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Dormant company

A company can become dormant when it passes a special resolution (resolution approved by at least 75 percent of shareholders), and the Companies Registry has been notified.

If a company is dormant, many of its compliance requirements are reduced or lifted. The company no longer needs to:

  • Hold annual general meetings;
  • Deliver annual returns*;
  • Prepare financial statements and Directors’ Reports;
  • Appoint auditors and undergo annual audits; or,
  • Publish financial statements to the shareholders before general meetings.

A company returns from dormancy if the company passes a special resolution declaring that the company intends to enter into an accounting transaction and the resolution is delivered to the Registrar for registration; or there is an accounting transaction in relation to the company. Despite all the benefits, a dormant company still needs to maintain a registered office, corporate secretary, designated representative of significant controller(s), fulfil annual business registration, and comply with the taxation requirements of the Inland Revenue Department.

* However, a private company is still required to deliver an annual return for the year in which it declares itself to be dormant if the effective date on which the company becomes dormant falls after the 42nd day after the anniversary of its date of incorporation.

Changing a company name

To change the company name, the company needs to pass a special resolution, a resolution that is passed by a majority of at least 75 percent. The special resolution and the Articles of Association as altered need not be delivered to the Companies Registry, but a “Notice of Change of Company Name” (Form NNC2) should be filled and delivered within 15 days after the passing of the special resolution together with the required fee (HK$295) either electronically through the “e-Registry” portal (www.eregistry.gov.hk) or in hard copy form to the Shroff on the 14th floor of the Queensway Government Offices.

Electronic Certificate of Change of Name will normally be issued within an hour by email. But if the Form NNC2 is delivered in hard copy, the Certificate of Change of Name will normally be issued within four working days, and has to be collected in person. The change of name will be effective from the date on which the Certificate of Change of Name is issued.

Please note that the intended company name should not be the same as or too similar to a name appearing in the index of company names kept by the Companies Registry, or in conflict with a trademark in the Trademark Register maintained by the Intellectual Property Department. Or else the change may be rejected by the Registrar, or the company may be subject to a change of name direction by the Registrar after change of name.

Changing the company’s Articles of Association

A company may alter most of its Articles of Association except:

  • Articles on the liability of its members as stated in Section 83 and 84(1) of the Companies Ordinance;
  • Articles that are inconsistent with any rights attached to shares in a class of shares (for company with shared capital) or any rights of a class of members (for company without a share capital); and,
  • Articles related to the contributions of members of a company limited by guarantee under section 84(2) of the Companies Ordinance other than to increase the specified amount.

Under most circumstances, the alteration of the Articles of Association can only be done by passing a special resolution. However, an alteration in articles to the maximum number of shares that the company may issue may be made by ordinary resolution.

Within 15 days after the alteration is made, the following documents are required to be delivered for registration:

  • A copy of the special resolution for alteration of the Articles of Association;
  • A notice of alteration in the relevant specified forms, namely Forms NAA1, NAA2, NAA3 or NAA4;
  • A certified copy of the Articles of Association as altered (for Forms NAA1, NAA2 and NAA3); and,
  • Other relevant documents required to be delivered with the specified forms for registration as appropriate.

[tips title="Important Tip"] The holders of at least five percent of the shares or five percent of the company’s members can appeal to the court to cancel an alteration of the objects of a company.[/tips]

Changing corporate structure

Hong Kong currently doesn’t offer any means of directly changing the structure of a foreign company. Therefore, switching from a sole proprietorship or partnership to a limited liability partnership, for example, cannot be a fuss-free procedure which will involve deregistration of the existing entity and reregistration of the new entity.

Converting a sole proprietorship or a partnership into a private limited liability company

Being different types of business structures, a sole proprietorship or a partnership cannot be directly converted or transformed into a private limited company. The only solution is to set up a new and separate limited liability company (LLC) in Hong Kong.

Converting a Sole Proprietorship or Partnership into a Private Limited Liability Company

Sole Proprietorship

Advantages:

  • Simple to establish
  • Easy decision making
  • Sole beneficiary of profits
  • Ease of Termination

Disadvantages:

  • No separate legal entity
  • Unlimited personal liability
  • Limited capital
  • Limited life of the business
  • Low public perception

Limited liability company (LLC)

Advantages:

  • Separate legal entity
  • Limited liability
  • Business continuity
  • Better funding opportunities
  • Better public perception
  • Easier transfer of ownership
  • Tax benefits and incentives

Disadvantages:

  • Complex to set up
  • Ongoing compliance
  • Disclosure requirements
  • Complex winding-up procedures

Partnership

Advantages:

  • Ease of raising capital
  • Ease of set up and maintenance
  • Limited liability (limited partnership)

Disadvantages:

  • Unlimited liability (general partnership)
  • Divided goals and opinions
  • Sharing profits

Investors will first need to set up a new LLC in Hong Kong with the Companies Registry after the name of the new company has been approved. They should also apply for a new Business Registration Certificate (BRC) the Inland Revenue Department (IRD), open a new bank account, and apply for business licenses or permits if needed.

To terminate their sole proprietorship or partnership businesses, the investors need to report cancellation of the related BRC with the IRD. The business assets need to be transferred from the old legal form to the new company, before the termination date of the sole proprietorship or partnership.

Winding-up of a company (company liquidation)

Modes of winding-up

A company in Hong Kong may be wound up by the court or voluntarily.

