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The establishment of operations in Hong Kong

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The establishment of operations in Hong Kong

1. INTRODUCTION

Hong Kong is generally perceived by the international business community as one of the major financial and commercial centres of the world.

This note provides an outline of matters to be considered for a corporation based outside Hong Kong (the “non-Hong Kong company”) which intends to establish operations in Hong Kong.

This note describes the general features of the Companies Ordinance (“CO”), which is the principal legislation governing the establishment of business operations in Hong Kong.

2. COMMON METHODS OF ESTABLISHING BUSINESS OPERATIONS IN HONG KONG

The main consideration for a non-Hong Kong company is how their business operations in Hong Kong should be carried out. Common methods are:

  • incorporating a limited liability private company in Hong Kong as a wholly-owned subsidiary of the non-Hong Kong company (“Subsidiary”); or
  • setting up a branch office of the non-Hong Kong company; or
  • setting up a branch office of another overseas subsidiary of the non-Hong Kong company.

While there are other ways of setting up operations in Hong Kong (such as under joint venture arrangements, through a partnership or by way of the acquisition of an existing business), this brochure focuses on the methods above.

3. INCORPORATING A SUBSIDIARY

Generally, if the Subsidiary incorporated in Hong Kong by the non-Hong Kong company is not established primarily for the raising of equity, it will often be incorporated as a private company limited by shares (cf. public limited company) as private companies have less onerous disclosure obligations than public companies.

Under the CO of Hong Kong, a private company in Hong Kong, is defined as a company which by its articles1:

  1. restricts the shareholders’ right to transfer shares;
  2. limits the number of its shareholders to 50 (which does not include (a) persons currently employed by the company and (b) former employees of the company who were members of the company while they were employed) and who continue to be members of the company; and
  3. prohibits the making of any invitation to the public to subscribe for any shares or debentures of the company.

In addition, a private company must not be a company limited by guarantee.

3.1. Incorporation

To incorporate the Subsidiary, the non-Hong Kong company must prepare the following incorporation documents:

  1. Articles of association of the company;
  2. Form NNC1 – Incorporation Form (Company Limited by Shares)2; and
  3. Form IRBR1 – Notice to Business Registration Office.

These documents must be submitted to the Registrar of Companies together with a registration fee and business registration fee.3

When the Subsidiary is registered, the Companies Registrar will issue a certificate of incorporation that certifies its incorporation and limited liability status. The certificate is also conclusive evidence that4:

  1. all requirements of the CO in respect of registration have been complied with; and
  2. that the association is a company authorised to be registered and is duly registered under the CO.

Typically, the incorporation process takes four to five working days from the date of submission of the relevant documents to the Companies Registry. However, it is also possible to incorporate a subsidiary within a day or two by purchasing a “shelf company”. A “shelf company” is a company which has already been incorporated with a standard form of articles of association. The constitution and name of the “shelf company” can be amended as desired at a later stage. The fee for changing the company name is HK$295.5

3.2. Constitution

The constitution of the Subsidiary is set out in the articles of association.

The articles of association is a document fundamental to the formation of a registered company. The CO provides that the following companies are required to have an objects clause (i.e. a clause specifying the proposed business scope or activities and the powers of the company) in their articles of association.6

  1. Companies intending to apply for a licence to dispense with the word “Limited” in their names; or
  2. Companies whose articles of association are subject to the requirements of other Hong Kong legislation.

3.3. Share Capital

The CO provides that shares in a Hong Kong company have no nominal value. The CO has not prescribed any requirement for the number of shares to be issued. The articles of association of a Hong Kong company with a share capital can state the maximum number of shares that the company may issue.

Under the CO, Hong Kong companies must have at least one member (i.e. shareholder) and that one member may be a nominee of the beneficial owner. The member need not be resident in Hong Kong and can be an individual or a corporation.

3.4. Name

The name of the Subsidiary must, except in very limited cases (such as charitable companies), end with the word “Limited” and must not be the same as that of a company already registered with the Registrar of Companies or that of a body corporate established under any ordinance in Hong Kong.7

A company may now be registered with its name expressed either in English or in Chinese or with names in both languages. Where Chinese characters are used for the Subsidiary’s name, four prescribed Chinese characters (“you xian gong si”, translated as “limited company”) must appear at the end of that name. Sensitive words including “Government”, “Department” or “Commission” or other names that may give the impression that the company is connected in any way with the Central People’s Government or the Government of Hong Kong or any governmental department can only be used with the permission of the Registrar of Companies.8 When choosing a company name, companies should be aware of the common law tort of “passing off” which involves using a business name which is deceptively similar to the name of another business so that actual damage has been, or is likely to be, caused to the owner of that other business.

