Share Allotment

Key Takeaways: 

• Share allotment is the issuance of new shares to raise capital or adjust ownership.
• Directors may issue shares only with shareholder approval via a formal resolution.
• Company must issue share certificates to shareholders within two-months of share allotment.
• Companies Registry may impose fines for late or inaccurate filings of shares structure.

After you register a company in Hong Kong, you can choose to increase its share capital to attract more investment from new shareholders or existing partners. A common way to increase shares is by submitting a Return of Allotment. This form must be filed with the Companies Registry within the mandatory delivery time of one month after the share allotment in Hong Kong.

What is share allotment?

Share allotment is the formal process where a company creates and issues new shares to either current stakeholders or external investors. This process is primarily used to raise capital or redistribute ownership.

Types of Share Allotments

1. Public Offerings

• Initial Public Offering (IPO): The debut of a company’s shares on the open stock market, allowing investors to purchase equity for the first time.
• Rights Issue: Offering current shareholders the right/option to buy more equity, usually with a discount, relative to the number of shares they already own.
• Applicability: Public offering actions apply only to public companies.
  

2. Private Offerings

• Private Placement: Directly offering new shares to a restricted group of investors or institutions, bypassing the general public.
• Preferential Allotment: Targeted issuance of shares to a pre-selected group

3. Internal Offerings

• Employee Stock Options (ESOPs): Offering staff members equity as a reward or a component of their remuneration package.
• Internal Capital Raise: A method of raising fresh capital from existing shareholders by offering them the right to purchase additional shares, in proportion to their current holdings. This way, ownership ratios remain unchanged, and the company brings in new funds without altering the share structure.

What are the steps for Share Allotment in Hong Kong?

A company’s board of directors has the power to issue new shares, provided they have obtained approval from the shareholders via a formal resolution. The whole process can be broken down into three steps:

1. Pass a Resolution: The company members shall pass a resolution to approve the allotment of shares to new investors or existing members.
2. Define Terms: Such approval may be unconditional or subject to conditions set out in the terms and conditions of the contracts of allotment.
3. Flexibility of Approval: Company members have the right to revoke or vary the approval of share allotment at any time by a company resolution.

What is a contract of allotment?

It is very important for the company to have a contract in place with new investors. To determine the exchange of capital contributed for the shares allotted by the company, the two parties must agree on:

1. The amount of share capital to be contributed
2. The time of the contribution of the share capital to the company account
3. The form of the contribution (money, goods, services, land, or other forms of assets.)
4. The time at which the new investor is to have the unconditional right to the allotted shares.
5. The rights of membership attached to each share.

Once shareholders grant approval under Section 141 of the Companies Ordinance, directors are authorized to allot new shares, define and grant specific rights to each class of allotted shares.

Filing Share Allotment (Form NSC1) in Hong Kong

When a Hong Kong company issues new shares, the company must maintain an accurate record and file Form NSC1 (Return of Allotments) with the Companies Registry. According to Section 142 of the Companies Ordinance, this filing must include:

1. Statement of Capital: An updated overview of the company’s share structure.
2. The full name and address of every person or entity receiving shares.
3. The total value (cash or assets) provided in exchange for the shares.
4. A declaration of whether the shares are fully or partly paid up.

Key Requirements for Reporting Share Capital

When completing your statement of capital, you must provide the total issued shares, paid-up capital, and any outstanding unpaid amount. If the company has multiple share classes, you must disclose the specific rights attached to each class.

Deadlines and Share Certificates

Once the allotment is finalized, the company is legally required to issue share certificates to new shareholders within 2 months. The Return of Allotments (Form NSC1) must be filed promptly. If your company requires more time, you may consider applying for a court extension. Please note that the court typically only grants extensions if the delay was caused by accidents or uncontrollable factors. 

Penalties for Non-Compliance

Failure to comply with share allotment requirements is a serious matter. Every responsible person in the company could be held liable for a Level 4 fine. If you need expert help preparing your share allotment or filing Form NSC1, our professional team is here to help.

Frequently Asked Questions