entity

A foreign company wishing to carry on business in the Hong Kong may do so by either incorporating a subsidiary (private limited company) or registering a branch of foreign company in Hong Kong with Companies Registrar.

The differences between a Hong Kong branch and a Hong Kong subsidiary of a foreign company stem from the fact that, unlike a branch, a subsidiary is an entity which, under Hong Kong law, separate from its parent. The business scope available to a Hong Kong branch and a Hong Kong subsidiary is generally the same.

The usual reasons for preferring a subsidiary over a branch include the following:

  • The parent company will not be liable for the debts of its subsidiary; its legal liability will be limited to
    the amount of any unpaid issued share.
  • Only information of the subsidiary will be filed with the Registrar.
  • A branch may be required to file its financial statements for public inspection.

On the other hand, the usual reasons for establishing a branch over a subsidiary include the following:

  • Annual audit is exempt for a branch of foreign company.
  • Banking facilities may be extended to a branch of foreign company’s overseas banker.
  • Tax advantages may be available under the tax laws of the place of incorporation of the foreign company, especially the Hong Kong operations may incur loss in the first few years of operation or the operation is not a profit center.

WHAT ARE THE REQUIREMENTS FOR SETTING UP A HONG KONG ENTITY?

a) Name

A company can be incorporated with either an English name or a Chinese name or both, which is not the same as existing company names. The Companies Registrar, however has the power to require a company to change its name subsequently, if it believes the name may mislead the public about the nature of the company’s activities in Hong Kong or it is too like another name of an organisation established in Hong Kong under any ordinance at the time of registration.

Where a company is incorporated with an English and a Chinese name so that both names will be appeared on the certificate of incorporation, the two names together constitute the full formal name of the company. This means that both names should be used on the company’s seal and in all documents.

b) Memorandum and articles of association

Every company is required to file a memorandum and articles of association with the Companies Registrar. The memorandum of association may include the objects and powers of the company, however, as a company is deemed to have the capacity and the rights, powers and privileges of a natural person, a detailed description of a company’s objects and powers does not generally now have to be included in its memorandum of association and registered with the Registrar. Shareholders may choose to set out the company’s objects and powers if they wish to limit them.

The articles of association are the regulations of the company. In general, companies incorporated by our firm are incorporated with articles of association which have been prepared under a modified Table A, the first schedule of the Companies Ordinance.

c) Share capital

The authorized share capital is the maximum amount of share capital which the company may issue. Unless there are particular reasons, most companies are incorporated with a low authorized capital which may be increased later for business grows. This is a standard practice for companies in Hong Kong to start with an authorized capital of HK$10,000 divided into shares of HK$1 each.

There are no requirements of minimum authorized capital or capital structure. Share capital can be denominated in any currency.

At least one founder member share shall be issued on the incorporation of a company, but the balance of the authorized capital may be issued and paid up later.

Shares may be allotted for cash, services or other consideration such as the transfer of property. The issued share capital may be issued at “par” value or may be partly paid‐up or paid at a premium.

d) Founder Member (First shareholder)

Every company shall have at least one founder member. A natural person or corporate of any nationality can be the founder member.

The liability of each member is limited to the amount of unpaid on the shares held by that member. Accordingly, the members need not make any further contribution to meet the company’s liabilities.

A share may be beneficially owned by someone other than the registered holder. It is not normally necessary for the identity of the beneficial owner to be revealed to the company or to any authority or to be a matter of public record, although a subsidiary is required to state in its annual financial statements the name of its ultimate holding company. We provide nominee shareholder service.

e) Directors

Hong Kong private limited companies shall have at least one director. Anyone who is over the age of 18 may be appointed as director who need not be a resident in Hong Kong. Corporate directors are permitted in the case of private company, unless the company is a member of a group of companies of which a Hong Kong listed company is a member.

Where a private company has only one shareholder and that shareholder is the sole director of the company, it is advisable to nominate a person as a reserve director to act in the place of the sole director in the event of the latter’s death.

