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Approvals and notifications required in relation to transfers of shares of a licensed corporation in Hong Kong

Approvals and notifications required  in relation to transfers of shares of  a licensed corporation in Hong Kong

Executive Summary

In Hong Kong, a corporation is not permitted to carry out regulated activities (as defined in Schedule 1 hereto) unless approval of the Securities and Futures Commission (the “SFC”) is obtained under section 116 of the Securities and Futures Ordinance (Cap. 157 of the laws of Hong Kong) (the “SFO”). A corporation which has obtained SFC approval to carry on one or more regulated activities is referred to in this note as a “licensed corporation”.

As an ongoing obligation, when there is a change of certain specified information of a licensed corporation, either prior approval of the SFC is required to be obtained, or in other circumstances, notification to the SFC is required, depending on the type of information. The relevant changes which require prior approval or notification, and the relevant procedures in relation thereto are set out in the SFO, the Securities and Futures (Licensing and Registration) (Information) Rules (Cap 157S of the laws of Hong Kong) (the “Information Rules”) and the Licensing Information Booklet issued by the SFC in August 2003 (the “Booklet”).

1. Changes that require the prior approval of the SFC

  1. Approval to become or continue to be (as the case may be) a substantial shareholder

    Prior approval of the SFC is required for any company or individual to become or continue to be (as the case may be) a substantial shareholder of a licensed corporation in Hong Kong.

    Definition of substantial shareholder

    For the purpose of the SFO, a person will be a ‘substantial shareholder’ of a corporation under section 6 of Schedule 1 of the SFO if he, either alone or with associates:

    1. holds an interest in shares of the corporation:
      1. equal to more than 10% of the corporation’s issued share capital; or
      2. which entitles him, either alone or with his associates and whether directly or indirectly, to control more than 10% of the voting power at general meetings; or
    2. holds shares in any other corporation which entitles him, either alone or with his associates and either directly or indirectly, to control the exercise of 35% or more of the voting power at general meetings of that other corporation, or of a further corporation, where that other corporation is itself entitled, alone or with its associates and whether directly or indirectly, to control more than 10% of the voting power at general meetings of the first corporation.

    Pursuant to section 6(2) of Schedule 1 of the SFO, a person is regarded as being entitled to exercise or control the exercise of 35% or more of the voting power at general meetings of a corporation indirectly if he, either alone or with any of his/its associates, has an interest in shares in a further corporation which entitles him/it either alone or with any of his/its associates, to exercise or control the exercise of 35% or more of the voting power at general meetings of the further corporation which is itself entitled, either alone or with any of its associates, to exercise or control the exercise of 35% or more of the voting power at general meetings of the first mentioned corporation.

    Procedures for an application to become or continue to be (as the case may be) a substantial shareholder

    In order to apply to the SFC for approval as a substantial shareholder, the proposed substantial shareholder or substantial shareholder (as the case may be) should lodge the required application forms together with the prescribed fee, which is currently HK$3,000. The application forms which should be submitted are:

    • Form 4 (Miscellaneous Applications) – Section 13 (Approval as a substantial shareholder); and
    • Supplement 2 (Information on Corporate Substantial Shareholder) for a corporate applicant. The information required by Supplement 2 includes the name and percentage shareholding of any substantial shareholder (as defined in the SFO) of the corporate substantial shareholder. The corporate substantial shareholder’s individual and corporate directors are also required to submit Supplement 3 (Statement of Personal Information) and Supplement 4 (Information on Corporate Director), respectively; or
    • Supplement 3 (Statement of Personal Information) for an individual applicant.

    A group chart depicting the related change in shareholding structure including the respective number of shares and percentage of shareholdings is required to be submitted with the application.

    The application fee of HK$3,000 is payable on a per application basis regardless of the number of substantial shareholders proposed.

    SFC Approval Conditional upon Notification of Contact Details

    An approval granted by the SFC for a person to become or continue to be (as the case may be) a substantial shareholder of a licensed corporation will be conditional upon the substantial shareholder:

    1. at all times keeping the SFC informed of the particulars of his/its contact details including, in so far as applicable, his/its business address, residential address, telephone and facsimile numbers and electronic mail address; and
    2. informing the SFC of any change in those particulars within 14 days after the change takes place.

    (section 132(5) of the SFO)

    Any person who receives SFC approval as a substantial shareholder must therefore notify the SFC of the contact details referred to at (1) above and of any subsequent changes in such details no later than 14 days after the change.

    SFC Approval Criteria

    A person who applies to become or continue to be (as the case may be) a substantial shareholder of a licensed corporation must satisfy the SFC that he/it is fit and proper.

    Definition of “fit and proper”

    In considering whether a person is “fit and proper”, the SFC will consider the following (section 129 of the SFO):

    1. the financial status or solvency;
    2. the educational or other qualifications or experience having regard to the nature of the functions which, if the application is allowed, the person will perform;
    3. the ability to carry on the regulated activity competently, honestly and fairly; and
    4. the reputation, character, reliability and financial integrity,

      of:

      • where the person is an individual, the person himself;
      • where the person is a corporation (other than an authorised financial institution), the corporation and any officer of the corporation;
      • where the person is an authorised financial institution, the institution and any director, chief executive, manager (as defined in section 2(1) of the Banking Ordinance (Cap. 155 of the laws of Hong Kong)) and executive officer of the institution.

