Share transfers typically occur during internal or group reorganizations or when selling the company or welcoming a new shareholder.
Required documents for share transfers include the share purchase agreement (optional but recommended), Bought and Sold notes, Instrument of Transfer, application letter to the Inland Revenue Department, the latest audit report, and certified management accounts.
The validity of previous share certificates depends on the company’s status and current records. While damaged certificates may still be valid, lost certificates require replacement requests.
Share transfers in Hong Kong are effective on the signing date but need stamping to update the Register of Members. Transfers are reported to the Companies Registry annually.
As part of business life, it is common for the share capital of your company to be reorganized at some point, where you will have to transfer existing shares. This may be when you sell your business or attract a new investor.
Understanding the Share Transfer Hong Kong Procedure
At some point, you would want to change how the shares of your Hong Kong company are divided. This usually happens when you bring in new shareholders or change how many shares each current owner has.
The most common way to do this is by transferring shares. A share transfer means moving shares from one person to another, either through a sale or a gift. This is a normal practice for many businesses in Hong Kong.
How to Transfer Shares in Hong Kong: Step-by-Step Guide
In Hong Kong, transferring shares involves several key steps:
Transferring shares in a Hong Kong company involves several key steps. Here’s a simplified breakdown of the process:
1. Prepare Required Documents
- Use standard share transfer documents such as the Instrument of Transfer and Bought and Sold Notes, detailing the seller, buyer, number of shares, and sale price.
- A Share Purchase Agreement may also be used, though it’s not legally required.
- Gather supporting documents, including:
- The original share certificate
- Board resolution approving the transfer (if required)
- Identification documents of both parties
2. Sign and Certify the Documents
- Both the buyer and seller must sign the transfer documents.
- Signatures are usually witnessed by a third party—such as a Hong Kong solicitor, accountant, or other authorized person.
3. Pay Stamp Duty
- The transfer is subject to a stamp duty of 0.26% on the higher of:
- The consideration (purchase price), or
- The net asset value of the company
- While each party can bear half the duty, it’s common practice for the buyer to pay the full amount.
- Stamp duty can be paid via e-Stamping or by visiting the Inland Revenue Department (IRD).
4. Update Company Records
- After the stamp duty is paid, the company secretary must:
- Update the Register of Members
- Update the Register of Directors (if there’s a change)
- If the directors change, a notification must be filed with the Companies Registry.
5. Issue New Share Certificate
- Once the above steps are complete, the company will issue a new share certificate to the buyer as proof of ownership.
Important Considerations
- Check for any pre-emption rights or shareholder agreements that may restrict the transfer. Existing shareholders may have the right of first refusal.
- Always consult a qualified solicitor or accountant familiar with Hong Kong company law to ensure compliance and avoid delays.
When Do Share Transfers Take Place?
Reasons why a company needs to transfer shares:
- A shareholder needs to leave the company because they quit or retire.
- A director who owns shares is removed or needs to step down.
- Current owners change how many shares each person has due to new business plans.
- The whole company is sold, so shares must go to the new owners.
When transferring existing shares, it usually comes down to one key question: are you selling all your shares or just a portion?
What Are the Preconditions for Transferring Shares?
Before transferring company shares, make sure to address the following important considerations:
- Check Transfer Restrictions. Review your company's Articles of Association to identify any specific limitations or conditions related to share transfers.
- Review the Shareholders Agreement. If a shareholders agreement exists, confirm whether it contains restrictions, such as lock-up periods, that may prevent or limit share transfers.
- Obtain Proper Authorization. Ensure you have an appropriate board resolution or general meeting approval authorizing the share transfer.
- Respect Pre-emptive Rights. Verify if existing shareholders have any pre-emptive rights—meaning they must first be offered the chance to purchase shares—and confirm whether they've waived those rights in writing.
What Documents Are Required for a Share Transfer?
