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Transfer of shares in a Hong Kong private company: Process and fees.

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Transfer of shares in a Hong Kong private company: Process and fees

In a Hong Kong private company, ownership is divided amongst shareholders. Sometimes, these shares need to be transferred. This could be to bring in a new partner or investor or when someone leaves the company, and their shares are given to the remaining shareholders. This guide will explain the steps involved in transferring shares in your Hong Kong company and any associated fees.

Key takeaways

  • Share transfers in Hong Kong private companies are common for various reasons, including changes in ownership, group reorganisation, adjusting share proportions, and company sales.
  • Essential documents for share transfers include application letters, sale agreements, financial statements, shareholder information, and transfer instruments, among others.
  • Before initiating a share transfer, it is essential to review company documents for transfer restrictions, ensure board approval, offer shares to existing shareholders, and follow legal procedures.

Reasons for transferring shares in a Hong Kong company

Share transfers are common in companies, often triggered by a shareholder’s departure or retirement. However, other reasons include:

  • Resignation or removal of a director who is also a shareholder.
  • Share transfers among current shareholders during group reorganisation.
  • Adjusting share proportions among shareholders due to new profit-sharing or ownership arrangements.
  • Company sale.

Required documents for transferring shares

You need to prepare specific documents for the transfer of shares for your Hong Kong company, which must be submitted to the Inland Revenue Department (IRD).

The required documents are:

  • Application letter
  • Bought and Sold Notes or Sales and Purchase Agreement
  • Certified management accounts made up to date within three months for the company and its subsidiaries.
  • Company resolution detailing the distribution of dividends (if applicable)
  • Copy of the articles of association
  • Copy of the residential address, passport or identity card of the new shareholder
  • Instrument of Transfer
  • Land property information (if any)
  • Latest audit report
  • Name of the share transferor
  • Number of shares to be transferred
  • Share purchase agreement (equity transfer)

What to consider before transferring shares in Hong Kong

There are certain vital conditions you need to take into account before transferring the shares in a company. These are:

  • Review company documents: Check the articles of association and any shareholders’ agreement for limitations or restrictions on share transfer.
  • Board or shareholder approval: Verify that a board resolution or a resolution passed at a general meeting greenlights the transfer.
  • Pre-emptive rights: Confirm that other shareholders have been offered the chance to buy the shares first if required by the company’s documents.

The process of transferring shares

According to the Hong Kong Companies Ordinance, all Hong Kong private companies must have a provision in their articles of association detailing the restriction of share transfers and other provisions related to the transfer of shares.

The most common restrictions regarding share transfer are:

  • The board of directors must approve all share transfers.
  • Share transfers are subject to directors’ refusal.
  • Shares must first be offered to existing shareholders according to the pre-emptive rights.

First, ensure that the shares have been offered to the existing shareholders according to the company’s articles of association. Both the transferee (buyer) and the transferor (seller) should sign the share transfer form. Then, you should prepare the required documents, share the transfer form for signing, and send it to the Stamp Office for stamp duty assessment.

The Stamp Office may request additional documents for assessment. Otherwise, it will issue a demand note for stamp duty. The share transfer process is completed once the stamp duty is paid, and the transfer documents are stamped.

A simple share transfer can be completed within three to five business days.

Refusal to transfer shares

According to section 151 of the Companies Ordinance, in the case that the board of directors refuses to approve the transfer of shares, the board must send a notice of refusal to the transferee and transferor within two months following the lodgement of the share transfer.

The transferor and transferee may request a statement of the reasons for the refusal. Within 28 days, the company must send the statement of the reasons to the person who made the request or register the transfer.

If the company fails to send the transferee and transferor a notice of refusal, send a statement of the reasons for the refusal or register the transfer, the company and everyone responsible is liable to a fine at level 4 (HKD 25,000) and a fine of HKD 700 each day if the offence continues.

Stamp duty: Fees, payment due date and penalties

The transfer of shares is subject to stamp duty at 0.26% of the consideration or the shares’ net asset value to be transferred, whichever is higher.

Stamp duty for each instrument of transfer has a fee of HKD 5.00.

You must submit the transfer documents to IRD for stamp duty assessment within two days after the sale or purchase of shares if it takes place in Hong Kong. If the sale or purchase takes place outside Hong Kong, you must submit the transfer documents to IRD within 30 days.

If stamp duty is not paid within 30 days, you may be liable for the following penalties:

Stamping dutyPenalty
Not exceeding one monthTwo times the amount of stamp duty
Exceeding one month but not exceeding two monthsFour times the amount of stamp duty
In any other cases10 times the amount of stamp duty

Conclusion

Transferring shares in a Hong Kong private company involves several steps and considerations. You can efficiently complete the transfer by following the process outlined in this guide, ensuring you have the necessary documents, and understanding potential restrictions and fees. To avoid delays and incurred penalties, make sure to submit documents and pay stamp duty promptly and on time.

Streamline your share transfer with Acclime

Acclime can simplify transferring shares in your Hong Kong company. Our corporate specialists guide you through the entire process, handle complexities, and ensure legal compliance. Eliminate delays and frustration – contact Acclime for a smooth, successful share transfer.

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