    Accordingly, the application forms require the applicant (and in the case of a corporate substantial shareholder applicant, its directors) to provide information as to: (i) their financial status; (ii) any disciplinary actions to which they have been subject; (iii) any criminal offences with which they have been charged; and (iv) any orders for fraud or dishonesty etc.

    Section 129(2) of the SFO sets out other information which the SFC may take into account in determining whether a person is “fit and proper” including:

    1. a decision made in respect of the person by:
      1. the Hong Kong Monetary Authority;
      2. the Insurance Authority;
      3. the Mandatory Provident Fund Schemes Authority of Hong Kong; or
      4. any other authority or regulatory organisation, whether in Hong Kong or elsewhere, which, in the SFC’s opinion, performs a function similar to the functions of the SFC;
    2. where the person is a corporation in a group of companies, any information in the possession of the SFC, whether provided by the person or not, relating to:
      1. any other corporation in the same group of companies; or
      2. any substantial shareholder or officer of the corporation or any corporation referred to in sub-subparagraph (A); and
    3. the state of affairs of any other business which the person carries on or proposes to carry on.

    Further guidance as to what constitutes “fit and proper” are set out in the “Fit and Proper Guidelines” issued by the SFC.

    The SFC will also refuse to approve an applicant as a substantial shareholder if it is not satisfied that the licensed corporation will remain a fit and proper person to be licensed if the application is approved (section 132(2) of the SFO).

    Consequences of failure to obtain the approval of the SFC to become or continue to become (as the case may be) a substantial shareholder

    Under section 131(2) of the SFO, any person who fails to obtain the approval of the SFC to become or continue to be (as the case may be) a substantial shareholder commits an offence and is liable:

    1. on conviction on indictment to a fine of HK$ 1 million and to imprisonment for 2 years, and to a further fine of HK$5,000 for every day during which the person continues to be such substantial shareholder without the approval of the SFC; or
    2. on summary conviction to a fine at level 6 and to imprisonment for 6 months, and to a further fine of HK$500 for every day during which the person continues to be such substantial shareholder without the approval of the SFC.

    Under section 131(3) of the SFO, it is a defence for person charged with an offence mentioned above to prove:

    1. that he did not know, and could not have by the exercise of reasonable diligence ascertained, the existence of the act or circumstances by virtue of which he became such a substantial shareholder; and
    2. where he subsequently became aware of such act or circumstances, that he applied to the SFC as soon as reasonably practicable and in any event within 3 business days after he became so aware, for approval to continue to be a substantial shareholder of the corporation.

    If a person becomes a substantial shareholder of a corporation without the prior approval of the SFC by virtue of:

    1. a transfer of shares;
    2. an issue of shares; or
    3. a transfer of the right to be issued with shares,

    then, unless and until the SFC approves the person to continue to be a substantial shareholder of the corporation, the voting rights conferred by the shares concerned are not exercisable (section 131(4) of the SFO).

    A person who purportedly exercises any voting right that is not exercisable commits an offence and is liable:

    1. on conviction on indictment to a fine of HK$200,000 and to imprisonment for 1 year; or
    2. on summary conviction to a fine at level 6 and to imprisonment for 6 months(section 131(5) of the SFO).

    Under section 131(6) of the SFO, it is a defence for a person charged with an offence mentioned above to prove that he:

    1. did not know; and
    2. could not have by the exercise of reasonable diligence known, that the voting right which he purportedly exercised is not exercisable.
  2. Approval to become a responsible officer

    A licensed corporation in Hong Kong is required to appoint two responsible officers approved by the SFC for each type of regulated activity. For each regulated activity, there should be at least one responsible officer available at all times to supervise the business. The same individual may be appointed to be a responsible officer for more than one regulated activity provided that he is fit and proper to be so appointed and there is no conflict in the roles assumed.

    At least one of the responsible officers must be an executive director of the licensed corporation and all the executive directors must seek the approval of the SFC as responsible officers.

    Under section 126 of the SFO, a person who wishes to become a responsible officer of a licensed corporation, is required to apply to the SFC in the prescribed manner and pay the prescribed fee, which is currently HK$2,950 per regulated activity.

    Test of competence and qualifications of a responsible officer

    For the relevant test of competence and qualifications required for an applicant to become a responsible officer, please refer to the “Note on Licensing Regime under the Securities and Futures Ordinance” issued by Charltons, the “Fit and Proper Guidelines” issued by the SFC and the “Guidelines on Competence” issued by the SFC.

    Procedures for applying to become a responsible officer

    An applicant who is already a licensed representative approved by the SFC, the applicant is required to submit the following forms:

    • Form 4 (Miscellaneous Applications); and
    • Supplement 10 (Duties and Experience of Responsible Officer).

    The application fee for approval to become a responsible officer is HK$2,950 per regulated activity.

    An applicant who is not already a licensed representative approved by the SFC is required to submit the following forms:

    • Form 3 (Application for Licence – Representative); and
    • Supplement 10 (Duties and Experience of Responsible Officer).

    The application fee for approval to become a licensed representative and responsible officer is HK$1,790 per regulated activity (for approval as a licensed representative) and HK$2,950 per regulated activity (for approval as a responsible officer).

  3. Other matters requiring prior approval of the SFC

    Examples of other matters that require the prior approval of the SFC (non-exhaustive) are set out in Schedule 2 hereto.

Skills

Posted on

2009-06-03