If the Subsidiary is registered under a name which is identical or too similar to that of another company that is already registered, the Registrar may direct the Subsidiary, within 12 months of registration, to change its name.

3.5. Directors And Company Secretary

The Subsidiary must have at least one director and one company secretary but the director cannot also be the secretary if the company has only one director.9

A director of the Subsidiary:

  1. can be of any nationality and can be an individual or corporation (the CO requires every private company to have at least one director who is a natural person);
  2. must have attained the age of 18; and
  3. must not have been disqualified from acting as a director (for example, due to bankruptcy10, conviction of fraud or other indictable offence involving dishonesty or persistent defaults in relation to the CO).

The company secretary is responsible for performing duties such as keeping the books and records of the Subsidiary, keeping custody of the company seal and making sure that all necessary documents are filed with the Registrar of Companies. The company secretary can be an individual or a corporation. If the company secretary is an individual, he/she must be resident in Hong Kong. However, if the company secretary is a corporation, it must have its registered office or place of business in Hong Kong.11

3.6. Registered Office

The intended address of the Subsidiary’s registered office is required to be stated in the incorporation form registered. Any change in the registered office address after the date of incorporation must be notified to the Registrar. The Subsidiary must have a registered office in Hong Kong to which any legal documents, notices or communications can be served on the company.12 Such notices or communications are properly served if left at or sent by post to that office.13 If the address of the Subsidiary’s registered office is changed, a notice of the change in the specified form (Form NR1) must be sent to the Registrar within 15 days after the date of the change.

The registered office does not need to be the address from which the company operates and could for example be the address of its auditor. Various statutory registers and documents of a company are required to be kept at its registered office.14 These include registers of debenture holders, shareholders, charges, directors and company secretaries, copies of every instrument creating a charge, copies of permitted indemnity provisions or written memoranda setting out the terms of such provisions, copies of management contracts or written memoranda setting out the terms of such contracts, copies of shareholders’ resolutions, minutes of proceedings of general meetings and written records of decisions of a sole member and a register of particulars referred to in section 384 CO.

If these registers and documents are kept at an address other than the company’s registered office, the Registrar of Companies must be notified of their location.15

3.7. Auditor

Pursuant to the Professional Accountants Ordinance, the Subsidiary must appoint an auditor who is either an accountant or firm of accountants registered in Hong Kong and having recognised qualifications.16

3.8. Business Registration

Under the Business Registration Ordinance, at the time an incorporation application is made, the applicant must pay to the Commissioner the prescribed business registration fee and levy and deliver a notice in a form specified by the Commissioner (Form IRBR1) together with the other incorporation documents to the Registrar. On the incorporation of the Subsidiary, the Subsidiary is deemed to have made a business registration application.

A business registration certificate will then be issued together with the certificate of incorporation on the incorporation of the company. The business registration certificate must be displayed by the Subsidiary. A business registration certificate can be obtained for:

  1. one year; or
  2. three years.

1 Section 11 CO

2 section 67 to 70 and schedule 2 CO

3 section 67 CO

4 sections 69, 70 (1), (2) and 72 CO

5 section 26 Companies (Fees) Regulation

6 section 82 CO

7 It is advisable to check the Registrar of Company’s index of company names and the Trademark Register maintained by the Government of the Hong Kong Special Administrative Region Intellectual Property Department (http://ipsearch.ipd.gov.hk/index.html)

8 section 100(2) CO

9 sections 454 to 455 and section 474 CO

10 section 480(1) CO

11 section 474 CO

12 section 658(1) CO

13 section 827 CO

14 sections 309(1)(a), 351(1), 352(1)(a), 385(1)(a), 471(2), 543(3), 619(1)(a), 628(1)(a), 641(3)(a) and 648(3)(a) CO

15 section 309(2), 351(4), 354(1), 385(2), 471(4), 543(5), 619(2), 628(2), 641(4), and 648(4) CO

16 section 393(1) CO

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Posted on

2014-10-17