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The company’s shareholders determine ownership of a Hong Kong private company, and there may be times when the company must transfer shares to a new holder, such as bringing in a new partner/investor or exiting the company and transferring the shares to the remaining shareholders.
Whatever the scenario, this guide will explain what is needed to transfer shares in your Hong Kong company and any fees incurred in the process.
Reasons for transferring shares
As a business, it is common that there may be a transfer of shares at some point during its operations, mostly because a shareholder leaves or retires. However, other scenarios when transferring shares is necessary include:
- A director who is also a shareholder resigns or is removed from the company
- Transfer of shares between existing shareholders in terms of group reorganisation
- Changing the existing proportion of shares between shareholders because of new profit sharing or ownership arrangement
- Selling the company
Required documents for transferring shares
There are specific documents you need to prepare for the transfer of shares for your Hong Kong company which will need to 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 dated no more than three years 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 key conditions you need to take into account before transferring the shares in a company.
These conditions are:
- Check for any limitations or restrictions on the transfer of shares in the articles of association
- Review the company’s shareholders’ agreement for any limitations or restrictions
- Ensure that the board resolution or general meeting resolution regarding the transfer has been passed
- Verify that other shareholders have been offered to purchase the shares
Transfer of shares procedure
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
You can complete the share transfer process within three to five business days.
First, ensure that the shares have been offered to the existing shareholders according to the company’s articles of association. Both transferee (buyer) and the transferor (seller) should sign the share transfer form. Then you should prepare the required documents, share the transfer form for stamping, and send it to the Stamp Office.
Once the documents are stamped, the share transfer process is completed.
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 person who made the request a statement of the reasons 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 are liable to a fine at level 4 (HKD 25,000) and a fine of HKD 700 each day if the offence continues.
Stamp duty and fees
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 the higher.
Stamp duty for each instrument of transfer has a fee of HKD 5.00.
When is stamp duty paid?
You must pay stamp duty 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 pay stamp duty within 30 days.
Late stamp duty penalties
If stamp duty is not paid within 30 days, you may be liable to the following penalties:
|Not exceeding one month||Two times the amount of stamp duty|
|Exceeding one month but not exceeding two months||Four times the amount of stamp duty|
|In any other cases||10 times the amount of stamp duty|
Transferring shares usually occurs if a shareholder leaves the company, the company is sold or changes the share proportion. Before transferring the shares, it is necessary first to offer the shares to the existing shareholders, and once the transfer is complete, you must pay stamp duty.
Feel free to contact Acclime if you need more information on share transfers or the governance of your company in Hong Kong.
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