Share capital structure and No-par Regime in Hong Kongrussonxiao
Physical or moral persons that created their own company in Hong Kong own share capital. These shares come with benefits and responsibilities.
A. Share capital definition and minimum shareholding
Firstly, it is important to understand what exactly is share capital.
- Share capital represents the total amount that the company actually receives from its shareholders as capital contribution. This is the total amount of capital provided by all shareholders of the company in return of proportion of shares, possessed by each shareholder of the company. For Hong Kong companies, the type of share capital is Issued capital.
Most of companies incorporated in Hong Kong are companies limited by shares. A company limited by shares is a corporation. Like corporations in many other jurisdictions, the liability of a shareholder is limited to the amount unpaid on the shares held by that shareholder.
- Any Hong Kong company must have at least one shareholder. Except in certain regulated industries, there are no minimum requirements as to issued or paid-up share capital and it is possible to incorporate a company with HK$1 of issued and paid-up share capital. There are no consequences under Hong Kong tax laws for a Hong Kong registered company if it has a very small capitalization.
B. Share capital structure
Under the new Companies Ordinance, the share capital structure has become very flexible. There is no par value, no currency restriction and no authorised share capital (maximum number of shares to be issued). Simply said, Hong Kong registered companies may issue any number of shares for any value and in any currencies.
Share capital structure is composed of issued capital that refers to the total value of the shares that are actually allotted.
For example, if a company issues 1,000 shares at the value of HKD10 for each share, then the issued capital of that company will be HKD10,000 (1,000 x HKD10).
After the incorporation of the company, share capital can be increased by allotment. Such allotment of shares needs to obtain the approval from the existing shareholders. The shares of the company can also be transferred, however, it will be subject to stamp duty.
C. The No-par Regime
The abolition of par value for the shares of all Hong Kong companies has become effective upon beginning of the new Companies Ordinance on 3 March 2014.
- Why did Hong Kong chose a “no-par” regime ?
Well, the short answer as mentioned above is simply to provide companies with more flexibility in structuring their share capital.
Nominal value (also known as “par value”) of shares is the minimum price at which shares can generally be issued. The new Companies Ordinance (Cap. 622) adopts a mandatory system of no-par for all Hong Kong companies having a share capital and retires the concept of par value for all shares.
It is now generally recognized that par value original purpose was to protect creditors and shareholders. However, in reality it can be misleading because the par value does not necessarily give an indication of the real value of the shares.
In other comparable common law jurisdictions, the idea of acceptance of no-par value shares is growing strongly. It is considered that replacing the concept of par creates an environment with greater clarity and simplicity and is more desirable for the international business community. For example, Australia, New Zealand and Singapore are other jurisdictions that have adopted mandatory no-par value shares.
D. What are the key changes related to this “no-par” regime in Hong Kong ?
Under the old Companies Ordinance (Cap. 32) companies incorporated in Hong Kong and having a share capital were required to have a par value attached to their shares. This represented the minimum amount at which a share could be issued.
Companies also had to declare in their Memorandum of Association the maximum amount of share capital that may be issued by the company (the requirement for “authorised share capital”).
The concept of share premium was introduced when the excess of the issue price of the share was superior to its par value. Under the previous Company Ordinance, share premium was something strictly regulated and many restrictions were attached to it.
Under the new Companies Ordinance, as a result of migration to mandatory no-par, relevant concepts such as par value, share premium, and requirement for authorised share capital are no longer necessary and were abrogated.
Hong Kong companies have now greater flexibility to alter their share capital in a no-par environment. For example, a company can allot and issue bonus shares without increasing its share capital (section 170 of the new CO). It can also capitalise its profits without issuing new shares etc.
If you have any further question about the share capital structure of your company or the “no-par” regime, please do not hesitate to contact us.