Hong Kong Ranks 3rd in World Bank’s Ease of Doing Business Index
Hong Kong ranks 3rd among 190 economies in the ease of doing business, according to the latest World Bank annual ratings. The rank of Hong Kong improved to 3rd in 2019 from 4th in 2018. Ease of Doing Business in Hong Kong averaged 3.33 from 2008 until 2019, reaching an all-time high of 5.00 in 2014 and a record low of 2.00 in 2010.
Those interested in establishing a business presence in Hong Kong can do so in several ways. The three most common forms of business presence are:
- Hong Kong company
- Hong Kong branch of a non-Hong Kong company
- Hong Kong representative office of a non-Hong Kong company
A company formed under Hong Kong law may be limited by shares, by guarantee, or unlimited. A company limited by shares can be either public or private. The typical form of a subsidiary company is a company limited by shares.
If a company is limited by shares, the liability of its members (shareholders) is limited to the amount unpaid on their shares, if any.
In brief, a company requires at least one founder member who subscribes their name to the articles of association of the company. The articles of association must be filed with the Registrar of Companies, who issues a certificate of incorporation certifying the company’s date of incorporation.
All companies incorporated in Hong Kong must obtain a business registration certificate before commencing business. By law, the business registration certificate must be displayed at the company’s place of business. A separate business registration certificate must be obtained for each other place of business and each trade name of the company in Hong Kong.
A company’s share capital is represented by the total amount of its issued shares. There is no minimum share capital required by the Companies Ordinance. Since the change in company law on 3 March 2014, a company’s issued shares no longer require a par value.
There is no requirement that the issued shares must be fully paid up upon issue, but the members will be liable to pay up the unpaid balance in the event of a call by the directors or in the event of insolvency.
A private company must have at least one director. If the company has only one director, that director must be an individual and not a corporate director. Additionally, a Hong Kong resident individual or a company with its registered office or place of business in Hong Kong must be appointed as the company’s secretary. A private company with only one director cannot have its sole director act as the secretary.
A shadow director includes someone who can influence a majority of the directors of a company. Certain obligations and penalties imposed by the Companies Ordinance on the company that apply to a director also apply to a shadow director.
Where a company has only one member and that member is the sole director of the company, it may nominate a natural person who has attained the age of 18 years as a reserve director of that company to act in the place of the sole director in the event of their death. The appointment of a reserve director must be reported to the Companies Registry within 15 days.
The Companies Ordinance requires a company to have a registered office in Hong Kong to which all official communications and notices (including service of process) may be addressed.
The corporate governing bodies of a company are its members (shareholders) and board of directors. There is no requirement that meetings of either the members or the directors be held in Hong Kong. All meetings of members are called general meetings, including the annual general meeting.
There are essentially two kinds of resolutions by which a company may act in meetings of its members. An ordinary resolution is a resolution passed by a simple majority of those voting at the meeting, while a special resolution requires a 75% majority.
The board of directors is generally responsible for the general operations of a company, except those which must, by law or by its articles of association, be exercised by the members in general meeting.
A resolution of the board can be passed at a physical meeting at which a quorum is present or, if the articles of association permit, by way of a written resolution of all the directors or by a telephone/video conference. There is no special requirement that meetings be held in Hong Kong or at any specific intervals.
Every private company is required to file an annual return signed by a director or the secretary each year within 42 days after the anniversary of its date of incorporation.
Subject to application exemptions, a company is required to file a profits tax return annually with the Inland Revenue Department. Typically, a company’s financial statements will have to be filed with the return.
A company must keep its registers of charges, members, directors, secretary, and minute books (in hard copy or electronic form). A company is also required to keep proper accounting records which must be open for inspection by the directors at all times. If the accounting records are kept outside Hong Kong, certain accounts and returns with respect to the business must be sent to and kept at a place in Hong Kong and open for inspection by the directors.
Since 1 March 2018, a company incorporated in Hong Kong (subject to exemptions) must maintain a significant controllers register for persons who have significant control over that company. Generally, a Significant Controller includes a natural person or “specified entity”, and a legal entity that is a member of the company, which holds (directly or indirectly) more than 25% of the issued shares or voting rights in the applicable company or the right to appoint or remove a majority of the board of directors of the company.
Hong Kong-incorporated companies whose shares are listed on the Hong Kong Stock Exchange are exempted from the requirement to maintain a significant controllers register.
Any change to a company’s registered office, the board of directors, and the secretary must be reported within 15 days after the change to the Registrar. Certain other changes such as the increase of capital, change of articles of association, allotment of shares, creation of charge over certain types of assets of a company situated in or outside Hong Kong, and passing of special resolutions must be reported to the Companies Registry within certain statutory time limits.
In cases where a foreigner intends to carry on substantial business activities in Hong Kong, they will need to consider various factors before deciding whether to conduct the business through a branch or a subsidiary company. For example, the tax consequences (both in Hong Kong and overseas) of using each form might be significantly different. There are also practical differences as to maintenance and filing requirements. The decision in each case depends on the particular facts of that case.
Mayon Solutions Limited will be pleased to advise on this issue in each specific case.
Please reach out to us sales@mayon.hk