Basic Conditions and Process for Share Transfer of Hong Kong Company Shareholders

In Hong Kong, the transfer of shares among company shareholders is a common commercial activity. Whether it is for adjusting the equity structure, introducing new investors, or exiting existing investments, this process requires adherence to certain legal and procedural requirements. This article will introduce, based on recent relevant news, the basic conditions and procedures that need to be understood when conducting share transfers among shareholders in Hong Kong.

Firstly, according to the regulations of the Hong Kong Companies Registry, any shareholder must ensure that the company's articles of association do not impose additional restrictions on the transfer of shares before proceeding with the transfer. For instance, some articles of association may stipulate that shareholders must obtain the consent of other shareholders under specific circumstances prior to transferring their shares. The first step is to carefully review the company's articles of association.

Recently, a large real estate company in Hong Kong garnered attention due to issues related to share transfers. A major shareholder of the company planned to transfer part of its shares to an international investment fund. During this process, the fund not only had to verify the company's articles of association but also needed to ensure compliance with relevant regulations set by the Securities and Futures Commission SFC, particularly concerning disclosure requirements.

Secondly, Section 729 of the Hong Kong Companies Ordinance clearly stipulates the methods of share transfer. Typically, shares can be transferred through a written agreement. However, if the transfer involves shares of a listed company, it must comply with the listing rules of the Hong Kong Stock Exchange HKEX. For example, recent media reports indicated that a major shareholder of a listed company privately transferred shares without disclosure, resulting in investigation and penalties from regulatory authorities.

Following the completion of the share transfer, it is essential to promptly update the register of members with the Companies Registry. This is a crucial step in ensuring the accuracy of the company’s records. Additionally, the company should also announce this change at a general meeting to safeguard the right to information of other shareholders. Notably, since the beginning of this year, the Hong Kong Companies Registry has introduced electronic services, allowing companies to submit relevant documents online, greatly simplifying the process.

Tax issues are an indispensable part of the share transfer process. According to the Hong Kong Inland Revenue Department, unless certain exemptions apply, share transfers may involve stamp duty. Stamp duty is calculated based on the higher of the transfer price or the nominal value of the shares. Recently, due to increased market volatility, many investors have begun paying attention to how they can reasonably plan their tax costs to reduce overall transaction risks.

Lastly, both parties involved in the share transfer are advised to hire professional legal advisors and accountants to assist with contract negotiations, due diligence, and subsequent tax planning. This not only effectively mitigates potential legal risks but also enhances the transparency and efficiency of the entire transaction.

In summary, conducting share transfers among shareholders in Hong Kong involves multiple aspects, including reviewing the company's articles of association, complying with regulatory body requirements, arranging taxes, and registering with the Companies Registry. By thoroughly understanding these basic conditions and procedures, one can better protect their rights and successfully complete the share transfer transaction. It is hoped that the above information will be helpful to those who are considering or currently undertaking such operations.