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The establishment of operations in Hong Kong and Shenzhen

The establishment of operations in Hong Kong and Shenzhen

4. Setting Up A Branch

An Overseas Corporation may, for commercial reasons, prefer to establish a branch office (the “Branch”) in Hong Kong or for an overseas subsidiary of the Overseas Corporation to establish a Branch. It is assumed for these purposes that the Branch is a branch of the Overseas Corporation (similar rules apply to a Branch of an overseas subsidiary).

4.1 Formalities

A branch exists where a place of business of the Overseas Corporation has been established in Hong Kong. Although there are no formalities involved in the establishment of a place of business, i.e., the Branch, it must register as an “overseas company” under Part XI of the Companies Ordinance. It must however be stressed that Hong Kong’s company legislation has never sought to control foreign direct investment by means of such registration requirement. Subject to specific exceptions, there is no restriction upon the right of foreign investors to hold shares in companies in Hong Kong.

For the purposes of Part XI of the Companies Ordinance, a place of business includes a share transfer or share registration office and any place used for the manufacture or warehousing of any goods but it does not include a place not used by the Overseas Corporation to transact any business which creates legal obligations. A place of business will normally exist if premises are occupied in Hong Kong on a relatively permanent basis from which officers or employees carry on business for the Overseas Corporation. An Overseas Corporation which appoints an agent in Hong Kong and has no office or other place of business of its own in Hong Kong will not generally be deemed to have an established place of business in Hong Kong.

If the Overseas Corporation merely wishes to establish a representative office whose staff do not have the authority to enter into contracts on behalf of the Overseas Corporation, it may be possible to avoid the registration requirements. However the lack of a business registration certificate can make doing business difficult in Hong Kong.

4.2 Registration Requirements

Various documents must be delivered to the Registrar of Companies within one month of establishing its place of business in Hong Kong. The following are required:

  1. the address of the principal place of business of the Overseas Corporation in Hong Kong and the address of its registered office (or equivalent) in its place of incorporation;
  2. certified copies of the Overseas Corporation’s constitutional documents and its certificate of incorporation (if the Overseas corporation is incorporated in a place where under the law it is not the practice to issue a certificate of incorporation, the Registrar may accept other evidence of incorporation);
  3. particulars of its directors and secretary (if any) including their name or alias, any former names, residential addresses and identity card/passport numbers (if the director or secretary is a company, the name and registered/principle office of that company); and
  4. the name and address of at least one person (can be a natural person or a firm of practising solicitors or professional accountants) resident in Hong Kong authorised to accept on behalf of the Overseas Corporation service of legal process and other official notices (an authorised representative).

Unless the Overseas Corporation is sufficiently like a private company under Hong Kong law and it is not required in its place of incorporation to publish its accounts or to have its accounts open to inspection by members of the public, the Overseas Corporation must also supply to the Registrar of Companies a certified copy of its latest accounts. The accounts are submitted to the Inland Revenue Department for tax purposes. The Subsidiary will be exempted from the obligation to file certified copies of its accounts in Hong Kong with the Registrar of Companies if it meets both of the following conditions:

    1. if it were incorporated under the Ordinance in Hong Kong, it would be a private company within the meaning of section 29. That is the Overseas Corporation which by its articles:
      1. restricts the right to transfer its shares;
      2. limits the number of its members to 50, not including persons who are in the employment of the company and persons who, having been formerly in the employment of the company, were while in that employment, and have contained after the determination of that employment to be, members of the company; and
      3. prohibits any invitation to the public to subscribe for its shares or debentures of the Overseas Corporation;
    2. OR

    3. in the opinion of the Registrar of Companies, the Overseas Corporation has substantially the same general characteristics of such a private company;
  1. AND

  2. the Overseas Corporation is not required by the laws of the country of its incorporation to publish its accounts or to deliver copies to any person in whose office they may be inspected as of right by members of the public.

In practice, the Registrar requires a certification as to the private nature of the Overseas Corporation from a lawyer or an auditor practising in the place of its incorporation or by an independent solicitor or auditor practising in Hong Kong.

