New Hong Kong Companies Ordinance: Key Changes

The new Companies Ordinance (the new CO) was passed by the Legislative Council on 12 July 2012 and will come into force on 3 March 2014.

Some of the more significant changes under the new CO are listed below.

Types of companies

Every Hong Kong company falls into one of three categories:

• • guarantee companies
• • private companies (limited and unlimited)
• • public companies (limited and unlimited)

These three categories replace the previous categorization of 'private' and 'non-private'.

Abolition of par value for shares

The new CO adopts a mandatory system of no-par value for shares. There is no longer a requirement for shares to have a par value or for a company to have authorized capital. Par value (also known as "nominal value") is the minimum price at which shares can generally be issued. Under the new CO, there is no legislative control over the setting of the issue price of shares. Now this will be determined by the directors. The new CO states that the amount of authorized capital set out in an existing company’s constitutional documents is deemed to be deleted. The shareholders may amend the company’s articles of association to specify a maximum number of shares that may be issued.

 
Abolition of Memorandum

A company now has a single constitutional document - the articles of association. The concept of a memorandum of association is retired. An existing company’s memorandum is deemed to form part of its articles. For convenience, an existing company should in due course adopt new articles, so that all provisions are located in one document, as well as to tidy up the articles generally, taking into account the other new amendments, for instance, abolition of "par value" and "authorized share capital" notions.

Directors

All companies must have at least one director who is a natural person (i.e. non-corporate director). A six-month grace period will apply from the commencement of the new CO for companies to comply with the new requirement.

Common seal and execution of documents

The adoption and use of a common seal is now optional. Companies may sign a deed under hand instead of under seal.Due execution by a company is when the company has executed a document by:

• having it signed by the sole director 
• in the case of a company with 2 or more directors by having it signed by:- two directors or any 2 of the directors- any one director and the company secretary
• affixing its common seal in accordance with the requirements contained in its articles of association

Financial statements

1. The requirements for financial statements are relaxed to enable more private companies to prepare "simplified accounts" based on the Small and Medium-sized Entity Financial Reporting Standard.A small company is a private company which satisfies two of the three conditions set out below: a. total annual revenue of not more than HK$100 million; b. total assets of not more than HK$100 million net; and c. no more than 100 employees 

2. Terminology for financial statements has changed:

Old term - new term 

• accounts - financial statements
• group accounts - Consolidated financial statements/consolidated statements
• balance sheet - statement of financial position
• profit and loss account - statement of comprehensive income
• books of account - accounting records