Procedure For Share Allotment In Hong Kong

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?

Firstly, before the consideration of the main topic, we will review the fundamentals that constitute a Hong Kong Private Limited Company. Hong Kong one of the locations that is mostly preferred by multinational investors for starting a new venture or conducting their business activities because of the level of protection that it offers by having its own separate legal identity from its shareholders. The protection of assets of a foreign investor, who can be a corporation registered beyond the border of Hong Kong and a foreign individual, is provided by the Private Limited Company by shares with the aim of reducing the level of the risks.

For example, as can be seen in the case of the incorporation of a Private Limited Company in Hong Kong, the investor can decide the number of shares which will be registered as the company’s share capital. The Hong Kong Companies Ordinance (cap. 622) stipulates that a private limited company must have at least one share worth a value of HK$1. Furthermore, a Private Limited Company can do so by raising the maximum number of its shareholders to 50 people. In this regard, a company can also raise capital by issuing new shares to new shareholders and increase the number of shareholders. This is the essence of the system referred to as the sub-division of shares.

In addition, when the company changes or increases its number of shareholders or issued share allotment, it should update all the information with the Companies Registry of Hong Kong as part of the Annual Return of the company which should be submitted every year and updated regularly if any changes occur to the company to comply with the local regulations of Hong Kong.

Now, that we have better knowledge about one of the essentials of a Private Limited Company and the process of issuing new shares, we can jump to the next section.

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

The first part we have learned about the company’s conditions is that as long as they are met, it is possible share allotment.  Here we will enlist the steps needed for the process:

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.

2. Shareholders’ Resolution Approval: The next step in the process is that the directors of the company prepare the proposal and it will have to be passed by the shareholders. There are several pathways through which approval can be received, such as getting the signature of all the shareholders on the proposal document or having a meeting with the shareholders and voting on it with majority.

3. 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. This step comes next to make sure that all is well, you can then assign the shares to the new investor.

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 purchase or pay price, the kind of share, as well add the details of the shareholder (individual or corporation).

5. Certificates of Shares Creation: Just as the form submitted will be furnished with information which is similar to that contained in the certificate of the newly share allotment, the details of the transaction and whether it was fully paid up should also be included in the share certificate.

Other Considerations

Here we will mention a point, that we consider, will add some protection to the process of issuing new shares:

Contract for the Allotment: The entry of a shareholder as a new partner may require a contract to be signed in order to protect the company and other shareholders who have already been part of it.

Timeframe: After the application submission, the new shareholders should get their share certificates within two months.

Conclusion

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!