For a company incorporated in the USA, its application should confirm, where appropriate, that throughout the period since the date of incorporation or since the first day of its last financial year:

  • the company has been either a wholly owned subsidiary of another company, or the actual number of its members has not exceeded 35;
  • there has been no provision in its constitution, articles or bylaws for the creation or issue of bearer shares, or share warrants, and its shares have not been transferable by delivery; and
  • the company has not by the law of its place of incorporation or origin been obliged to publish its accounts or to deliver copies to any person in whose office they may be rightly inspected by members of the public.

A fee is payable when applying to be registered (for the main office, the current fee is HK$1,720 – if unsuccessful, refund of $1,425 will be made, and HK$20 for each document required to be registered on application) and a Certificate of Registration of Oversea Company will be issued by the Registrar of Companies when the registration requirements have been satisfied. Normally the certificate of registration will be issued in about 22 working days [Source: Companies Registry website].

4.3 Name

There are restrictions on the registration of the name of an Overseas Corporation which establishes a Branch in Hong Kong which are similar to those applying to a Subsidiary (see paragraph 3.4 above).

4.4 Business Registration

The provisions of the Business Registration Ordinance apply to the establishment of a Branch as they do to a Subsidiary (see paragraph 3.8 above).

5. Continuing Obligations

A Subsidiary

5.1 Registers

A number of registers must be maintained by the Subsidiary. These include registers of debenture holders, members, charges, directors and secretaries.

5.2 Books Of Account

The Subsidiary must keep proper accounting records which are sufficient to show a true and fair view of the Subsidiary’s affairs and to explain its transactions, and to disclose the Subsidiary’s current financial position.

The books of account must be kept at the registered office of the Subsidiary or at such other place as the directors of the Subsidiary think fit. Unlike other records required by the Legislation, e.g. the register of members and the register of charges, the books of accounts need not be kept in Hong Kong. If they are kept overseas, returns which are sufficient to disclose the financial position of the Subsidiary with reasonable accuracy must be sent and kept at a place in Hong Kong at intervals of not more than 6 months. They must also be sufficiently detailed to enable the Subsidiary’s accounts to be prepared.

5.3 Annual General Meeting

Every company (other than dormant companies) must hold its first annual general meeting (which is a meeting of its shareholders) within 18 months after its incorporation and thereafter at least once every calendar year. The interval between two annual general meetings must not exceed a period of 15 months. At an annual general meeting the shareholders would usually, amongst other things, receive the audited accounts for the previous financial year and declare a dividend (if it is proposed that one be declared).

5.4 Annual Return

Each year within 42 days of the anniversary of its incorporation, the Subsidiary must file with the Registrar of Companies an annual return (giving details of various matters, including its share capital and its directors). The Subsidiary must forward a copy of the return to the Registrar of Companies. With effect from 1 July 2000, the return may be signed by a director or the company secretary.

If the return is not filed within the statutory time limit, penalties are payable by the Subsidiary and every officer who is in default. The Companies Registry can strike-off companies from the register of companies which have consistently failed to file their annual returns.

5.5 Annual Accounts

The directors (in practice the auditor) are required to prepare and put before the annual general meeting of the Subsidiary a profit and loss account made up to a date normally not more than 9 months before the meeting. At the same time a balance sheet of the Subsidiary made up to the same date should be put before that meeting by the directors. The balance sheet must show a true and fair view of the Subsidiary’s financial position at the end of its financial year; the profit and loss account must give a true and fair view of the profit or loss of the Subsidiary for that financial year.

Various other matters which must be specified in the accounts are detailed in the Tenth Schedule of the Legislation, including details of directors’ emoluments, compensations for loss of office and loans to directors. In general, the Subsidiary would also need to disclose the name and place of incorporation of its ultimate holding company in its annual accounts.

As with keeping books of account, a director who fails to lay a profit and loss account or balance sheet before the company in a general annual meeting commits an offence.

