Memorandum of Association

Loan to directors

Reporting exemptions

Records of Register of Charges

Minutes of directors' meeting

Records of resolutions and meetings

Choice between de-registration and liquidation

Guidelines for Directors

 

 

 


 

Memorandum of Association

 

Deeming provisions

 

Section 98 states that the provisions of the MoA of an existing company (i.e. a company formed and registered under Cap 32 or a former Ordinance), including objects clause (if any) and members’ liability, will be deemed to be regarded as provisions of the company’s Articles of Association (AoA).

 

To keep in line with the migration to no-par regime, section 98(4) also provides that the provisions contained in the MoA of an existing company stating the authorised share capital of the company or dividing the share capital of the company into shares of a fixed amount is regarded as deleted.

 

Effect of the deeming provisions

 

The abolition of MoA means that an existing company, which was set up under the predecessor Companies Ordinance, will have the AoA as the single constitutional document in the same way as a company established under the Companies Ordinance (Cap 622). 

 

Alternation of Articles of Association

 

To make alternation to the AoA or MoA, as the case may be, the company is required to pass a special resolution and complete the procedures as laid down in sections 88, 89, and/or 90 respectively.

 

Alternation of clauses other than the object clauses

 

The Company has to pass a special resolution for that purpose, and file Form NAA1 to the Companies Registry for public information, together with a copy of the revised Articles of Association as certified by one of the directors. 

 

Alternation of object clauses

 

The Company has to pass a special resolution, and file Form NAA2 to the Companies Registry for public information, together with a copy of the revised AOA, as certified by one of the directors.

 

Re-numbering and alternation of clauses in Memorandum of Association

 

This only applies to the type of companies that have been established before the commencement of the Companies Ordinance (Cap 622). The Company has to pass a special resolution, and file Form NAA3 to the Companies Registry for public information together with a copy of the revised AOA, as certified by one of the directors.

 

Mandatory provisions

 

Note that certain mandatory provisions must be retained in the amended AoA, such as the object clauses for the non-profit-making guarantee company. One cannot simply adopt the Model Article as provided under Companies (Model Articles) Notice (Cap 622H). 

 

Further information is available from Division 2 in Part 3 of the Companies Ordinance (Cap 622).

 

 

 


 

Loans to the director  (Chinese Version [read])

 

Introduction

 

After the coming into operation of the Companies Ordinance (Cap 622), whether a director could borrow money from the company, and if yes, how these loan transactions should be handled if the transactions continue to exist after the coming into effect of the Companies Ordinance?

 

Exception

 

Section 505 provides that, if loan amount does not exceed 5% of the Company's net asset as per last audited financial statement or if the audited financial statement is not available, the amount of the Company's called up capital, the loan amount does not require any approval by the members / shareholders.

 

Exemption

 

The above questions can be considered in two aspects. The first is about the legitimacy of the loan. In that respect, one can check whether these loans have been approved by the company's members in the general meeting (S500). The second is transparency of the loan transaction. In that respect, one can check whether the loan has been disclosed in company’s financial statements (S383). If the loan has been approved and disclosed, then the loan transaction is legitimate and lawfully reported. These requirements are not only applicable to the loans that are granted after the commencement of the Companies Ordinance, but also to loans that have not been repaid on 3rd March 2014, the commencement date of the Companies Ordinance.

 

Provision for contravening transactions

 

Section 383(6) provides that if the loan has not been disclosed in the financial statements, every director commits an offence, and shall be subject to a fine at level 5. As per Schedule 8 of the Criminal Procedures Ordinance, a fine at level 5 amounts to HK$50,000.

 

Section 513 provides that where the company has not approved the loan, the loan is voidable at the instance of the company unless restitution of the asset is no longer possible, the company has been indemnified for any loss or damage resulting from the transaction, or the person other than the director, for whom the transaction was entered into in good faith, for value and without notice of the contravention and those rights would be affected by the avoidance. Irrespective of whether the loan is avoided, the director to whom the loan is granted is under a civil obligation to repay the loan to the company. The civil obligation is also extended to any other director who authorized the loan.

 

Section 514 provides that in spite of the provisions under section 513, the loan transaction may no longer be avoided if it is affirmed within a reasonable period of time by the company. If the loan was entered into without the approval of the company’s members, the affirmation must be obtained by the resolution of the company’s members. If the loan was entered into without the approval of the members of the holding company, the affirmation must be obtained by the resolution of the holding company’s members.

 

Scope of the loan provision

 

The provision of section 500 shall apply to the loans to a director, the company under the control of a director, the guarantee given to or security provided in respect of the loan, or the guarantee given to or security provided for the company under the director’s control. Section 500 shall also apply to the loan to director of the holding company, the company under the control of the director of the holding company, the guarantee given to or security provided for the director of the holding company, or the guarantee given to or security provided for the company under the control of the holding company’s director.

 

Sections 500 shall apply to private companies, excluding specified companies. As per section 491, a specified company includes a public company, a private company, or a company limited by guarantee that is a subsidiary of a public company.

 

Excluded transaction

 

Section 505 provides that the restriction under section 500 does not apply where the aggregate of the value of the loan transaction and the value of other relevant transaction does not exceed 5% of the net assets as determined by the company’s financial statement, or if no such relevant financial statements have been prepared, the amount of the company’s called up capital.

 


 

Reporting exemptions

 

Sections 359 and 360 provide for the types of companies falling within the reporting exemption, and the conditions which a company (or a group of companies) must satisfy in order to be eligible for reporting exemption. 

