The New Companies Ordinance Series (1) – Company Formation and Share Capital

The new Companies Ordinance ("New Companies Ordinance") will take effect on 3 March 2014. This alert, being the first of a series of our updates on the New Companies Ordinance, covers major changes in relation to company formation, share capital and document execution.

Abolition of Memorandum of Association ("Memorandum")

The Memorandum required under existing law will be abolished. The provisions of a company's existing Memorandum (such as the object clause, if it has one) will be deemed to be provisions of the Articles of Association, except that any provision regarding the "authorised share capital" will be removed.

Articles of Association ("Articles")

The Articles will become the only constitutional document of a company. It must contain mandatory clauses such as members' liabilities and contributions, and initial shareholdings. Certain concepts of existing companies (e.g. par value) will become redundant. While there is no legal requirement for existing companies to update their current articles, there are advantages of updating them in order to be able to enjoy certain benefits and new initiatives under the New Companies Ordinance.

New sets of Model Articles have also been prescribed under the New Companies Ordinance for different types of companies, which may be adopted in whole or in part.

Protection for Persons Dealing with a Company

A company's powers will be limited by any limitation set out in its Articles. A shareholder may sue to restrain the company from acting in contravention of the limitation.

In favour of a person dealing with a company in good faith, the power of the directors to bind the company will be deemed to be free of the limitation. Good faith will be presumed (unless rebutted), and mere knowledge that an act is beyond the directors' powers under the relevant documents is not bad faith. Further, outsiders are not obliged to inquire as to any limitations on the directors' power and will no longer be regarded as having constructive notice of matters contained in the publicly registered Articles or resolutions. The common law "indoor management rule" is now codified and expanded in the New Companies Ordinance.

The protection however will not apply if the parties to the transaction include an "insider" (i.e. a director of the company or its holding company, or an entity connected with the director). That said, in such a case, the transaction can still be saved if it is affirmed by the company. The New Companies Ordinance suggests that the rights of a third party (not being an insider) to the transaction are not affected, but at the same time gives the Court a wide power to affirm, sever or set aside the transaction on any terms the court thinks fit. How this new power will be exercised, and whether the rights of third parties will be adversely affected, remain to be seen.

The protection is also not available where the company is a charitable organisation registered without "Limited" in its name, subject to certain exceptions.

Share capital and no par value

The New Companies Ordinance adopts a mandatory system of no-par for all Hong Kong companies. This is in line with the international trend.

Under the existing law, shares issued by Hong Kong companies with a share capital must have a par value (also known as "nominal value"). Par value however is often criticized for failing to serve its original purpose of protecting creditors and shareholders, since the fixed face value rarely represents the real value of the shares in practice. Where a company issues shares at a price higher than its par value, the excess amount (known as "share premium") is required to be put into a share premium account and is subject to special use restrictions. That has given rise to a complex accounting regime.

Under the New Companies Ordinance, the concept of par value will be abolished. All existing shares will be treated as if they had no par value. In other words, there will be no minimum price for issuance of shares. The related concept of "share premium" will also become redundant. Any amount in a company's existing share premium account (and also capital redemption reserve) will become part of the company's share capital. Further, there will no longer be any requirement for an "authorised share capital" (i.e., the maximum share capital that a company proposes to be registered), though a company may state the maximum number of shares that it may issue in its Articles.

Companies will have greater flexibility under the New Companies Ordinance in altering their share capital in the no-par environment. A company will be able to increase its share capital without allotment of new shares (provided that the funds or assets are from its members), capitalize its profits without issuing new shares, and issue bonus shares without transferring an amount to the share capital account. Though there is no nominal value, shares can still be effectively "consolidated" or "subdivided" by reducing or increasing the number of shares without changing the amount of share capital. Limited companies may also re-denominate the currency of its share capital by passing an ordinary resolution.

The New Companies Ordinance contains transitional provisions to ensure that existing contractual rights defined by reference to par value and related concepts will not be affected by the abolition of par. That saves companies the trouble of amending documents executed before commencement of the New Companies Ordinance, but you may also wish to review your company's documents and Articles for the change to no-par.

Shareholders' approval for the grant of rights to subscribe for shares

Under the existing law, shareholders' approval is required before directors may exercise the power to allot shares (except a pro-rata issue to existing members and an allotment to the founder members). The protection will be extended under the New Companies Ordinance so that shareholders' approval will also be necessary before a company may grant rights to subscribe for, or convert any security into, shares. No further approval will be required when shares are allotted pursuant to any options granted.

