As part of its business life, it is quite common that the share capital of your company will be reorganized at some point in time.
This may be the case when you sell your business or attract a new investor
In this guide, we address the main considerations for HK company share transfers.
When do share transfers take place?
There are several circumstances in which you may transfer or sell all or part of the shares of your Hong Kong company:
- a transfer of shares between existing shareholders in the context of an internal or group reorganization
- a transfer of shares as part of the sale of your company
What are the preconditions for any share transfer?
There are several key actions that you should take before transferring the shares of your company:
- Checking your company’s articles of association for any limitations or restrictions on share transfers
- Reviewing your company’s shareholders agreement (if any) for the same possible limitations or restrictions (for example lock-up periods during which shares cannot be freely transferred)
- Ensuring that appropriate board resolutions or general meeting resolutions authorizing the transfer have been passed
- Verifying that the other shareholders have been offered to purchase the shares to be transferred and have waived such right (in case of the pre-emptive right granted to the other shareholders)
What documents are required for a share transfer?
You will need to prepare the following documents and information for any transfer of shares of your Hong Kong company:
- The share purchase agreement, also known as equity transfer agreement (not mandatory but strongly recommended)
- Bought and Sold notes, also known as Contract Notes
- Instrument of Transfer
- Application letter to be submitted to the Inland Revenue Department (IRD)
- Latest audit report audit
- Certified management accounts dated no more than 3 months for the company and its subsidiaries
- If the company has not yet started a business, a letter confirming the same in replacement of the audit report and management accounts.
Are share transfers subject to administrative procedures?
Share transfers of Hong Kong companies are subject to very limited administrative procedures.
From a legal standpoint, the sale or transfer of shares of a Hong Kong company becomes effective on the date of signing of the relevant share transfer documents (meaning on the date indicated on the share purchase agreement, the bought and sold notes, and the instrument of transfer).
However, the name of the acquirer of the shares can only be entered in the Company’s Register of Members after a stamping procedure with the Hong Kong Inland Revenue Department (this stamping procedure is further detailed below).
Please note that share transfers do not need to be immediately reported to the Hong Kong Companies Registry.
Information regarding share transfers affecting a Hong Kong company is only disclosed to the Companies Registry once a year upon the filing of the company’s annual return (NAR1 Form).
What is the stamp duty applicable to share transfers?
Any transfer of the shares of a company in Hong Kong is subject to payment of a stamp duty levied by the Inland Revenue of Hong Kong.
This stamp duty is basically a tax on transfers and sales of company shares.
There are several key aspects that you should know about stamp duty:
- The amount of stamp duty payable is 0.2% of the highest purchase price for the transferred shares or the net assets of your company. The amount of the company’s net assets are determined based on the latest audit report or management accounts of your company
- There is a deadline to proceed with the stamping documents. If the share transfer documents are signed in Hong Kong, this deadline is two (2) days after the sale. The deadline is thirty (30) days if the share transfer documents are signed outside of Hong Kong.
Let’s look at a real-life example:
Clara owns all 100 shares of Gold Dragon Limited.
Clara sells all such 100 shares to Michelle for HK$ 1,000,000.
The net assets value of Gold Dragon Limited is HK$ 800,000 (based on its audited accounts).
Then the stamp duty payable on the share transfer is HK$ 1,000,000 x 0.2% = HK$ 2,000.
What are the penalties in case of late stamping?
Penalties for late stamping and payment of stamp duty are progressive.
The penalties start at twice and may reach up to ten times the amount of stamp duty normally due.
How to speed up the payment of stamp duty on a share transfer?
Legally speaking, the name of the buyer can only be entered in the company’s Register of Members (also known as Register of Shareholders) after the applicable stamp duty is paid.
In order to speed up the stamp duty process, we recommend that the purchase price for any transfer of the shares of your company be expressed in Hong Kong dollars.
If expressed in Hong Kong dollars, the Hong Kong Inland Revenue Department will be able to assess and calculate the amount of the stamp duty fee immediately on the same day.
On the contrary, if the purchase price is expressed in another currency then the Inland Revenue Department may take a few days to proceed with the currency conversion.
This will delay the completion of the transfer of your shares.
What happens at the end of the share transfer process?
Upon completion of a share transfer, the buyer receives a share certificate.
The company has two (2) months to issue such a share certificate.
Your company’s register of members must also be updated to include the name of the buyer within 2 months.
Finally, the Significant Controller Register of your company may also have to be updated.
How long does it take to complete a share transfer?
We have extensive experience handling share transfers and stamping procedures.
Preparing the application documents only takes a couple of hours if you use the services of Air Corporate.
In order to avoid any delay, you should anticipate the preparation of your company’s audit report and the latest management accounts.
Air Corporate can of course assist you with this part. Sign up with Air Corporate to get a clear share structure setup.
Focus on your business, we take care of the rest.
FAQ
1. Who is responsible for paying stamp duty on a share transfer in Hong Kong?
The responsibility for paying stamp duty on a share transfer in Hong Kong falls on the purchaser of the shares.
2. Are there any restrictions on the transfer of shares in Hong Kong companies?
In general, there are no restrictions on the transfer of shares in Hong Kong companies, unless the company’s articles of association or any agreements between shareholders contain provisions that restrict share transfers.
However, certain types of companies, such as listed companies or companies in regulated industries, may be subject to additional regulations and restrictions on share transfers.
3. How long does it take to complete a share transfer in Hong Kong?
The timeline for completing a share transfer in Hong Kong can vary depending on a number of factors, such as the complexity of the transfer, the number of shareholders involved, and the responsiveness of the relevant authorities.
Typically, a share transfer can take anywhere from a few days to several weeks to complete. It is advisable to seek professional advice and plan ahead to ensure a smooth and timely share transfer process.