Voluntary winding-up consists of:

  • Members’ (shareholder’) voluntary winding-up; and
  • Creditors’ voluntary winding-up.

Compulsory winding-up by the High Court of the Hong Kong Special Administrative Region (“the Court”).

Voluntary winding-up by the company itself

No matter whether the company is in financial difficulty or not, it may hold a general meeting of its shareholders to bring itself to an end by winding-up procedures. If a special resolution is passed for winding-up, the company may then apply to the Court for a winding-up order.

Alternatively, a special resolution that the company be wound up voluntarily may be passed. In that case, no winding-up order from the Court is necessary.

The relevant procedures of voluntary winding-up include:

  • A special resolution for voluntary winding-up to be passed by the shareholders.
  • A notice of the resolution has to be advertised in the Government Gazette within 14 days of the passing of the resolution.
  • The company has to call a meeting of creditors. The notice for the meeting has to be advertised in the Government Gazette and in Chinese and English newspapers.
  • The directors of the company have to make a full statement of the position of the company’s affairs, together with a list of creditors and the estimated amount of their claims, to be laid before the meeting. Resolution (concerning the details of the winding-up matter or process) may be passed at the meeting.
  • During the meeting, a liquidator may be nominated and appointed. Further, an inspection committee may be appointed to supervise the exercise of power by the liquidator.
  • The liquidator will deal with the affairs of the company. The liquidator will call further meetings of the company or creditors each year to account for his acts concerning the winding-up.
  • When the affairs of the company have been fully wound up, the liquidator will produce an account of the winding-up and call a final meeting of the company and of the company’s creditors.

If no special resolution can be passed at a general meeting of shareholders, the board of directors may nevertheless pass a resolution that the company be wound up. The relevant resolution shall include the following contents:

  • The company cannot because of its liabilities continue its business;
  • The directors consider it necessary that the company be wound up;
  • Why it is not reasonably practical to use other provisions of the Companies (Winding Up and Miscellaneous Provisions) Ordinance to wind up the company; and
  • A meeting of the company and of its creditors will be summoned and held on a date not later than 28 days after the delivery of a declaration to the Registrar of Companies.

A declaration recording such resolution has to be signed by a director and be delivered to the Registrar of Companies within seven days of the date of the resolution. Meetings of the company and of the creditors have to be summoned within 28 days of the delivery of such resolution to the Registrar of Companies. A provisional liquidator also has to be appointed upon the delivery of the declaration.

Due to the complexity of the above procedures, you are advised to consult a lawyer or other qualified professionals before commencing such actions.

Effects of voluntary winding-up

Upon the commencement of the voluntary winding-up, the company will cease to carry on business except that which may be required for the benefit of winding- up smoothly. The legal status and powers of the company will continue until it is dissolved.

Furthermore, any transfer of shares (except a transfer made by the liquidator or made with his/her approval), and any alteration to the status of the members of the company which is made after the commencement of a voluntary winding-up, will be void.

Compulsory winding-up

A limited company may be wound up by the Court in the circumstances set out in the Companies (Winding Up and Miscellaneous Provisions) Ordinance.  The more common ones are:

  • the company is unable to pay a debt of $10,000 or above;
  • the Court is of the opinion that it is just and equitable that the company should be wound up; or
  • the company has by special resolution resolved that the company be wound up by the Court.

A creditor, a shareholder, or the company itself can file a winding-up petition against the company. A solicitor is normally instructed by the petitioner to prepare and file the winding-up petition. Any person (e.g., employee) who is qualified for receiving legal aid under the Legal Aid Ordinance and Rules may apply to the Legal Aid Department for assistance in filing a winding-up petition.

On the appointment of a provisional liquidator or the making of the winding-up order, the powers of the directors of the company will cease but still they have certain duties to perform. If the directors fail to perform such duties, such as failure to keep proper books and records and failure to prepare a statement of affairs, the Official Receiver’s Office may take prosecution actions and disqualification actions against the directors.

Company deregistration

A private company or a company limited by guarantee, other than those companies specified in section 749(2) of the Companies Ordinance, may apply for deregistration when it is defunct. To do so, the following conditions need to be met:

  • All shareholders agree to the deregistration;
  • The company has not yet commenced operations or business, or has ceased operations or business during the three months before the application;
  • The company has no outstanding liabilities;
  • The company is not involved in any ongoing legal proceedings;
  • The company holds no assets consisting of any immovable property situated in Hong Kong; and
  • If the company is a holding company, its subsidiaries’ assets do not consist of immovable property situated in Hong Kong.

Before the company can be deregistered, it first needs to obtain a “Notice of No Objection to a Company being Deregistered” (“Notice of No Objection”) from the Commissioner of Inland Revenue Department (IRD), the Hong Kong tax office. Directors and shareholders, or a person authorized by the company, can apply for such a letter. To apply for this letter, the applicant has to fill in a form, retrievable from the tax office website, and pay a prescribed fee.

With the Notice of No Objection, the investor should then apply for deregistration with the Companies Registry within three months. To apply for deregistration, the investor has to fill in the designated form and pay a fee. The Notice of No Objection needs to be included in the submission. Where the applicant is a company, it must designate a natural person to give notice to the Companies Registry.

The deregistration will then be published in the Gazette on the website of the Government Logistics Department. If no objections are made in the following three months – such as by alleged creditors – the Registrar may deregister the company by publishing in the Gazette another notice declaring it to be deregistered on the date of publication of that other notice. Former directors must keep the books and papers of the company for six years after deregistration.

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