Even though most companies only ever have one type of share (ordinary share), there several more types you may consider when first setting up your business. In this article, you will find more about all the different types of company shares in Hong Kong and their use.
What is a share?
A share is a unit of ownership in the capital of a company. By holding shares, this means that you are a shareholder and own a part of the company’s capital and profit.
Types of shares
In Hong Kong, there are six common types of shares:
- Ordinary shares
- Preference shares
- Deferred ordinary shares
- Non-voting shares
- Redeemable shares
- Management shares
Ordinary shares are the most common type of share that is issued by a company, and most companies will only have ordinary shares. This share carries one vote per share and reflects the equal rights in receiving dividends and distribution of the company’s capital when dissolved.
Preference shares carry a preferential right to dividends and return of capital. They will receive dividends before the ordinary shareholders. Preference shareholders generally do not have the same voting rights as ordinary shares; they are often non-voting and can sometimes be redeemable. As it has many benefits, this type of share is usually issued to investors.
Deferred ordinary shares
Deferred ordinary shares have less rights than ordinary shares, and dividends are only paid when all other classes of shares have been paid or the dividends are paid after a specific date or event. Deferred shareholders cannot vote on company matters such as election and dismissal of staff.
This share holds no voting rights and no rights to attend the shareholders’ general meeting. Non-voting shares often are issued to employees or family members of the main shareholders.
Redeemable shares are shares that can or may be repurchased in the future. The date can either be fixed or by the director’s desire. The redemption price usually is the same as the issue price, but it is not always necessary the same. This share is often given to employees, so when the employee leaves, the company can get the shares back at its normal value.
This type of share gives the holder extra voting rights at the company’s general meeting (eg two votes for one share) or lowers the nominal value for the shares.
Transfer existing shares – change of company shareholders
When shares already exist in the company but you want to transfer them to someone else, you would have to go through the following process:
- The transfer must be based on the articles of association and if required in the company’s constituent documents, be approved by other shareholders.
- Once approved, the following documents should be prepared:
- Contract notes (bought and sold note)
- Instrument of transfer
- Sales & purchase agreement (optional)
- Latest audit report within six months; and/or
- Certified management accounts within three months
- After the documents are prepared, the contract note and instrument of transfer needs to be stamped by authorities and stamp duty must be paid.
- Stamp duty for each instrument of transfer has a fee of HKD 5.00
- Stamp duty is 0.2% of the net asset value of the shares to be transferred or the consideration, whichever the higher
- Documents need to be sent to the Stamp Office once you have all documents
- Once the documents have been stamped, the change of company shareholder transition is complete.
Change of company shareholders stamp duty time limit
- Contract notes for selling or buying Hong Kong shares must be paid within two days after the sale or purchase takes place in Hong Kong
- Contract notes for selling or buying Hong Kong shares must be paid within 30 days after the sale or purchase takes place outside Hong Kong
Penalties for overdue stamp duty are:
- Stamping late for not more than one month – penalty will be two times the fee of the stamp duty
- Stamping late for more than one month but not more than two months – penalty will be four times the fee of the stamp duty
- Late stamping in other cases – penalty will be ten times the fee of the stamp duty
Since Hong Kong allows 100% foreign ownership, this gives opportunities for foreigners to open companies in Hong Kong and be a shareholder.
If you are looking to be a shareholder of a company in Hong Kong, either an existing company or a new one, Acclime can help you with all of your requirements.
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