How Mainland Residents Can Avoid Risks of Being Shareholders in Hong Kong Companies

How Can Mainland Residents Avoid Becoming the Liable Party as Shareholders of Hong Kong Companies?

In recent years, with increasing cross-border investment and continuous improvements in the business environment, more and more mainland residents have chosen to register or invest in Hong Kong companies to achieve asset allocation, tax planning, or even overseas listing. However, during this process, some investors, due to unfamiliarity with Hong Kong’s legal system, information asymmetry, or being misled by intermediaries, end up entangled in legal disputes, debt liabilities, or even criminal investigations.

Recent media reports have highlighted cases where mainland residents were unknowingly registered as shareholders of Hong Kong companies, only to later face liability claims from creditors or regulatory authorities. For example, in November 2025, the Companies Registry of Hong Kong issued a warning notice stating that there had been multiple cases of identity theft for illegal company registration, urging the public to strengthen personal information protection. There are also cases where investors signed documents under the promise of zero-risk shareholding by intermediaries, only to later bear far greater legal responsibilities than expected.

So, how can mainland residents avoid such risks when setting up or investing in Hong Kong companies? Here are several key recommendations

1. Understand Hong Kong Company Law and Associated Liabilities Thoroughly

Hong Kong operates under a common law system, which significantly differs from China's civil law framework. Under the Companies Ordinance, anyone officially registered as a shareholder assumes certain legal obligations. In particular, during company liquidation or litigation, shareholders may be held liable for unpaid capital or joint liabilities.

Before agreeing to become a shareholder, it is essential to fully understand the scope of your responsibilities. This is especially important for nominee shareholders i.e., those holding shares on behalf of others, who could easily become scapegoats if the actual controllers evade responsibility.

2. Exercise Caution When Signing Documents and Avoid Blind Authorization

Many mainland residents rely heavily on intermediaries to handle the procedures for setting up or investing in Hong Kong companies, sometimes even signing blank forms or general powers of attorney. Such practices carry significant risks. Once registered as a shareholder or director-even without direct involvement in operations-you may still be held legally accountable.

Before signing any documents related to company formation or changes, carefully review each clause. If necessary, seek assistance from a qualified legal professional. Do not blindly accept explanations such as just a formality when dealing with critical documents like articles of association, shareholder agreements, or powers of attorney.

3. Avoid Being a Nominee Shareholder and Be Alert to Money Laundering or Tax Evasion Risks

With stricter financial regulation in Hong Kong, anti-money laundering AML and know-your-customer KYC requirements have been significantly tightened. Nevertheless, some individuals still attempt to use mainland residents as nominee shareholders to bypass scrutiny.

Such actions not only violate ethical principles but may also break the law. At the end of 2025, Hong Kong police cracked down on a major money laundering case involving several mainland residents who were registered as company shareholders and consequently became subjects of investigation. Although some were eventually proven to be innocent victims, they still spent considerable time and energy dealing with the aftermath.

If someone invites you to serve as a nominal shareholder, exercise extreme caution. Refuse requests to assist without compensation or actual control over the company.

4. Monitor Company Operations and Regularly Review Registration Information

Becoming a shareholder is not the end of your responsibilities. You should regularly check whether the company is operating normally and monitor any unusual changes-such as adjustments to registered capital, share transfers, or new debts.

You can use the online services provided by the Companies Registry for basic information checks or engage a professional company secretary firm for ongoing management. If you discover unauthorized registration as a shareholder, immediately file an objection with the Companies Registry, retain relevant evidence, and report the issue to the authorities if necessary.

5. Utilize Professional Services to Mitigate Operational Risks

Cross-border investment inherently involves complex legal and tax issues. Therefore, it is strongly recommended to engage qualified legal advisors, accountants, and company secretarial teams when setting up or investing in a Hong Kong company. These professionals can help mitigate legal risks and provide ongoing compliance support.

Currently, many intermediaries advertise low-cost registration or fast setup services, but their service quality varies greatly, and some may even engage in fraudulent behavior. Investors should compare options carefully and choose reputable and experienced service providers.

Conclusion

Under the backdrop of globalization, it is natural for mainland residents to participate in the establishment and investment of Hong Kong companies. However, this trend also comes with significant legal and commercial risks. Only by strengthening legal awareness, improving judgment capabilities, and leveraging professional expertise can investors truly avoid becoming vulnerable parties-turning cross-border investments into stable, long-term growth opportunities.