Hong Kong: The New Companies Ordinance

Impact On Use Of Offshore Vehicles
Last Updated: 12 March 2014
Article by John Melia

Hong Kong's new Companies Ordinance will come into force on 3 March 2014. Much of its content is designed to modernise Hong Kong companies and make them easier to operate. Historically, certain aspects of the Hong Kong company law regime have encouraged the use of offshore vehicles, typically in Bermuda, the Cayman Islands and the British Virgin Islands. Will the modernisation exercise in the new legislation reduce demand for such vehicles?

Before dealing with the relative merits of the companies legislation in the various jurisdictions, one point worth noting is that stamp duty will remain payable on most transfers of shares in Hong Kong companies. There is no stamp duty in Bermuda, Cayman or the BVI on transfers of shares, and so the use of such companies will deliver a saving on any subsequent transfer of shares (unless the transfer of the shares in the offshore vehicle attracts stamp duty for some other reason, e.g. by virtue of a listing on the Hong Kong Stock Exchange). This alone may explain the popularity of offshore vehicles for many in the business community in Hong Kong. For others, however, the relative ease of use of a corporate vehicle may be a factor.

Financial Assistance

The new Ordinance retains the prohibition against financial assistance for both public and private companies, but adds further exceptions to those currently available and simplified the "whitewash" procedure. In the major offshore jurisdictions, including Bermuda, Cayman and the BVI, there is no prohibition against financial assistance, making even a simplified whitewash procedure (or the need to seek out an exception) relatively onerous. In addition, while Hong Kong-incorporated subsidiaries are unable to provide financial assistance for the acquisition of shares in their Hong Kong-incorporated parent company, offshore subsidiaries of the Hong Kong parent should continue to be able to provide such financial assistance following Arab Bank v Mercantile Holdings. This can be useful when selling a group to a buyer who needs to finance the acquisition.

Financial Reporting

While the new Ordinance will introduce numerous welcome measures such as simplified financial reporting for small and medium-sized enterprises that satisfy certain criteria, an audit requirement will remain. This can be contrasted with the various offshore jurisdictions, where audits are not required or, in the case of Bermuda, the requirement can be waived by the directors and members.

Removal of Requirement for Memorandum of Association/Authorised Capital

The new Companies Ordinance does away with the requirement for a memorandum of association: the constitution of a Hong Kong company will now consist solely of its articles of association (and, for existing companies, the provisions of their memoranda will be deemed to be part of their articles). The new Ordinance also provides that, unless the objects of the company are restricted in its articles, there will be no restrictions on its powers. While removing the requirement for a separate memorandum of association, the only consequence per se is a change to the drafting and presentation of a Hong Kong company's constitutive documents. It is interesting to note that, while the directors of a Hong Kong company who cause it to exceed its powers will be in breach of their duties (and liable to the company for the consequences), those acts will remain valid for a third party dealing with the company in good faith.

This mirrors the position in the BVI and Cayman, while Bermuda company law does not provide third parties with such protection. Interestingly, while conventional BVI business companies enjoy unfettered capacity (at least as far as a third party dealing with them in good faith is concerned), the BVI does offer the ability to incorporate a "restricted purpose company". This specialist vehicle veers away from the standard offshore company model, with its wide corporate powers, and instead provides a vehicle which can be legally restricted to only enter into specific transactions. If the restricted purpose company engages in an activity that is not listed in its constitutional documents, then those transactions are deemed void, whether or not the counterparty is dealing with the restricted purpose company in good faith. These vehicles can be useful in transactions where a company is required not to depart from a specific core purpose. The strict treatment should it do so is not available if a Hong Kong company is used.

Capital Increases and Share Issues

Another requirement that will no longer apply to companies formed after the new Ordinance becomes effective is the need for an authorised capital. This will mean that shares can be issued without the need to create additional capital "headroom". This is already the position in the BVI where a company can issue unlimited number of shares or a maximum number as specified in its memorandum of association, but the requirement for an increase in the authorised share capital of Cayman and Bermudian companies remains. However, the new Ordinance does require shareholder approval before directors may issue shares, which rather negates this advantage. There is no such requirement for Bermuda, Cayman and BVI companies, which makes private companies incorporated in these jurisdictions easier to administer (although such a requirement can be built into their constitutive documents if required).

The new Ordinance also does away with the par value of shares. Shares in BVI and Cayman companies may (but do not need to) have a par value: the choice remains with the promoters of the company.

