How to set up a company in Hong Hong Kong

The recommended corporate form for setting up a sole shareholder subsidiary company would be a private company limited by shares. This is the most commonly used type of entity structure in Hong Kong. In a private company limited by shares, the liability of the shareholders(s) is limited to the amount unpaid on their shares (if any).

A private company limited by shares must appoint at least one natural director. There is no specific requirement regarding the nationality nor the place of residence of the individual director. The other director(s) can be legal entities or individuals.

In addition, a private company limited by shares must appoint a company secretary who must be either a Hong Kong resident or a company with a registered office or place of business in Hong Kong.

The minimum capital requirement for private companies limited by shares incorporated in Hong Kong is HKD1. A private company limited by shares should have a minimum of one and a maximum of 50 shareholder(s). However, employees and former employees who own shares of a private company limited by shares are not counted towards the number of shareholder(s).

There is no requirement that the shares must be fully paid up upon issue. The share capital may be denominated in Hong Kong dollars or in any other private foreign currency. Since the introduction of the new Companies Ordinance (Cap. 622) which came into effect on 3 March 2014, the shares have no nominal or par value.

There are no restrictions regarding the ownership of shares of a private company limited by shares by foreign companies.

The governing bodies of the company are its shareholders and board of directors. In addition, the company must appoint a company secretary.

The board of directors

A private company limited by shares must have at least one director who is a natural person. The other director(s) can be legal entities or individuals.

Directors are appointed by the shareholders or by the board if permitted by the articles of association. The sole shareholder can also act as the director of the company. Executive directors and non-executive directors are not distinguished by the Companies Ordinance (Cap. 622). Besides, there is no requirement to appoint employees to the board of directors to ensure employee representation.

The board of directors is responsible for the management and operations of the company. The directors can exercise all the powers of the company except any power reserved to the shareholders under the Companies Ordinance (Cap. 622) or the articles of association of the company. Hong Kong adopts a unitary board structure, meaning that the powers of the directors are vested in the board collectively. The rules regarding the conduct of business of the board of directors are set out in the Companies Ordinance (Cap. 622) and the articles of association. A company has the choice between adopting the model articles contained in Schedule 2 of the Companies (Model Articles) Notice (Cap. 622H) or bespoke articles. The articles of association can be amended at any time by resolution approved by at least 75% of the voting rights.

Each director is individually and collectively responsible for the management and operations of the company. The board may delegate its powers for specific issues to an individual director or to a committee of the board.

The directors have several duties. Pursuant to Section 465 of the Companies Ordinance (Cap. 622), the directors owe a statutory duty of care, skill and diligence. Fiduciary duties (to act in good faith in the interests of the company, to exercise powers for a proper purpose, etc.) are derived from common law and remain uncodified. In case a director fails to comply with these duties, it may be liable to civil or criminal proceedings.

The shareholder(s)

A private company limited by shares should have a minimum of one and a maximum of 50 shareholders. Shareholders have the following key rights:

• the right to attend and vote at general meetings (except if the company has a sole shareholder), although resolutions may be passed by way of resolutions in writing signed by all the shareholders;
• the right to receive the audited annual financial statements, the directors’ report for the financial year and the auditors’ report on the financial statements;
• the right to receive dividends declared by the company;
• the right to receive a distribution upon the liquidation of the company provided that all the creditors have been repaid.

The company secretary

The company must appoint a company secretary who must be either:

• an individual Hong Kong resident (the individual company secretary does not need to hold a licence): if the company has only one individual director, they cannot also act as company secretary; or
• a company: a professional company secretarial service provider with a registered office or place of business in Hong Kong, which must be licensed as a trust or company service provider (TCSP) with the Companies Registry.

The main duties of the company secretary are to ensure compliance with local regulations and procedural matters. The role of the company secretary includes the following:

• maintaining the company’s books, registers and records;
• filing forms and documents with the Companies Registry (namely the annual return and documents relating to any changes regarding the share capital, the directors, the registered office, etc.);
• sending notices of general meetings and board meetings when required to do so by the board of directors.

If the company has only one director, the sole director cannot act as company secretary.

A private company limited by shares requires a minimum of one director who is a natural person, one shareholder (who may be a natural person or an entity) and one company secretary who must be a Hong Kong resident or a company with a registered office or place of business in Hong Kong. The company’s registered office must be located in Hong Kong (a P.O box is not acceptable). Professional company secretarial service providers usually offer domiciliation services.

