There may be times when you want to change the share structure of your company; either by adding new shareholders or by changing the existing proportion of shares between shareholders – this is most commonly performed via share transfer. A share transfer is the process of transferring existing shares from one person to existing shareholders or third parties either by sale or gift and is a common exercise performed by Hong Kong companies.
1. What events lead to a shares transfer?
There are many factors that can trigger it. Although this list is not all inclusive, the most common reasons are:
- To facilitate the restructuring of a company. For instance, transferring the shares of a company from one parent company to a new entity
- Changing the existing proportion of shares between shareholders due to new profit sharing or ownership arrangements
- When a business owner is contemplating selling their business, or wants to take advantage of an opportunity to cash out by selling some, or part of their shareholdings
2. What is the standard Hong Kong share transfer process?
The Hong Kong Companies Ordinance states that all Hong Kong private limited companies must include in their articles of association, a provision detailing their restriction of share transfers. The conditions listed in these provisions must be met before a transfer can occur.
The typical transfer process can be completed in approximately 3 to 5 working days. The process is as follows:
1. Ensure that any pre-emptive rights have been satisfied or waived
2. Arrange the Share Transfer Form to be signed by both the transferor and the transferee
3. Present the Form and the underlying shares to the company and wait for the Board of Directors approval
4. Prepare the Form and the Sale Agreement Form for stamping
5. Upon stamping of the Form, the transferee’s particulars will be confirmed for registration into the Companies Registry. Upon successful registration, the company’s shares transfer will be considered complete
Often during a transfer to a third party, it is necessary to establish the terms via a Share Purchase Agreement. These contracts set out in detail the terms of the purchase, including the price and conditions and assurances from the transferor regarding the finances and liabilities of the company in question.
3. What is stamp duty?
Stamp duty is a tax on documents and will be imposed during a share transfer. The Stamp Duty Ordinance outlines that stamp duty will be imposed on the sale or purchase of any Hong Kong stock. The rate at which stamp duty is charged is dependent on the amount or value of the consideration.
Each form will be liable to a stamp duty fee of HKD 5 whereas the Sale Agreement Form will be subject to a consideration paid at a rate of 0.2% on its net asset value, whichever is higher.
Please click here for more details on the Hong Kong stamp duty procedure for the transfer, or sale of Hong Kong stock.
4. What are the limitations surrounding a transfer
The Hong Kong Companies Ordinance lists limitations, specifically prohibiting Hong Kong companies from providing financial assistance in the acquisition of their shares.
When a person is acquiring shares of a Hong Kong company, or proposes to acquire them, the Hong Kong company in question (or any of its subsidiaries) are prohibited from directly or indirectly providing assistance in the acquisition.
For instance, if a person who acquires shares of a company incurs any debt, the Hong Kong company and its subsidiaries cannot reduce, or relieve the debt burden. To the extent that assistance is provided, the company will be liable to potential penalties and fines.
The FastLane Group is a licensed Hong Kong company secretary. We understand the statutory obligations that Hong Kong companies are subjected to, set out in the Hong Kong Companies Ordinance. Please contact the FastLane Group for your enquiries regarding how we can help your company conduct a share transfer.