How Capital Reduction Works In Hong Kong

Steps To Follow For Share Capital Reduction in Hong Kong

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For companies in Hong Kong, a regulation under the Companies Ordinance (Cap. 622) mainly regulates private companies limited by shares structure that prevails in Hong Kong private companies and also for company share capital reduction.

While it may seem straightforward, avoidance to this process can put your company in financial trouble or even bankruptcy in certain scenarios.

Authorized share capital, which is the same as share capital, is the sum of company’s shares with their nominal value (par value) given.

Start-ups may take advantage of this process to reduce costs as they start. Saving transitional costs, larger companies might be interested in implementing this process

Authorizing the share capital reduction first requires a resolution to be endorsed by the company’s board of directors.

The revised plans will then go to a shareholders’ meeting for the proposal to get voted on.

The Registrar of Companies processes all orders for share capital reductions.

Company has a one month time line to submit all the mandatory documents and minimum number of Directors need to be present.

The process usually takes about a month, although sometimes additional time is required. To ensure that the modifications are properly recorded in the company’s records, it must adhere to very strict processes.

Steps for Share Capital Reduction in Hong Kong

Companies have two main options to reduce their share capital in Hong Kong: the two basic schemes are the court-free and the court-sanctioned methods. Each method tailors to each situation and has its own set of requirements. 

Court-Free Method

This method is the most preferred because of the minimal time and cost that it requires. But the flipside is about the drawn specific criteria for eligibility.

Company Solvency

The company should be solvent indeed which means it can cover debts when they arise. The supervisor requires a written statement of solvency from the finance director confirming so.

No Creditor Objections

No one should have anything against the reduction. Objections can be made at this stage, and there is another option of court-ordered procedures.

Reduction Criteria Met

The cut must encompass rules under the Companies Ordinance (Cap. 622) which must be met. The reduction cannot involve only those redeemable shares and the cut has to be reasonable and to be advantageous to all shareholders.

Steps In Court-Free Method

Internal Review and Approval

  • The entity improves the Articles of Association and involvements of contracts to see if restrictions or problems exist in reducing share capital.
  • The board of directors accepts the reduction through voting.
  • Every director prepares the officially signed financial statements.

An Annual Shareholder Meeting with a Public Disclosure

  • Shareholders receive a notice and must attend a meeting to vote on this proposal. A special resolution approval (75% vote as a condition) is required. 
  • The Hong Kong Gazette publishes a public notice of the planned reduction. 

Finalizing By Submitting to the Registrar of Companies

  • The public notice will have been put up in the office window in three months and subsequently, the company will file necessary documents with the Registrar of Companies.
  • Once authorities grant the consent, the capital is decreased to the approved extent, and the share options are struck off the structure.

In the case of a solvent company, provided that there are no objections from a creditor, and the terms comply with the reduction regulation, this method can be used.

Court-Sanctioned Method

For its part, this one is accomplished upon a court application and it’s applicable where the court-free method cannot be applied.

If a company is insolvent, the court can reduce the amount paid up on shares through the court order. 

As a result, if creditors go against the cutdown the no-court method means that the court cannot take into consideration the objection and likely approve the cut as the court may have made adjustments for the reduction.

Besides that, in cases where the reduction involves complex issues or runs counter to the interests of the shareholders, the court may need to provide oversight.

Steps For Court-Appointed Method

Preparation of Petition

A petition is made with the reduction reasons and the seeking of approval from the court. 

Court Hearing

Presenting the case is done by the company in a hearing in which the alleged victim or other opposing party is free to defend their claims. The judge listens to the presentations from both sides and decides to put forward or not the resolution.

Order from the Court

If the modification is accepted, then the court writes down the details about the reduction. 

Finalization With Registrar Of Companies

Also the same as the court-free technique, the company lodges its consent to the Reduction Order with the Registrar of Companies together with the required documents for registration of the reduction via the court.

By this test, your company is insolvent, creditors object, or you’re not dealing with a strong but complex environment.