Once the company is incorporated, several annual requirements shall be complied with.

• Audited financial statements. The directors must prepare annual financial statements and have them audited by a certified public accountant in Hong Kong. A director who fails to take all reasonable steps to comply with this requirement commits an offence and is liable to a fine and imprisonment.
• Annual general meeting. The company must hold an annual general meeting to lay the audited financial statements before the shareholders within nine months after the financial year end.
• Keeping of registers. The company must maintain a register of members, a register of directors, a register of company secretaries, a register of charges and a register of significant controllers and appoint a designated representative in charge of liaising with law enforcement officers in relation with the significant controller register.
• Annual return. An annual return must be filed with the Companies Registry within 42 days after each anniversary of the date of the company’s incorporation.
• Business registration certificate. The company must register its business with the Business Registration Office of the Inland Revenue Department. The company may apply for a one-year or a three-year certificate. If the company also carries on business at a branch, it must apply for branch registration. The business registration certificate must be displayed at the place of business and at any branch.
• Profits tax return. The company must complete and file a profits tax return with the Inland Revenue Department within one month after its date of issuance by the Inland Revenue Department to report the company’s assessable profits or adjusted loss during each tax year ending on 31 March.
• Employer’s returns. The company must complete and file an employer’s return within one month after its date of issuance by the Inland Revenue Department to report remunerations paid to employees, directors and independent service providers during each tax year ending on 31 March. In addition, the company must notify the Inland Revenue Department of the commencement and the end of the employment of any employee.

The keeping of records, the filing of the annual return and the renewal of the business registration certificate are part of the standard services offered by professional company secretarial service providers licensed as TCSPs.

A professional company secretarial service provider licensed as a TCSP is usually instructed to incorporate the company. A company secretary must be appointed for an initial 12-month period in order to incorporate the company. The following information shall be provided to the company secretary to incorporate the company:

• the company type;
• the company name, which shall end with the suffix “Limited”;
• the registered office address (professional company secretarial service providers usually offer domiciliation services);
• the name and address of the shareholder(s), the total number of shares, the share capital amount and currency and, in case there are several shareholders, the share capital allocation between the shareholders;
• the details of the director(s);
• the details of the company secretary;
• the date of the financial year end.

A professional company secretary licensed as a TCSP must conduct customer due diligence and identify the shareholders, directors and ultimate beneficial owners of the company in accordance with the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615). The company secretary will generally request certified true copies of the following documents:

• the passport or Hong Kong identity card and a residential address proof issued within the last three months for each individual director and ultimate beneficial owner who holds, directly or indirectly, more than 25% of the issued share capital; and
• the certificate of incorporation, articles of association, latest annual return, register of directors and register of members (or equivalents in the jurisdiction of incorporation) for each corporate director and corporate shareholder.

The professional company secretarial service provider licensed as a TCSP will also prepare the following documents and file them with the Hong Kong Companies Registry:

• the articles of association, which are usually based on the model articles of association for private companies limited by shares prescribed in Schedule 2 of the Companies (Model Articles) Notice (Cap. 622H);
• the incorporation form, which contains information regarding the company type, the company name, the registered office address, the founder shareholders, the first director(s) and the company secretary and a statement of capital and initial shareholdings;
• a notice to the Business Registration Office.

The Companies Registry will examine the documents and, if it is satisfied that the company has complied with the registration requirements, the Companies Registry will issue a certificate of incorporation. The Inland Revenue Department will issue a business registration certificate. The incorporation process usually takes around four working days and express online incorporation can be finalised within one day (provided that all information is available and that the relevant documents have been signed).

Foreign companies may face the following challenges when setting up a subsidiary in Hong Kong:

• satisfying the bank’s documentary requirements as part of the due diligence conducted by the bank during the corporate account opening process which are based on the strict compliance requirements contained in the Anti-Money Laundering and Counter Terrorist Financing Ordinance (Cap. 615);
• attending an in-person meeting at the bank’s branch for the purpose of opening a corporate account (however certain banks may, at their discretion, allow the meeting to be held remotely by videoconference);
• responding timely to requests for updated compliance documents from the bank as part of their periodic due diligence review process (the absence of response may lead to the bank account being frozen or closed by the bank);
• selecting experienced company secretarial service provider, professional accountant and legal counsel who can smoothly coordinate their work to ensure compliance with regulatory requirements and assist navigating challenges and day-to-day operations.