Shareholder rights in Hong Kong
4 minute read
Every incorporated company in Hong Kong is required to have at least 1 or more registered shareholders. The shareholder(s) may or may not be a resident in Hong Kong. A shareholder may be a person or a legal entity, such as a company, liquidator, or sole proprietor.
Let’s discuss shareholder rights in Hong Kong for LTD companies. The issuing of new shares in a private limited incorporated company in Hong Kong involves:
Shareholders rights in Hong Kong for LTD Companies
Private company shareholders in Hong Kong hold share certificates. A company can include specific rights of shareholders in its Articles of Association.
Rights of shareholders
When more than one member jointly invests in a company, there are three classes of shares:
Different shareholders can “mix” and distribute the rights among different members.
Can the rights of shares be altered?
The Companies Ordinance gives shareholders of a class statutory protection against the alteration of their rights. However, some minority classes of voting or non-voting shares could be altered by the majority by passing a special resolution, calling for the alteration of the articles of association.
This is a variation of class rights that may vary according to the articles of association of a company.
Can shares be converted from one class to another?
There is no statutory provision to convert shares of one class to another. But if all shareholders give their consent to the conversion by passing a special resolution, it might still be possible. The consent of all shareholders is required because this might affect the rights of all shareholders. In Hong Kong, you may sell your existing shares to buy another class.
Right to dividends
Shareholders earn dividends as part of profit-sharing. However, when the company is out of profits, it cannot make any distribution to shareholders as per the Companies Ordinance. In that case, shareholders do not get dividends, which accrue only when the company makes a profit.
As far as dividend distribution is concerned, there may be variation from one private company to another.
Are director(s) paid only dividends when profit accrues? What about the bonus?
Directors in a limited company in Hong Kong receive dividends when profits occur, apart from regular salaries. They also receive a bonus as a reward for their contribution and efforts for the company. Dividends are paid to shareholders in accordance with their respective rights unless there are special arrangements done by the company.
Taxes are incurred on dividends as investment income for shareholders. Ideally, tax rates for dividends are lower compared to other forms of income.
Hong Kong tax law defines dividends as the after-tax profits to be divided among shareholders. According to the tax law, wages, salaries, benefits, and bonus of directors are forms of company expenses. These transactions are deducted from the revenue before taxation while the dividend is calculated on the profit left after taxes.
Right to assets
While shareholders of Hong Kong incorporated companies are entitled to receive dividend as part of profit sharing, they are also entitled to distribution of assets after the company is liquidated.
Shareholders of Hong Kong company must pay shares in full. They are required by the Hong Kong law to subscribe to the company shares. Their rights vary according to the types of their shares. This may also depend on any particularities included in the company’s constitution or Articles of Association. In Hong Kong, shareholders’ personal liability depends on the extent of their shares in the company.
Right to make decisions
Shareholders are required to make or sanction certain decisions in a general meeting by passing an ordinary or special resolution. While a special resolution requires 75% majority, an ordinary resolution requires only a simple majority.
Right to appoint a proxy
One statutory right of a shareholder in a limited company in Hong Kong is to appoint a proxy on their behalf to attend and vote at any meeting they are entitled to attend. The proxy may or may not be a member. However, the shareholder must make a statement in this regard in the notice of all general meetings.
A Hong Kong incorporated company’s constitution or articles of association allow passage of resolutions by a written resolution duly signed by all shareholders. A meeting is not mandatory in this case.
When there is only one shareholder in a private company who makes a decision in a meeting of shareholders, it must be in the form of a written resolution or record. The resolution must be submitted to the company within 7 days.
All shareholders have a right to be treated fairly and equally as per the Hong Kong law.