5.6 Annual Reports

An auditors’ report and a director’s report must be attached to the Subsidiary’s annual accounts before the same are presented at the Subsidiary’s annual general meeting for consideration by its members. The auditors’ report must state (subject to exceptions) whether the profit and loss accounts and the balance sheet exhibit a true and fair view of the Subsidiary’s financial position. Detailed information about the Subsidiary and its business, in particular the Subsidiary’s profit and loss for the financial year and the state of affairs of the Subsidiary as at the end of the financial year, must deal with in the directors’ report.

5.7 Registration Of Charges

Particulars of certain charges or other security created by the Subsidiary must be delivered to the Registrar of Companies within 5 weeks of their creation. Additional time of up to three weeks may be granted in respect of charges created overseas and comprising property outside Hong Kong to allow for the normal time to send documents to Hong Kong. This requirement applies whether or not the property over which the charges are created is in or outside Hong Kong. Similarly, when the Subsidiary acquires a property subject to an existing charge, such a charge must be registered within 5 weeks after the date on which the acquisition is completed. Failure to register causes the debt secured by the charge to become immediately repayable (i.e. the obligation to repay the debt is not prejudiced) and the charge itself to be void against any liquidator and any creditor of the Subsidiary and may render the Subsidiary and its officers liable to penalties.

5.8 Registered Particulars

The Registrar of Companies must be notified when there are any changes in the details and particulars registered with him. If a new director is appointed, his written consent to act must be obtained. Certain resolutions passed by the shareholders of the Subsidiary (including all special resolutions passed by shareholders – filed within 15 days), for example any resolution increasing its share capital or amending its Memorandum and Articles of Association must also be filed with the Registrar of Companies within a prescribed period.

5.9 Public Inspection

All documents filed with the Registrar of Companies are open to public inspection and any person, upon payment of fees, can obtain copies of such documents.

5.10 Disclosure

The Subsidiary must exhibit its full and correct name outside every office or place in which it carries on business in Hong Kong in a conspicuous position in legible characters and must state the same on, among other things, all of its business letters, notices and other official publications.

The Subsidiary must also possess a common seal containing the full name of the Subsidiary and must be made of metal.

A Branch

5.11 Accounts

The Overseas Corporation need not deliver its accounts to the Registrar of Companies if it is a company of the type described in paragraph 4.2 above. If not, the Overseas Corporation must provide an annual return to the Registrar of Companies, once a year and within intervals of not more than 15 months, confirming that there has been no alteration to the registered documents and copies of its accounts in the form required in its own country. The said annual return must be signed and the said accounts must be duly certified by a director, the company secretary, or the Hong Kong authorised representative of the Overseas Corporation.

In any event, the Branch should prepare branch accounts for tax return purposes.

5.12 Registration Of Charges

Every overseas company is required to register with the Companies Registry particulars of mortgages and charges created by it over property situated in Hong Kong within 5 weeks of their creation. Further, it is also required to register an existing charge on acquired property situated in Hong Kong. Additional time of up to three weeks may be granted in respect of charges created overseas and comprising property outside Hong Kong allow for the normal time to send documents to Hong Kong. The Branch must maintain a register of those charges at its principal office in Hong Kong.

5.13 Registered Particulars

The Registrar of Companies must be notified of any change in the registered documents or particulars of the Overseas Corporation, normally within 21 days of the change.

5.14 Authorised Representative

The Overseas Corporation must have an “authorised representative” in Hong Kong (see section 4.2 above) until at least 3 years after it has ceased to do business in Hong Kong.

5.15 Issues Of Shares

The Overseas Corporation must not offer shares or debentures to the public in Hong Kong unless it adheres to a number of disclosure and registration requirements mainly imposed by the Legislation and the Securities and Futures Ordinance.

5.16 Disclosure

An Overseas Corporation which carries on business in Hong Kong must state its name, country of incorporation and (if so) the fact that it is incorporated with limited liability in legible characters in all bill-heads and letterheads, notices and other official publications of the corporation, and, if the corporation is in liquidation, in all advertisements of the corporation with the words “in liquidation” added after its name.

Skills

Posted on

2003-04-21