An essential aspect of the overall development and growth of a company is its shareholders. A company needs the support of the shareholders to provide funds to grow the business. Shareholders are also significant stakeholders because they contribute capital to the organization for the ownership of the company, be it from individual shareholders or from corporate entities.
Types of limited companies and shares in Hong Kong
There are three types of companies depending on the mode of incorporation, the number of members, liabilities of members, and other factors. The main types of companies who enjoy limited liability are:
- Public companies limited by shares
- Private companies limited by shares
- Companies limited by guarantee
Private companies are the most common type of limited liability company and are the type most often used by foreign investors. To help you understand better, each company type has been explained better below:
A private company is a company that is held under private ownership. All private company’s issue shares in Hong Kong and have shareholders who hold share certificates. A private company is defined as a company that by its Articles of Association must restrict:
- The number of shareholders to 50 (excluding employees and past employees)
- The right to transfer its shares.
- Any invitation to the public to subscribe to debentures in the company.
A publicly-traded company is one that has its shares sold on a public stock exchange through an Initial Public Offering to the general public. Public companies also have shareholders in Hong Kong who hold share certificates, and some, but not all of the company shares may be listed on the Hong Kong stock exchange regulated by the Listing Rules of Securities.
Companies Limited by Guarantee
Companies limited by guarantee are generally used by charities and non-profit organizations. A company that is limited by guarantee does not have any shares or shareholders, but guarantors who agree to pay a set amount of money towards the company debt. In this type of company, the liability of members is limited to the amount the members have agreed to contribute to the event of the company’s liquidation.
Minimum Share Capital requirement for Hong Kong Companies
According to the Hong Kong Company Act, a share represents a personal property of the shareholder that can take the form of money and other types of assets, with all the information about the shares and share capital to appear in the Articles of Association of a company.
A new Hong Kong company classifies shares into various types, as stated above. All shares allow certain rights such as voting, rights to profits, or the right to receive the amount of money invested in the company in case of liquidation. Some of the issues regarding shares, as defined in the Companies Ordinance, are transferability, value, ownership, allotment of shares, and the reduction of the share capital. Investors who wish to know more about share transfers and their types can reach out to our agents who specialize in company registration in Hong Kong.
Additionally, investors who open a company can choose between several types of shares, most commonly ordinary shares, preference shares, or redeemable preference shares with common rights attached to a class of shares.
Main Types of Shares issued by Hong Kong companies
There are a lot of share types based on the plan and who the shares are being issued to. Each has been explained below in detail:
Ordinary, as the name suggests, are the most common types of stocks that a company has. Most of the time, companies will issue ordinary shares in Hong Kong. They carry no exclusive rights i.e., holders of ordinary shares have equal rights, pro-rata based on the number of shares owned by them. They also rank after preference shares, as regards to dividends and return of capital, but carry voting rights not generally given to holders of preference shares.
Preference shares are securities issued by a company that often do not carry voting rights like ordinary shares. These shares are called preference or preferred, as they have a right to receive a fixed amount of dividend every year. If no dividend is declared in any year, the arrears can be carried forward. This is received ahead of ordinary shares.
The directors can set out the terms of the preference shares when incorporating a Hong Kong company, and how much the dividend is to be, or the different voting rights attached to these shares.
Non-voting shares are a kind of shares that have most of the rights that the ordinary shares have. However, the voting rights on these shares are usually restricted in some way or form. They carry voting rights if certain conditions are met, or may not have them at all. They may also preclude the shareholder from even attending a general meeting. In all other respects, they will have the same rights as ordinary shares, as set out by the company.
A warrant enables you to gain exposure to a security for just a fraction of its price, meaning you can get a similar effective exposure for a much smaller capital outlay. Warrants allow a shareholder in Hong Kong the right – but not the obligation – to buy or sell the underlying shares at a pre-set price on or before a specified date.
A similar approach to issue shares in Hong Kong is through options. They are a lot like warrants, but in this case the company generally issues options to its employees instead of investors. It entitles the holder to subscribe for shares in the company during a particular period and at a specific price.
As the name suggests, converting a bond into shares of the company at an agreed price are through convertible bonds. Basically, a convertible bond is a loan issued by the company, which can be converted to shares later on. The bondholders are creditors of the company who rank ahead of shareholders in distribution on liquidation before conversion.
Shareholders in a Hong Kong Company
Shareholders in Hong Kong are a primary aspect of every incorporated company, who can but not must, be a resident of Hong Kong. We have learned a bit about the types of shares and the company types in Hong Kong at the beginning of this article. Now let us discuss the rights of a shareholder in a Hong Kong company.
A shareholder is allotted shares by the company directors. This is done after their relevant particulars are entered into the company’s register of shareholders. The allotment of shares requires the prior approval of shareholders in a general meeting.
Let us talk about the rights of a shareholder in Hong Kong in detail below.