When transferring shares, specific documentation must be submitted to the Inland Revenue Department (IRD) for approval and record-keeping. The following items are typically required to complete the process:
Core Documentation
- Application letter – A formal request outlining the details of the share transfer.
- Instrument of Transfer – The official document that facilitates the legal transfer of shares.
- Share purchase agreement (also known as the equity transfer agreement) – A signed contract between the buyer and seller outlining the terms of the transaction.
- Bought and Sold Notes or Sales and Purchase Agreement – These document the agreed-upon sale price and transaction details.
Financial and Corporate Records
- Certified management accounts – Updated within the last three months for both the company and any subsidiaries involved.
- Latest audit report – The most recent audited financial statement for transparency and compliance.
- Company resolution – A board resolution approving the share transfer and, if applicable, confirming any dividend distributions.
Supporting Documents
- Copy of the Articles of Association – The company’s governing document outlining shareholder rights and procedures.
- Identification documents of the new shareholder – A copy of the new shareholder’s residential address, passport, or identity card.
- Land property information – If the company owns any real estate, details must be disclosed.
Transaction Details
- Name of the share transferor – The person or entity transferring the shares.
- Number of shares to be transferred – Clearly indicating the quantity involved in the transaction.
These documents help the IRD determine the share value for calculating tax. Without updated financial records, share transfers may face delays. Keeping records current ensures a smoother, faster transfer process in Hong Kong.
Are Previous Share Certificates Still Valid?
The validity of a previous share certificate depends on several factors:
| Factor | Condition for Validity |
|---|---|
| Company Status | Valid if the issuing company is active. Verify online using government databases or the company's website. |
| Accuracy of Information | Certificate details (company name, shareholder, shares) must match current company records. |
| Corporate Actions | Invalid if new certificates were issued due to events like stock splits, mergers, or restructurings. |
| Physical Condition | Valid even if damaged, but practically challenging. Lost or severely damaged certificates require replacement. |
| Electronic Shares | If shares are dematerialized, physical certificates become less relevant as electronic records officially represent ownership. |
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 0.26% of the highest purchase price for the transferred shares or the net assets of your company. The amount of the company's net assets is determined based on the latest audit report or management accounts of your company.
- Each Instrument of Transfer is subject to a stamp duty fee of HKD 5.00.
- 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.
Penalties
Failure to pay stamp duty on time can result in significant penalties. The penalty increases based on the delay period:
| Delay Period | Penalty Imposed |
|---|---|
| Payment overdue by up to 1 month | 2 times the original stamp duty amount |
| Payment overdue by more than 1 but ≤ 2 months | 4 times the original stamp duty amount |
| Payment overdue by more than 2 months | 10 times the original stamp duty amount |
To avoid these penalties, ensure all documents are submitted and duties paid within the required timeframe.
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 Air Corporate's services.
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 today to get a clear share structure setup.
What Happens If a Company Refuses to Transfer Shares in Hong Kong?
If a company refuses to transfer shares (change who owns them), there are rules they must follow:
Notice of Refusal
If the board of directors decides not to register a share transfer, they must notify both the transferee (the person receiving the shares) and the transferor (the person transferring the shares) within two months of the transfer being lodged.
Request for Reasons
The transferee or transferor can request a statement explaining the reasons for the refusal. Upon such a request, the company is obligated to provide this statement within 28 days or proceed to register the transfer.
Penalties for Non-Compliance
Failure to send the notice of refusal, provide the statement of reasons, or register the transfer within the specified timeframes can result in penalties. The company and its responsible officers may be liable to a Level 4 fine (HKD 25,000) and an additional fine of HKD 700 for each day the offense continues.
Companies must follow these rules to avoid legal trouble and financial penalties. If a company refuses a share transfer, it must explain why and follow proper procedures.
FAQs
The responsibility for paying stamp duty on a share transfer in Hong Kong falls on the purchaser of the shares.
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.
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.
