquidation. However, they may carry limited or no voting rights except in matters that directly affect their interests.
Key Features of Preference Shares:
- Dividend Priority: Entitled to fixed dividends paid before equity shareholders.
- Capital Repayment: Priority over equity shareholders during liquidation.
- Voting Rights: Limited, usually only on issues impacting preference rights.
- Variations: Preference shares can be tailored to investor needs and may be:
- Cumulative or Non-Cumulative – Accumulated unpaid dividends vs. forfeited.
- Participating or Non-Participating – Eligible for extra profits or not.
- Redeemable or Irredeemable – Can be bought back by the company or not.
Equity vs. Preference Shares
| Feature | Equity Shares | Preference Shares |
| Voting Rights | Full voting rights (one vote/share) | Limited voting rights |
| Dividend Payout | Variable, based on performance | Fixed, paid before equity shares |
| Dividend Accumulation | Not cumulative | Can be cumulative or non-cumulative |
| Capital Repayment | After preference shareholders | Priority during liquidation |
| Participation in Profits | Standard | Can be participating or non-participating |
| Redeemability | Not redeemable | Can be redeemable or irredeemable |
| Risk Level | Higher risk, higher reward | Lower risk, steady return |
What Is the Critical Thing Required When the Capital is Raised?
Some people may think that the procedure of issuing new shares or share allotment from a Hong Kong company in accounting is just the process of depositing the capital passed in the agreement into the company’s business account. However, the procedure provided is not only a straight transaction and some factors should be taken into consideration. In this section, we’ll mention some of them in a general way:
- Articles of Association (AoA): In order to comply with the Articles of Association of the corporation, the issue of shares should be done according to the rules set forth in the document, and especially if it is going to be about the new shares that are going to be issued. For instance, the main shareholders need to be unanimous and have the same opinion about adding a new shareholder which is a hard process. Otherwise, it might be difficult to carry out the process.
- Annual Return compliance: in this case, there is an element that is normally overlooked, which is the fact that a company that is out of compliance with the local authorities of Hong Kong like not submitting the Annual Return in time or even forgetting for several years, cannot perform a process until they come up to date to the year that is the process intended to be done.
- Audited Financial Statement: Along with the previous point, a company must report its Audited Financial statements to the government authorities at least once a year. In respect to this kind of procedure, the latest financial statements are necessary to look at the actual position of the company. For example, if a company is held back for 5 or more years, it will have to carry out its accounting and audit operations until the last fiscal year. The lack of financial flexibility will result in the inability to share allotment. What is the role of the audit and the share allotment in the process of registering a company? Consider the case you want to invest in a company, but you need to know the status of that entity, sales look good, but what about the debts? In that case, you will consider the investment twice.
Steps to Share New Issuance / Share Allotment
Once a Hong Kong private limited company satisfies all pre-conditions for share allotment, it can proceed with issuing new shares to existing or incoming shareholders. Below is a comprehensive, step-by-step guide to the share allotment process in compliance with the Companies Ordinance (Cap. 622) and Companies Registry requirements.
1. Board Resolution Approval
The resolution adopted by the directors, in writing, must clearly indicate the number of shares that will be issued. Afterwards, the proposal is sent to shareholders so they can look at it and vote on it.The resolution should specify:
- The number and class of shares to be issued,
- The issue price, and
- The proposed allottee(s)
2. Shareholders’ Resolution Approval
Shareholder consent is needed to approve the proposed share allotment. This can be obtained through:
- Written resolution signed by all shareholders, or
- General meeting where the proposal is passed by a majority vote (or unanimous vote, depending on AoA terms).
3. Review Conditions and the Share Allotment
Once the shareholders give their approval, it is important to go through the Articles of Association (AoA) of your company to understand whether there are any other clauses or conditions to be fulfilled.Confirm whether there are special rights, obligations, or preconditions relating to new share issuance. Ensure that any conditions outlined in the AoA are fully complied with before proceeding.
4. Submitting Form NSC1 (Return of Allotment)
Form NSC1 is available on the Companies Registry website and should be filled up and submitted afterwards. Some of the information that must be included in the form is:
- the number of share allotment to each new shareholder,
- the issue price per share
- the type of share, and
- whether the shares are fully or partly paid-up
- the details of the shareholder (individual or corporation).
5. Issuance of Share Certificates
Once the allotment is registered, the company must prepare and issue share certificates to the new shareholders. Share certificates must include:
- Name of the shareholder
- Number and class of shares issued
- Certificate issue date
- Statement of whether shares are fully paid
This acts as legal proof of ownership and must be issued within 2 months from the date of allotment.