Why Reduce Share Capital?

Share capital reduction might be beneficial for various reasons : 

  • With the lesser number of shares, this will also mean that the percentage of equity is held by each existing shareholder in increased amounts.
  • Fees are established based on an organization’s total shareholding, which helps to lower running costs. 
  • Changes in returns of the shareholder’s capital are contingent if it is suffered in the future by the company.
  • It is a possible and easy way to save your business if it might not exist a moment later. 
  • Profit due to many things like minus the expenses, the own shares percentage increase of shareholders and the company bankruptcy by avoiding the various shares fees which calculated per company shares holding.
  • Cash savings or any other distributable surplus that may have accumulated in the financial books of a company can also be used to return its excess to shareholders, and this is a more economically viable option to dividends payouts because of its low or at times no tax rate.
  • The charitable organization can improve the surplus of capital being used for the concept of dividends, which will allow it to reduce the total share capital without directly affecting the paid-up capital or the amount that shareholders have contributed.
  • A reduction of share capital implies a replacement of a rather complex capital structure involving several share classes with a multiple structure which makes more interest in investors than before and increases ease of management.
  • The reduction can be viewed as a positive sign of confidence and the potential for the company’s future performance to investors.

A capital reduction becomes ineffective when it is done to avoid creditors or just to save the proceedings of bankruptcy.

This measure comprises rules about it and it necessitates the company’s Board of Directors and shareholders’ approval before shareholders voting takes place in the shareholders’ meeting.

Share capital reduction can take even a month or more, depending on the method of reimbursement, as it strictly follows a prescribed procedure.

Company- Share Repurchases and Share Buybacks

In Hong Kong, repurchase of listed company shares or buyback means that the company purchases its shares from current shareholders.

Companies can go for share buybacks tied up with the shareholders to mitigate their capital.

  • Targeted Reduction: The companies may specify any share they would want, to be bought back from a particular shareholder.
  • Market Signaling: Simply put, repurchases can almost be a kind of investor’s confidence in the company’s future.

Although share buybacks differ from the capital reduction process, the main rule is that both types of transactions are regulated and subject to legal and tax implications.


Both a limited company private by shares (LTD) and a public limited company (PLC) in Hong Kong will adhere to the methods brought by the Companies Ordinance (Cap.622) It is the procedure commonly used by organizations and this involves getting the board’s approval, holding a shareholder’s general meeting, filing relevant documentation with the Company’s registrar, and ensuring compliance with a solvency nature.

The share capital reduction is also positive in both cutting down the expenditures and strengthening the shareholdings of the shareholders because of the reduction in the number of shares.

Through capital, although it can be cut down to save creditors or go into bankruptcy the shares capital reduction is bound to fail.

Following the capital reduction procedure always should be accompanied by issuing the document indicating the strategic plan of your board of directors which later will be presented to the shareholders meeting for approval.

It is worth mentioning that share capital reduction takes a month or more to proceed, therefore correct implementation of procedures is highly recommended to do as soon as possible to avoid any possible changes done to the company’s documents.

Share Capital Reduction is advantageous in the case where the company expenses are cut back or, the percentage of share ownership goes up, there are no fees of bankruptcy, and otherwise that company is saved by all means. Capital depreciation, otherwise known as capital resumption, can be done to prevent creditors or save a distressed company from bankruptcy.

Although share capital reduction is an ideal tool that every business should resort to when striving to cut expenses, it should also be weighed carefully as it harms the company’s shares in the stock market.

Does the idea of directing corporate governance instead of wasting mental energy focus on a business venture in Hong Kong appeal to you?

Contact FastLane Group to help you with all the cooperate services you need. Fastlane also offers services like a company secretary, accounting, and audit. With the depth of knowledge of our team, we can help your company meet all compliance requirements and guarantee that the procedure is efficient, timely, and complete with all necessary documentation. Get in touch with us right now to find out more about how we can support your success!