Right to dividends
A shareholder in Hong Kong also earns dividends as a part of profit-sharing whose distributions vary from one private company to another. However, when the organization is out of profits, it cannot make any distribution to shareholders. Some additional points under this right include:
- A shareholder earns dividends according to their respective rights unless there are special conditions described by the company.
- Directors in a limited company in Hong Kong receive dividends when profits occur. They also receive a bonus as a reward for their contribution and efforts for the company.
- Taxes are incurred on dividends as investment income for shareholders.
Right to assets
Shareholders in Hong Kong with joined companies are allowed to receive the dividend as part of profit-sharing. They are also entitled to the distribution of assets after the company is liquidated. Some additional points for this right include:
- They are required by Hong Kong law to subscribe to the company shares.
- Their rights vary according to the types of their shares and particularities included in the company’s constitution.
- Shareholders’ liability depends on the extent of their shares in the company.
Right to proxy
Another primary power of a shareholder in Hong Kong is the right to appoint a proxy. In this, a shareholder appoints a proxy on their behalf to attend and vote at any meeting that they have to attend. It is not necessary that a proxy must be a member. All a shareholder has to do to appoint a proxy is to make a statement in this regard in the notice of all general meetings.
How does Eqvista help with adding shareholders and issuing shares for a Hong Kong company?
With everything clear about what a shareholder is, the types of shares a company has, and the rights of a shareholder, let us understand how Eqvista can help you. If you are new here, Eqvista is a cap table application that helps you manage and track all the shares of your company. This means you can add a shareholder in your Hong Kong company and easily issue and handle all the shares through the app.
Create Your Hong Kong Company Profile
If you are new to Eqvista, you will have to first create an account. To help you understand better, everything has been explained in a stepwise format below.
Step 1: Once you log into your account on Eqvista, you will have to click on the option that says “New Company” to create a company. If you are new to Eqvista, as soon as you create your profile, you will be directed to a page where you can create your company profile. In both cases, you will reach the following page:
Fill in the details of the company on the page and click on “Save and Continue”.
Step 2: Once done, you will be directed to the next page. Fill in the needed details and click on “Save and continue”.
Step 3: Next, you will have to add the founder of the company and issue shares as well. If you are the founder, click on “Yes” for the question that asks if you are a founder or not. If not, you will have to click on “Add a founder” to add the founder’s details and issue the shares to the person.
Once you have added the details of the founder and mentioned the number of shares the founder will have, click on “Save and continue”. With this, you will have your company’s profile created on Eqvista and will be directed to the dashboard.
Add New Shareholders
Now that you have your company profile ready, and have decided to take up the first funding, you will have to add the investors as shareholders in your company. For this, the following steps will help you add the investor profiles to your company on Eqvista.
Step 1: From the Dashboard, click on “Shareholder” from the left side panel. You will be directed to the following page where you will be able to see all the current shareholders of the company and add a shareholder in your Hong Kong company.
From here, click on “Add Shareholders”.
Step 2: Once you do this, a panel would appear above the table where you can add the details of the new shareholder of your company, which in this case would be the investor. Add in the details here as shown below, and click “save”.
Issue or Transfer New Shares to your shareholders
With the shareholder added, it is time to issue shares. Let us say that you just added the shareholder’s details, Klaus Green, to the cap table. From here, let’s understand the steps to issue the shares to the shareholder.
Step 1: Once you have added the details of the shareholder, click “Securities” from the left side panel and then on “Equity share class” from the drop-down menu. Before you can issue shares to the investor, you will have to create an equity class from where the shares will be issued. By clicking on “Equity share class”, you will reach the following page.
Here, click on “Create New Equity” button located on the top right-hand side of the page.
Step 2: By clicking on the button, you will be directed to a page where you can create the equity class. Select the equity type from common or preferred shares and a drop down box will appear. In this drop down page, add all the details for the share class according to your plan, and click on “Submit”.
Step 3: With this, your equity class would be created and you will be directed back to the page where you can see the details of the equity class. Then, click on “Issue Shares” to begin the process of issuing or transferring new shares to the shareholder in your Hong Kong company.
Step 4: You will be directed to a new page where you can issue shares to the shareholder, in this case “Klaus Green”. You will first have to select the equity class from which you want to issue the shares.
Then select the shareholder name from a drop down page to issue the shares. Once you do this, fill in the details of issuance in the next fields and click on “Submit”.
Step 5: As soon as you click on “Submit”, you will be directed back to the page where you can see the details of the issuance and the equity class as shared below.
And just like this, you can easily add a shareholder in your Hong Kong company and issue shares to them through Eqvista. In short, Eqvista is a great application that allows you to easily track and manage all the shares in your company right from one place. You can also issue any type of shares electronically to your company shareholders through the application. Like the sound of it? Check out the application here!