Often done by companies who want to further develop or grow their business, issuing new shares is a common method for those looking to raise finances. In this article, we look to provide professional insight on what the Hong Kong share issue process is like, and what business owners should consider when planning to do so.
What You Will Learn:
1. What is a Share Issuance? How is it Different From Share Transfers?
1. What is a Share Issuance? How is it Different From Share Transfers?
Share issuance is not to be confused with share transfers. Whereas share transfers involve the changing of the existing proportion of a company’s shares and typically occurs when a company wants to transfer existing shares to a person who is already associated with the company, or is already a shareholder.
On the other hand, the Hong Kong share issue process involves allotment of company shares by its directors to allottees unrelated to the company, and the subsequent issuance of these shares to the allottees. The issuance of shares to the allotted parties occurs after the parties have been entered into the register of the company’s shareholders with the relevant authorities.
2. Procedure of Share Issuance
The Hong Kong share issue process can be completed in three steps:
1. Obtain consent of the company shareholders:
When first issuing shares, it is mandatory to seek approval of the company through a general meeting. This is to occur prior to allotting, issuing or granting (1) shares, (2) securities convertible into shares; or (3) options, warrants or similar rights to subscribe for any shares or such convertible securities.
Once the company shareholders have confirmed in the General meeting that they will proceed with the issuance of the above, the Company would then issue a notice, notifying that the offer to the allottee has been accepted and that they are entitled to the allotment of shares.
2. Registration of Allottee to the Company Register of Member(s):
Despite being recognised as an allottee to the newly issued shares, these individuals cannot be considered as members of a company nor can they hold any entitlement to the legal title of shareholder until their name has been registered in the company’s register of members.
When updating the register of members, business owners should act in accordance with Cap. 622 of the Hong Kong Companies Ordinance. It states that a company’s register of members should be updated to reflect the new allottee within 2 months of the allotment of shares. If a company fails to update their register of members within the set time frame, then the company could be considered to have breached the allotment contract.
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3. Provide Notice to the Relevant Authorities
Within 1 month of the allotment of shares, the company must deliver the Return of Allotment to the Hong Kong Companies Registry. This submitted document should exclusively mention the following:
- The number of shares that have been allowed to the allottee
- The name and address of the person who received the shares
- The amount paid or consideration to be paid by the allottee in relation to the shares
- Submit an updated Statement of Company’s Capital, which should detail the total issued shares, total paid up capital and the total issued capital of the company
If a company does not meet this timeline of 1 month, the Hong Kong Companies Registrar could refuse to approve the return of allotments for the filing of the Change of Company Shareholders in Hong Kong.
3. Considerations for Business Owners
For business owners who are contemplating issuing shares, they should take time to understand the following:
Issue Price
The issue price is the price which allottees are supposed to pay in relation to the number of shares allotted to them. This price is usually a reflection of the market value of the company’s shares.
Business owners must be aware that after the abolition of par value in Cap. 622, the issuance of shares on the par value or at discount value is strictly prohibited.
Full and Partly Paid Shares
If full payment is made in relation to the acquired shares at the time of the issuance of these shares, then such shares would be considered fully paid shares.
However, oftentimes shares can be allotted on terms of partial payment, and on the understanding that the remaining payment would be made at a later date. Such shares are known as partly paid shares.
It is important to note that in instances where an allottee has an outstanding obligation to make the remaining payment of their shares, the holder of such shares are liable to pay the remaining due amount whenever the company requests. They will also be required to do so when the company is in liquidation.
Non-Cash Considerations
Instead of paying cash for the newly issued shares, allottees may choose to provide non-cash considerations instead. However, if it is found that the value of the non-cash considerations is of a lower market value to the issued shares, the issued shares shall be considered as partly paid shares instead of fully paid shares.
Conclusion
Given the significance behind issuing shares, there are clear consequences in the event of non-compliance. Because many Hong Kong business owners are not familiar with the share issuance process, they run the risk of incurring penalties if they fail to comply with local Hong Kong Company Laws. As such, those who are unfamiliar with their local obligations are recommended to engage a professional service provider.
As FastLane is licensed as a Trust Corporate Services Provider (TCSP License No. TC000758), we are qualified to assist companies perform share allotments and can help them remain compliant with Hong Kong company laws and regulations. We are also featured in Feedspot’s Top 100 Hong Kong Blogs! Whether you have enquiries about this process or are seeking assistance, please contact the FastLane Group for assistance!