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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”) and Business Registration Ordinance, which are the principal legislations 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 note 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 from a large number of people, 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. the company is duly registered under the CO.

Typically, the incorporation process takes four to five working days from the date of physical submission of the relevant documents to the Companies Registry.

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.   

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 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: 

  1. Companies intending to apply for a licence to dispense with the word “Limited” in their names5; or

  2. Companies whose articles of association are subject to the requirements of other Hong Kong legislation.

Other than the above, companies are not required to state their specific objectives in their Articles of Association.

3.3 Share Capital

The CO provides that shares in a Hong Kong company have no nominal value. The CO does not prescribe any requirement to include a maximum number of shares to be issued. However, 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 (however the beneficial owner may not be recorded in the register of members). 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 ordinances in Hong Kong.6 

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.7 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.8

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 bankruptcy9, 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.10

3.6 Significant Controllers Register

The significant controllers register must contain, among others, the following required particulars of the significant controller(s) and contact details of the designated representative of the company.

For a significant controller:

  • Name

  • for a registrable person, correspondence address, identity card number (if the person does not have an identity card, the number and issuing country of the passport)

  • for a registrable legal entity (e.g. a company), legal form, registration number, place of incorporation (governing law) and address of registered office

  • date of becoming a significant controller

  • nature of control over the company

For a designated representative:

  • name

  • contact details

A significant controller includes (1) a registrable person who is a natural person that has significant control over the company; and (2) a registrable legal entity e.g. a company, which is a shareholder of the company that has significant control over the company.

A person has significant control over a company if one or more of the following 5 conditions11 are met:

  • The person holds, directly or indirectly, more than 25% of the issued shares in the company or, if the company does not have a share capital, the person holds, directly or indirectly, a right to share in more than 25% of the capital or profits of the company;

  • The person holds, directly or indirectly, more than 25% of the voting rights of the company;

  • The person holds, directly or indirectly, the right to appoint or remove a majority of the board of directors of the company;

  • The person has the right to exercise, or actually exercises, significant influence or control over the company;

  • The person has the right to exercise, or actually exercises, significant influence or control over the activities of a trust or a firm that is not a legal person, but whose trustees or members satisfy any of the first four conditions in relation to the company.

A company must designate at least one person as its representative to provide assistance relating to the company’s significant controllers register to a law enforcement officer. A company’s designated representative must be either a shareholder, director or an employee of the company who is a natural person resident in Hong Kong or, alternatively, an accounting professional, a legal professional or a person licensed to carry on a business as trust or company service provider.

3.7 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 office13  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, significant controllers, 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 location15

3.8 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 qualifications16 

3.9 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 in a conspicuous place at the address where the business is carried on and should be produced for official inspection on demand. 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 section 72 CO

5 section 82 CO

6 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 (https://esearch.ipd.gov.hk/nis-pos-view/)

7 section 100(2) CO

8 sections 454, 455, 474 and 475 CO

9 section 480(1) CO

10 section 474 CO

11 Part 1 of Schedule 5A to the 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), 648(3)(a) and 653M(1)(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