Reasons for refusal to register a transfer

Under the existing regime, directors of private companies are often given the discretion to refuse to register a transfer of shares. Where a transfer is refused, the company shall send a notice of refusal to the transferor and transferee within 2 months but it is not obliged to give any reason. Under the New Companies Ordinance, the transferor or transferee will have the right to request for the reason of refusal, and the company will have to provide a statement of reasons within 28 days. The new provision intends to enhance transparency in the exercise of the directors' power.

Variation of class rights

The provisions on variation of rights attached to shares in a class are clarified and the procedures simplified. Any class rights may be varied in accordance with the Articles of the company or with 75% consent or special resolution of shareholders of that class. The company will be required to notify all class members of any variation. Corresponding provisions are also provided for in the New Companies Ordinance for companies without a share capital for filling the current statutory lacuna.

Statement of capital

A company is required to deliver to the Companies Registry a statement of capital whenever there is a change to its capital (e.g. allotment of shares or reduction of share capital). The statement will show the most up-to-date information about the company's issued capital. That enables the public to ascertain the capital structure of a company more easily.

Seal and execution of deeds

Under the existing law, a company must have a metallic common seal and a deed needs to be executed by the company by affixing its seal. While the sealing formality serves a cautionary function, it seems to be merely cumbersome in practice.

Under the New Companies Ordinance, the keeping and use of common seal will become optional. Instead of affixing the seal, a company may also execute a deed by having the document signed on its behalf by the director (if it has only 1 director), or by 2 directors (or a director and the company secretary) (if it has 2 or more directors). The document needs to state that it is executed by the company as a deed. The simplified execution requirements will facilitate business operations.

Under the New Companies Ordinance, any company with a common seal may have an official seal for use outside Hong Kong. The current restrictive requirements (e.g. authorization under Articles) in relation to keeping official seals for use abroad will be removed.

Scope of documents executed by attorneys

The current Ordinance only recognizes the binding effect of deeds executed by a company's attorney outside Hong Kong. The distinction between execution of deeds locally or overseas will be removed under the New Companies Ordinance. A company may authorise any person as its attorney to execute a deed or any other document on its behalf in Hong Kong or elsewhere. That gives greater flexibility to companies in terms of document execution.

We will discuss other changes in the New Companies Ordinance in the next legal update.

新《公司条例》系列 (1) – 公司组成及股本

新的《公司条例》(「新公司条例」)将于2014年3月3日生效。本行将会刊发有关新公司条例的一系列法律更新快讯。此乃系列中的第一期快讯，内容涵盖有关公司组成、股本及签立文件的主要修改。

废除组织章程大纲(「章程大纲」)

现行法例下要求的章程大纲将被废除。公司现有章程大纲中的条文(例如宗旨条款(如载有的话))将被视为组织章程细则内的条文，但任何关于「法定股本」的条文则将予取消。

组织章程细则(「章程细则」)

章程细则将成为公司的唯一章程文件，当中必须载有包括成员的法律责任与分担及最初的股份持有状况等必要条文。现有公司的某些概念(例如面值)将会变成冗余。虽然法律并无规定现有公司须更新其章程细则，但透过更新章程细则可确保公司受惠于新公司条例下的某些效益及新措施，实属有利之举。

新公司条例亦为不同类型的公司订明了新的章程细则范本，公司可全部或部分采纳范本的条文。

保障与公司进行交易的人士

公司的权力受限于其章程细则内列明的任何限制。股东可提出诉讼，以禁止公司违反有关限制。

如交易中另一方为真诚地与公司进行交易的人士，则该公司董事作出约束公司行为的权力将被视为不受制于有关限制。与公司进行交易的人士将被假定为真诚行事(除非该假定被推翻)，而该人士也不会仅因其知道该董事的行为超出其在相关文件下的权力而被视为不真诚地行事。此外，外部人士无须查究对董事权力的任何限制，亦将不再于法律下被推定为知悉在公开注册的章程细则或决议内所载述的事宜。普通法下的「内部管理规则」在新公司条例内现已编纂为成文法则并获扩大其适用范围。

然而，如果有关交易方包括一名「内部人士」(即该公司或其控股公司的董事或与该董事有关连的实体)，该保障将不适用。不过，在此情况下，如果该交易获公司确认，则仍可得以生效。新公司条例表示交易的第三方(但不能是内部人士)的权利不受影响，但同时赋予法庭广泛的权力，可按法庭认为适当的任何条款，确认或分割该交易，或将该交易作废。此项新的权力将被如何行使，以及第三方的权利会否受到不利影响，仍有待观察。