Legal & Timing Considerations
Timeframe
Under Hong Kong’s Companies Ordinance (Cap. 622), companies are legally required to issue a share certificate within two months from the date of allotment. Failure to meet this deadline could result in regulatory penalties and undermine shareholder confidence. Ensuring timely issuance is essential for both compliance and corporate governance.
Legal Importance of Shareholder Contracts
When onboarding new shareholders through a share allotment, it is critical to have legally binding contracts in place, such as:
- Shareholders’ Agreement – Clearly defines rights, obligations, exit strategies, and dispute resolution among shareholders.
- Subscription Agreement – Outlines the terms under which the new investor is subscribing to the shares (e.g., number of shares, price per share, payment terms).
These contracts help protect the interests of all parties, avoid future conflicts, and maintain transparency within the company. Particularly in private limited companies, these documents are vital for long-term strategic planning and investor relations.
Conclusion
In conclusion, share allotment in Hong Kong is a vital mechanism for private limited companies to raise capital, onboard new investors, and support business expansion. From understanding the types of shares and fulfilling pre-conditions, to following the step-by-step procedure and legal obligations, each stage must be carefully managed to ensure compliance with the Companies Ordinance. Whether you’re a growing startup or an established enterprise, proper execution of share allotment backed by accurate documentation and timely filings is essential for maintaining regulatory integrity and investor confidence.
How FastLane Group Can Help
Fastlane Group simplifies the process of share allotment in Hong Kong for private limited companies. Our knowledgeable team assures that you meet the standards of the Articles of Association, Annual Return demands, and Financial Statement necessities. We take care of the drafting and review of board resolutions and shareholders’ resolutions, form submissions, and timely issuance of share certificates. Through Fastlane Group, you may overcome many barriers of the share allotment process quickly and with self-assurance.Contact FastLane now and we will help you with the process!
Frequently Answered Questions
“Fundamental value (also known as ‘par value’) of shares is a component of the minimum price at which shares can usually be issued.” The introduction of the new Companies Ordinance (“the new CO”) is a change from a standardized no-par set-up to having a share capital that is fixed (gone are par values).
The par values of Hong Kong companies’ shares liquidated will come into force upon commencement of the new Company Ordinance on 3 March 2014.
No. All shares constituted, before this date, from now on, shall be fully integrating the Companies Ordinance which came into effect on 3 March 2014, and consequently will share no par value. The law has stated that all shares that were in existence previous to the decisive moment are considered to have no par value (Part 135 of the CO). Not only enhances consumer experiences but also allows businesses to efficiently promote their products without taking up a lot of time or effort from the companies.
Upon the beginning of the new CO which happened on 3 March 2014, the authorized amount of shares and par value of the shares provision in the existing company (provisions in the Articles of Association directly after the commencement of the new CO) are going to be treated as made null and certified void (CO 98(4)). The company shares would be its issued capital if it were a dividend. Transitional sections and deeming procedures in Schedule 11 of the CO Ordinance dealing with the process of phasing out par are also provided.
No. Reporting the movement of shares will follow the particular form of formulation if the procedure takes place through transfer. The company, nevertheless, should report the share transfer in the first made in the annual return after the transfer has been done.
No. The nature of the change of shareholders and the report of any new one must be included in the future annual return.
No. No board member should fill out Form NSC1 to redistribute shares in the articles of association that were purportedly signed by the founder members.
Simply put, a Statement of Capital is a statement capturing the total amount of funds that have been paid up for equity shares at a given time. Such amendments should be logged into the forms duly transferred for registration to make sure the updated knowledgeable sector of the corporation’s share capital.
As a consequence of no-par shares taking place by migration, ratified notions such as redemption value, share premium, and minimal capital by proprietors have also vanished and ceased. No longer do either of you need to report officially on authorized capital.
Elimination of par value means that the “share premium” doesn’t exist anymore. The to-be-AMLCO has clauses in it that provide for the merger of the share capital of an organization with its share premium account received (subsection 37 of Schedule 11 to the CO).
From a balance sheet point of view, the company must get the amounts, that are outstanding from the share premium account and capital redemption reserve account, and transfer them to the share capital account on or after 3 March 2014. Statements of financial accounts (for years ending on a date, on and immediately after the commencement date (i.e. 3 March 2014)) shall be made, stipulating that the balances (closed) at the end of a financial year will be conferred to the registered capital.
Amounts transferred from the share premium account and capital redemption reserve account should be appropriately recognized in the company’s account of the change of share capital report containing the specified form, when a company registers the change in their share capital for the first time on or after 3 March 2014, or in the first annual return delivered to the registrar after 3 March 2014, whichever is earlier.