It is uncommon in Hong Kong to appoint a professional firm as director of the Company. We provide nominee director service.

f) Registered office

Each Hong Kong company shall have a registered office in Hong Kong to which all official communications and notices may be addressed.

The registered office address shall be notified to the Companies Registrar. Our address may be used as the registered office address when we also provide company secretarial services to the company.

g) Company Secretary

Each Hong Kong company shall have a company secretary who or which is ordinarily resident in Hong Kong. If there is only one director, that person cannot also be appointed as the secretary of the company. The company secretary is a statutory position to comply with provisions of Companies Ordinance, include maintaining register of the members, directors, charges and the company’s minutes.

Our firm can provide company secretarial services and where we do so we usually require that the registered office be at our office.

HOW LONG DOES IT TAKE?

After the prescribed documents are filed to the Companies Registrar together with application fee and capital levy, the Companies Registrar will issue a certificate of incorporation certifying the name and the date of incorporation.

It normally takes five working days for incorporation of new company.

POST INCORPORATION MATTERS

a) Bankers

After a company is incorporated it may be required to setup bank accounts in Hong Kong and/or elsewhere. A directors’ resolution will usually be required to authorize the opening of each account and to appoint signatories to operate that account.

Most banks in Hong Kong have standard form resolutions which they require to be passed in connection with the opening of any account. We provide bank account setup service for a no. of international banks. Financial year

b) Financial statements

The company shall prepare its first set of financial statements and laid before an annual general meeting within 18 months of incorporation.

The financial year end of the company should be determined, and any subsequent changes in the financial year‐end date authorized, by a directors’ resolution.

c) Seal and company stamp

Each Hong Kong company shall has a common seal which is normally kept at the registered office and shall be adopted by the first directors’ resolution.

As a matter of practice, many authorities and organizations in Hong Kong expect an authorized signature to be accompanied by the imprint of a stamp showing the name of the company and the wording “For and on behalf of”. There is, however, no legal requirement for such stamp.

d) Auditors and audited account

A Hong Kong company shall keep proper books of account and have the accounts audited by Hong Kong qualified auditors annually, even the company has not commenced its business yet. The first auditors are generally appointed by the board of directors and their appointment is normally reconfirmed at each annual general meeting.

A company shall keep its books of account for at least seven years. The board has the power to determine where the books of account are kept.

e) Directors’ report/annual accounts

Generally, Hong Kong private companies having a share capital are not required to file their accounts with the Companies Registrar for public inspection, however, a set of financial statements must be audited by Hong Kong qualified auditors and laid before the shareholders in the first general meeting within 18 months of incorporation and then at least once in every calendar year.

A directors’ report shall also be prepared in conjunction with the annual accounts.

f) Annual general meeting

The first general meeting of the members shall be held within 18 months of incorporation and then a general meeting shall be held at least once in every calendar year.

An annual general meeting must be held even though there may be no accounts available for presentation to the meeting and no other relevant business to attend to.

g) Annual return

An annual return shall be filed with the Companies Registrar within 42 days after the anniversary date of incorporation.

The annual return contains among other things:

  1. Particulars of authorized and issued share capital
  2. Particulars of shareholders, directors and company secretary
  3. Registered office address
  4. Registered charges, if any.

h) Filing obligations

A company shall file prescribed forms with the Companies Registrar within the prescribed period, in the event of:

  • Any change of directors or secretary or their particulars
  • Any Changes in the location of the registered office
  • Any increase in the authorized share capital
  • Any changes in the location of the company’s statutory books from the company’s registered office
  • Any change of name of a company
  • Any passing of a special resolution or certain other resolutions
  • Any allotment of new shares
  • Any creation of a charge over certain types of assets or the acquisition subject to an existing charge of certain types of assets, in either case whether the asset is within or outside Hong Kong

For more information on your specific requirements, please contact us.

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