The new Companies Ordinance, Chapter 622 of the Laws of Hong Kong, commenced operation on 3rd March 2014 and applies to every registered company.
The new law is intended to enhance corporate governance, ensure better regulation, facilitate business and modernize the Law. Following is a brief overview of some of the key changes.
1. Adoption of Articles of Association (AA) instead of Memorandum of Association (MA)
- The requirement for a company to have a MA as a constitutional document is abolished. New companies can be registered by submitting a new incorporation form and a copy of the company's Articles of Association ("AA").
- For companies already registered under Cap. 32, the current provisions in their MA will be regarded as provisions of their AA.
- Some provisions in existing Articles of Association may become void due to changes in the new ordinance. These are detailed further at;
2. Abolition of par value of shares
- All shares issued, before, on and after the commencement date of the new ordinance shall have no par value.
- The law will deem all shares issued before the abolition to have no par value (Section 135 of the new ordinance). That is why there is no conversion process required from companies unless individual companies would like to have some specific changes to their AA having regard to their circumstances
3. New requirements for directors
- Every private company must have at least one director who is a natural person. That means, if a corporation is the only director in the company, then, under the new ordinance, the company will be considered as not complying with the Law.
- There is a grace period of 6 months after the commencement date of the new ordinance in order to give companies time to comply with the new requirements.
- If a company fails to appoint a natural person as a director, the company and every responsible person commits an offence and each is liable to a fine of HKD 100,000 and a further fine of HKD 2,000 for each day for a continuing offence.
4. New Standard for Directors 'Duty of Care'
- The new ordinance sets out a new statutory standard by which directors must exercise reasonable care, skill and diligence in their work. It contains both objective and subjective elements. In carrying out their duties, a director must demonstrate:-
- the general knowledge, skill and experience that may be reasonably expected of a person who is carrying out the functions of the director in relation to the company (objective test); and
- the general knowledge, skill and experience that the director actually has (subjective test).
- The new standard of care will also apply to shadow directors, meaning a person who is not officially a director of the company but gives instructions or directions to the existing directors.
5. Simplified Reporting Requirements
- New provisions have been incorporated to facilitate more small and medium enterprises to prepare simplified financial and directors' reports.
- A private company that qualifies as a "small private company" and a holding company of a group of companies that qualifies as a "group of small private companies" will qualify for simplified reporting.
The full text of the Companies Ordinance is available at Companies Registry's Website. (www.cr.gov.hk)
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