Reductions of Capital

The new Ordinance allows companies to undertake capital reductions without the need for court approval, provided that the company has first obtained a special resolution from disinterested shareholders, published its intention in the Government Gazette and provided that it will, following the capital reduction, satisfy a new statutory solvency test. The solvency test is passed if the company will be able to pay its debts as they become due during the 12 months immediately following the reduction of capital, and immediately after the capital reduction there will be no ground on which the company could be found to be unable to pay its debts.

This echoes the position in Bermuda where the shareholders can approve a reduction of share capital provided that on the date the reduction is to be effected, there are no reasonable grounds for believing that the company is, or after the reduction would be, unable to pay its liabilities as they become due. In Cayman, a court order is still required, while a much more liberal regime operates in the BVI, where the maximum number of authorised shares of a company can simply be changed by amending the memorandum of association without the need to pass any solvency or asset test.


The new Ordinance removes the need for a company to pass a "headcount" test. As with many jurisdictions whose companies legislation is based on its English equivalent, Hong Kong has historically required schemes of arrangement to be approved by a majority in number representing three quarters by value of the members or creditors (as applicable) of a company. It will no longer be necessary to satisfy the headcount test where a scheme of arrangement involves a takeover offer or a general offer to buy back shares in a Hong Kong company: such a scheme may be approved by shareholders holding three quarters of the voting rights in a company, provided that the dissenting votes do not exceed 10 per cent of the voting rights attached to all disinterested shares in the company. This is a welcome development for Hong Kong companies.

While it remains to be seen whether the major offshore jurisdictions will follow suit, it is worth nothing that a BVI or Cayman target can be acquired by way of merger (including a merger with a foreign company in the case of a BVI target), with the approval of a simple majority of shareholders (in the BVI) or a two-thirds majority (in Cayman). In Bermuda, the approval threshold is a three-quarters majority, unless the bye-laws provide otherwise. In an acquisition context, therefore, a facility already exists in the offshore jurisdictions to allow a company to be acquired without applying a headcount test to its shareholders.

The new Companies Ordinance does provide for an amalgamation procedure for Hong Kong companies, provided that they are wholly owned entities within the same group.

In relation to the above matters, with the possible exception of the lack of a headcount test for schemes of arrangement, offshore vehicles incorporated in Bermuda, the BVI or Cayman are at no disadvantage to their Hong Kong counterparts. In addition, offshore companies also continue to enjoy numerous additional advantages over their onshore cousins, including the ability to redomicile, the ability to choose from a greater variety of corporate vehicles, and enhanced confidentiality.

Redomiciliation Process

A feature of companies incorporated in most offshore jurisdictions is the "continuation" or "redomiciliation" process. In essence, this means that a company can migrate from one jurisdiction to another, and the entity, on its arrival in the new jurisdiction of choice, is deemed to be the same entity that left the previous jurisdiction. This means that if an offshore jurisdiction is no longer favoured (for whatever reason), the owners can move it to any other offshore jurisdiction that has corresponding legislation (most offshore jurisdictions do). The only available alternative in Hong Kong would usually be a share swap with the newly formed company in the destination jurisdiction, or a more complex scheme of arrangement.

Availability of Different Corporate Vehicles

In addition to the numerous advantages discussed above, Hong Kong's companies legislation does not provide for certain entities that exist in the offshore world. In addition to the restricted purpose company referred to above, the offshore world offers segregated portfolio companies (SPCs) and protected cell companies (PCCs). These are single legal entities whose assets and liabilities can be allocated to different cells or portfolios within the company. The assets and liabilities of those portfolios and cells are ring-fenced from those of other portfolios or cells, making them useful for funds or captive insurance arrangements.

Certain offshore jurisdictions also offer incorporated cell companies, which are near-relations of SPCs and PCCs but where each cell constitutes a separate legal entity.


BVI and Cayman companies, in particular, offer a degree of confidentiality not found in Hong Kong companies. In both jurisdictions, the register of members and the register of directors are not required to be made available to the public.


In conclusion, many of the steps taken are positive, and result in a much-needed modernisation of Hong Kong's companies legislation. There remain, however, numerous advantages to the use of offshore companies: even when a parent company is incorporated in Hong Kong, the ability of offshore subsidiaries to provide financial assistance without prohibition is an incentive to continue with their use within a group structure. In addition to those advantages identified above, offshore companies enjoy greater flexibility (especially when privately held) than their Hong Kong counterparts.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.