To register a company in Hong Kong, a company must prepare and submit an Articles of Association along with the incorporation form NNC1. Articles of Association is a document which sets out the rules and guidelines how the board can operate the company. It is often viewed as a contract between company members and the company.
What should be included in the Articles of Association?
If you are interested to register a company in Hong Kong, here is a short version sample for your reference. If you prefer to write your own articles of association, you may want to take reference of the following points.
How to appoint a Proxy
Business owners always have busy schedule, especially many of us might have shares in different companies. We might not be able to attend every single meeting. Hence, a company shall set out procedures how members can appoint a proxy. Some companies may require proxy notices to be delivered in a particular form, and they may even design and prepare different forms for different purposes. Whilst some companies are more flexible, they might allow proxy notice to be delivered in electronic format. There is no right or wrong and this is purely a difference of management style. If you have specific preference, it is the best to design your own content so the document can fit your management style.
Power of Directors
While some business owners act as directors themselves, some companies may have more complicated structure. Some members may appoint a professional lawyer or accountant to act on their interests. To avoid potential conflict, entrepreneurs can consider to include specific terms as to how directors can delegate their powers. For example, we can list out the scenario and extent of power to be delegated, the limitation, and the terms and conditions. There should also be a clear guidelines how a general meeting should be called and the number of votes needed for each decision. If these information are not written in the Articles of Association, the company may end up paying more on legal advice for each decision making process.
We recommend entrepreneurs to include clauses which are related to conflict of interests and procedures of share buy-backs, share allotment or share transfer. This type of clauses may avoid scenarios of share dilution. Share dilution means that your ownership proportion was reduced when the company issues additional shares to new members. Power should also be given to the director so he can refuse a transfer of shares which is not in the best interests of the company. You must consider all possibilities so you don’t have to panic when you encounter a hostile takeover.
Shareholders may have different views on how to spend the company’s profit. Some prefer to have cash immediately while some may want to re-invest for bigger profits. If members do not have a general consensus before they register a company in Hong Kong, they may end up in heated argument. Hence, it is useful to list out the procedure or even rationale for distributing dividends.
From our experience, most companies include a clause which gives director the power to apply reserves for any purpose to which the profits may be properly applied. The profits can be spent on investment or to be stored as reserve carry forward. Even if a company makes a profit, it does not mean that the company must distribute dividends to its members. All these rules shall be written as clear as possible and all members shall agree to it before starting the company formation in Hong Kong.
If this is your first time to register a company in Hong Kong, I’d suggest you to consult with our Hong Kong company formation expert at firstname.lastname@example.org. If you already complete your company formation in Hong Kong and you want to improve and update your Articles of Association, you can read the procedures below.
How to update the Articles of Association?
It is common for companies to alter their articles of association from time to time to fit preference of their investors or to fulfil their operation needs. For example, a company may change its way of calling a general meeting, appointing new directors, setting duties and powers of directors, and/ or determining the quorum of a meeting. To alter the Articles of Association, a company shall fill in the form NAA1 at the Hong Kong company registry.
If you intend to update your articles of association, your company must pay attention to section 88 of the Companies Ordinance. A special resolution or an ordinary resolution is required depending on the subject matter to be altered. Company owners must note that the company must deliver a proper notice with the said resolution to the Hong Kong company registry within 15 days. If the company fails to comply with the requirements, it is a breach of the law. Every responsible person can be liable to a level 3 fine, and a further penalty of HK$300 per day.
Other than altering clauses of the articles of association, you can also change the objective of your Hong Kong company. You can abandon, restrict existing objective, or adopting new objectives. If this is the case, you shall pay attention to the requirements listed in section 89 of the Companies Ordinance. You must fill in the form NAA2 along with a resolution to the Hong Kong Company registry. Business owner must also prepare a certified true copy of the altered Articles. The updated document can be certified by a Hong Kong licensed solicitor, practicing CPA or a Chartered Secretary.
If you want to know more on the topic of “How to prepare an Articles of Association”, you can contact our Hong Kong company formation expert at email@example.com for a free consultation!