若该公司是注册名称中没有「有限公司」("Limited")一词的慈善机构，则该项保障亦不适用(于某些情况可有例外)。

股本及无面值

新公司条例强制所有香港公司采用无面值制度，此举符合国际趋势。

根据现行法律，由具有股本的香港公司所发行的股份均必须设有面值(亦称「票面值」)。然而，股份面值经常被评为未能达到保障债权人及股东的原定目的，因为定额的面值实际上绝少能反映股份的真正价值。若公司发行股份的价格高于其面值，差价(称为「股份溢价」)须拨入「股份溢价帐」，并须受特别的使用限制规限，这亦使公司的会计制度变得复杂。

根据新公司条例，面值的概念将被废除。所有现有股份将被视作犹如其并无面值一样。换言之，公司发行股份时将没有最低价格限制。相关的「股份溢价」概念亦不再适用。公司现有「股份溢价帐」(以及「资本赎回储备」)中的款额将成为公司股本的一部分。此外， 公司不再须要设有「法定股本」(即公司拟注册的最高股本金额)，但公司仍可在其章程细则内述明其可发行的最高股份数目。

在无面值股份的环境下，新公司条例给予公司更改其股本方面更大之灵活性。公司将可在无须配发新股份的情况下增加其股本(惟相关资金或资产须来自公司的成员)、将其利润资本化而无须发行新股份、以及在无须把金额拨入股本帐的情况下发行红股。虽然股份并无票面值，但公司将仍可藉减少或增加股份数目而有效地将股份「合并」或「拆分」，而无须更改其股本金额。有限公司亦可藉通过普通决议重订其股本使用的货币。

新公司条例载有过渡性条文，以确保与面值或相关概念相连的现存合约权利，将不会因废除面值而受到影响，这省却公司麻烦而无须修订在新公司条例生效之前签立的文件，但贵司亦可就改行无面值制而检视贵司的文件及章程细则。

股东批准授予认购股份的权利

根据现行法律，董事须先经股东批准，方可行使配发股份的权力(但如按比例发行股份予现有成员及配发股份予创办成员则不受此限)。在新公司条例下，该项保障的范围将会扩大：公司在授予认购股份或将任何证券转换为公司股份的权利前，也须先取得股东批准。如属依据任何已授予的选择权配发股份，则无须再取得批准。

拒绝登记转让的理由

在现行制度下，私人公司的董事通常获赋予拒绝登记股份转让的酌情决定权。若拒绝登记有关转让，公司应在2个月内将拒绝通知送交出让人及受让人，但无须给予任何理由。根据新公司条例，出让人及受让人将有权要求得知拒绝的理由，而公司须在28天内提供述明有关理由的陈述书。新的条文拟提高董事行使权力时的透明度。

股份类别权利的更改

新公司条例厘清有关更改附带于某股份类别的权利之条文并简化有关程序。任何股份类别的权利可按照公司的章程细则更改，或藉该类别股东的75%同意或特别决议更改。公司须将任何更改通知所有该股份类别的成员。在新公司条例内亦有就无股本公司更改其股份类别的权利订明相应条文，以补足现行法例条文中的空隙。

「股本说明」

每当公司的股本有变动(例如：配发股份或减少股本)时，均须向公司注册处提交「股本说明」。「股本说明」将显示有关公司已发行股本的最新资料，让公众人士更易于确定公司的股本结构。

印章及签立契据

根据现行法律，公司必须有一个金属法团印章，而公司签立契据时必须盖上其印章。虽然盖印手续具有审慎作用，但实际上似乎仅属一项繁苛的程序。

根据新公司条例，公司可自行选择是否备存及使用法团印章。除盖上印章外，公司可藉以下方式签立契据：(如公司只有1名董事)由该董事代表公司签署该文件，或者(如公司有2名或更多董事)由2名董事(或一名董事及公司秘书)代表公司签署该文件。有关文件需要述明该文件是由公司作为契据而签立的。经简化的文件签立程序将利便业务运作。

根据新公司条例，任何持有法团印章的公司可备有一个正式印章，以供在香港以外使用。现有的相关限制性规定(例如章程细则之许可)将予取消。

受权人签立的文件范围

现行条例只承认公司的受权人在香港以外签立契据的约束力。在新公司条例下，在本地或外地签立契据的区分将予取消。公司可授权任何人作为其受权人，以代表公司在香港或其他地方签立契据或任何其他文件。此措施在文件签立方面给予公司更大灵活性。

本行将在下期法律快讯讨论新公司条例内的其他修订。

Key Contacts

Machiuanna Chu

Partner | Corporate Commercial

Email or call +852 2825 9630