Setting Up and Operating a Company in Hong Kong

May 7, 2012 Posted by China Briefing Reading Time: 7 minutes

By Eunice Ku

May 7 – One of the key advantages that Hong Kong holds over other holding company jurisdictions is its Closer Economic Partnership Agreement (CEPA) with Mainland China.

Set up in 2002 after China’s accession to the WTO, the CEPA is essentially a free trade agreement. The most recent supplement, Supplement VIII (CEPA VIII), signed in December 2011 and implemented from April 2012, deepened liberalization of trade in services. A list of the goods entitled to zero tariff preference and services included under the agreement can be found on the Hong Kong Trade and Industry Department website.

The most commonly used company structure for foreign companies doing business in Hong Kong is a private limited company.

Requirements for Incorporation
According to the Hong Kong Companies Ordinance, a “private company” is a company which, by its articles of association:

Restricts the right of members to transfer shares;
Limits the number of its members to 50 (excluding employees and former employees who become members while they are employed by the company); and
Prohibits any invitation to the public to subscribe for any shares or debentures of the company.

For a company to be a “limited company,” its memorandum should limit the liability of its members to either the amount unpaid on company shares they hold (for a company limited by shares) or the amount they undertake to contribute to the assets of the company in the event of the company being liquidated (for a company limited by guarantee).

Requirements for establishment of a Hong Kong private limited company include:

1. At least one director and one secretary

If the company has one director only, the sole director cannot be the secretary of the company at the same time.
The director can be a non-Hong Kong resident.
The secretary can be an individual or a body corporate. If an individual, he/she should ordinarily reside in Hong Kong. If the secretary is a body corporate, its registered office or place of business should be in Hong Kong.

2. At least one registered shareholder

The shareholders of the company do not have to be Hong Kong residents.
The sole shareholder can be a director of the company.

3. If limited by shares, at least one founder member should hold one share

4. Registered office is situated in Hong Kong

There is no minimum requirement on the company’s paid upfront capital or nominal share capital under the Companies Ordinance.

Incorporation Process
Hong Kong limited company set up process is the same for foreign and local-owned companies. The relevant government authority for approval is the Companies Registry. The relevant steps are as follows:

Choose company name
Complete company incorporation and business registration
Receive certificates

1. Choose company name
The first step of the incorporation of a private limited company is to choose a name for the company.

Generally speaking, the name will be accepted for registration as long as it is not the same as a name appearing in the index of company names kept by the Registrar of Companies. A company name search can be conducted free of charge at the Registrar of Companies’ Cyber Search Center.

A company name can be in English or Chinese and a company can also adopt both an English and a Chinese name. However, a company name with a combination of English letters and Chinese characters is not acceptable. A Chinese company name should use traditional Chinese characters.

An English company name must end with the word “Limited.” Company names containing words or expressions such as “Trust” or “Chamber of Commerce” will require prior approval from the Registrar of Companies.

The Registrar of Companies does not pre-approve company names. The Registrar of Companies is also empowered to order a company to change its name in situations where, for example, the name gives so misleading an indication of the nature of the company’s activities in Hong Kong that it will likely cause harm to the public, or it is too like another name of an organization established in Hong Kong under any ordinance at the time of registration.

A company name that infringes on the intellectual property rights of a third party could result in criminal or civil sanctions in Hong Kong or elsewhere. To prevent this from happening, a search in the Trademark Register maintained by the Intellectual Property Department should be conducted.

2. Complete company incorporation and business registration
The Companies Registry and the Inland Revenue Department jointly implemented the “One-stop Company and Business Registration Service” on February 21, 2011. Under this service, any person who applies for incorporation of a local company is deemed to be making a simultaneous application for business registration. Upon approval of an application for incorporation, the Registrar of Companies will issue the Certificate of Incorporation and the Business Registration Certificate.

There are two types of business registration certificates, namely a one-year certificate and a three-year certificate. If business specifics as specified on the registration certificate change, the business operator has to notify the Inland Revenue Department in writing within 1 month of the change.

Only certain types of business (e.g. restaurants, banks, travel agencies) need additional forms of license. More information can be found on the homepage of Business License Information Service.

The incorporation documents include:

Incorporation Form – Form NC1 (for company limited by shares) or Form NC1G (for company not limited by shares);
A copy each of the company’s memorandum and articles of association; and
A Notice to the Business Registration Office (IRBR1).

Memorandum and Articles of Association
The original memorandum and articles of association must be signed by each founding member of the company. The copy delivered to the Companies Registry for registration, however, need not contain the signature(s) of the founder member(s).

The memorandum of a company limited by shares or by guarantee must state that the liability of its members is limited. Companies are generally not required to state their objectives in their memorandum, with certain exceptions such as companies incorporated to promote charitable objects and which have been authorized to dispense with the use of the word “limited” in their name.

The articles of association are the regulations of the company. Companies can adopt all or any of the regulations contained in Table A of the first schedule of the Companies Ordinance, or adopt more detailed articles. The Articles should be printed in English or Chinese, be divided into paragraphs, numbered consecutively, and signed by each founder member of the company.

3. Receive certificates
Registration certificates are issued by the Registrar of Companies in hard copy form for paper submission and in electronic form for online submission (both having the same legal effect).

For those companies limited by shares that submit hard copy applications, certificates are normally issued in four working days, with an email notification that certificates are available for download.

For companies limited by shares that adopt the standard memorandum and articles of association provided at the e-Registry, electronic certificates will normally be issued within 24 hours, with an email notification. For hard copy application, there is a fax notification that certificates are ready for collection, after which the certificates have to be collected in person at the Companies Registrar.

Annual Compliance
Annual compliance requirements in Hong Kong include:

An annual general meeting
The filing of an annual return

At the annual general meeting, a profit and loss account, balance sheet, and director’s reports are presented; dividends (if any) are declared; and directors are elected to replace those retiring (if any), and auditors are appointed.

Annual general meeting
An annual general meeting should be held within 18 months of incorporation and then at least once in every calendar year. No more than 15 months should elapse between two annual general meetings unless written approval is obtained from the Companies Registrar.

At the annual general meeting, the directors of every company should present a profit and loss account and a balance sheet for the financial year. A directors’ report should be attached to every balance sheet presented at the annual general meeting. The Companies Ordinance stipulates the items that this report should contain, including significant changes in the fixed assets of the company and details of contracts with the company which are significant in relation to the company’s business and in which any director has a material interest.

Annual return
An annual return must be filed with the Registrar of Companies once a year. It must be:

Signed by a director or the secretary of the company
Filed within 42 days of the most recent anniversary of the incorporation date of the company (within 42 days of the company’s anniversary of incorporation) for private companies having share capital. Other companies must file their annual return within 42 days after the company’s annual general meeting for the year.

Material for this article was taken from the May issue of China Briefing Magazine, titled “Hong Kong and Singapore Holding Companies,” which is temporarily available this month as a complimentary PDF download on the Asia Briefing Bookstore. In this issue, we take a closer look at the benefits of both Hong Kong and Singapore holding companies, how to establish and maintain a company in each of these jurisdictions, and the relevant double tax agreements.

Dezan Shira & Associates is a boutique professional services firm providing foreign direct investment business advisory, tax, accounting, payroll and due diligence services for multinational clients in China, Hong Kong, India, Singapore and Vietnam. For further information on establishing or operating a holding company in Hong Kong, please email hongkong@dezshira.com. Alternatively, you can visit our web site at www.dezshira.com or download our brochure.

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