 

The subject of reporting exemptions (or simplified reporting) has been dealt with in detail under the sub-heading of "Published Articles" under "Seminars and Publications".  For English version, [Read-Eng] and [Read-Eng2]; For Chinese version, [Read-Chinese1] and [Read-Chinese2].

 


 

Company records 

 

Records of register of charges

 

 

Hong Kong Company

Registered non-HK Company

Notification of place where internal records are kept

Externally filed records

S338

S339

Not applicable

Internally kept records

S352

S353

S354

 

Obligation to keep copy of Instrument creating charges internally

 

Section 351(1) and (2)

 

Copies of instrument creating charges under Part IV, Companies Ordinance (Cap 622); or under Part III, the Predecessor Ordinance (Cap 32) must be kept at following specified locations:

 

S351(1) - A HK Company

Registered office, or

at a place prescribed by regulations (Cap S662I)

The financial secretary is empowered to makes under S657

S351(2) - A registered non-HK company

Principal place of business, or

at a place prescribed by regulations (Cap S662I)

Under S356

 

Section 351(4)

 

Both types of companies should notify the Companies Registrar

 

After copy of instrument is first kept

Within 15 days

In specified form

After change in the place such instrument is kept

Within 15 days

In specified form

 

Contravention of S351(1), (2) or (4)

 

Company, registered non-HK company, and every responsible person commit an offence, and is liable to a fine at level 4. In the case of continuing contravention, a further fine at HK$700 for each day during which the contravention continues.

 

Obligation to keep Register of Charges internally

 

Section 352 and section 353

 

Location

Scope

Contravention

Wilful contravention

Hong Kong Company: Registered office (S352)

Charge affecting Company’s property, and floating charges on Company’s property or undertaking

Company, and every responsible person liable to a fine at level 4 (HK$25,000), in case of continuing offence, further fine of $700 for each day during the continuing offence

Company’s officer commits an offence and is liable to fine at level 5 (HK$50,000).

Registered non-HK company: Principal place of business in HK of a registered non-HK company (S353)

Every charge created by company on Company’s HK property, charge on property in HK acquired by Company

Ditto

Officer of the registered non-HK company commits an offence and is liable to fine at level 5 (HK50,000).

 

Notification of place where register of charge is kept

 

Sections 354(1), and 354(2)

 

Both types of companies: notify the Companies Registrar

 

After copy of instrument is first kept

Within 15 days

In specified form

After change in the place such instrument is kept

Within 15 days

In specified form

 

Contravention of S354(1) and S354(2)

 

The company, registered non-HK company, and every responsible person commit an offence, and each is liable to a fine at level 4. In the case of continuing contravention, a further fine at HK$700 for each day during which the contravention continues.

 


 

Minutes of directors' meeting

 

Section 481

(1) A company must cause minutes of all proceedings at meetings of its directors to be recorded.
(2) A company must keep the records under subsection (1) for at least 10 years from the date of the meeting.
(3) If a company contravenes subsection (1) or (2), the company, and every responsible person of the company, commit an offence, and each is liable to a fine at level 5 and, in the case of a continuing offence, to a further fine of $1000 for each day during which the offence continues.

 

 

Section 483

 

(1) If a private company has only one director and the director takes any decision that—

(a) may be taken in a meeting of directors; and
(b) has effect as if agreed in a meeting of directors,

the director must (unless that decision is taken by way of a resolution in writing) provide the company with a written record of that decision within 7 days after the decision is made.
(2) If the director provides the company with a written record of a decision in accordance with subsection (1), that record is sufficient evidence of the decision having been taken by the director.
(3) A company must keep a written record provided to the company in accordance with subsection (1) for at least 10 years from the date of the decision.
(4) A director who contravenes subsection (1) commits an offence.
(5) If a company contravenes subsection (3), the company, and every responsible person of the company, commit an offence.
(6) A person who commits an offence under subsection (4) is liable to a fine at level 3.
(7) A person who commits an offence under subsection (5) is liable to a fine at level 5 and, in the case of a continuing offence, to a further fine of $1000 for each day during which the offence continues.

 


 

Records of Resolutions and meetings

 

S617 (One member company)

 

(1) It provides that a member takes any decision that—

(a) may be taken by the company at a general meeting; and
(b) has effect as if agreed by the company at a general meeting.

(2) The member must, unless the decision is taken by way of a written resolution, provide the company with a written record of that decision within 7 days after the decision is made.

(3) A person who contravenes subsection (2) commits an offence and is liable to a fine at level 3.
 

S618 (Records of resolutions and meetings)

 

(1) A company must keep records comprising—

(a) copies of all resolutions of members passed otherwise than at general meetings;
(b) minutes of all proceedings of general meetings; and
(c) all written records provided to the company in accordance with section 116BC(1) of the predecessor Ordinance or section 617(2).

(2) A company must keep the copy, minutes or written record under subsection (1) for at least 10 years from the date of the resolution, meeting or decision, as the case may be.
 

(3) If a company contravenes subsection (1) or (2), the company, and every responsible person of the company, commit an offence, and each is liable to a fine at level 5 and, in the case of a continuing offence, to a further fine of $1000 for each day during which the offence continues.

 

S619 (Place where records must be kept)

 

(1) A company must keep the records mentioned in section 618 at—

(a) the company’s registered office; or
(b) a prescribed place.

(2) A company must notify the Registrar of the place at which the records mentioned in section 618 are kept. The notice must be in the specified form and delivered to the Registrar for registration within 15 days after the records are first kept at that place.

(3) A company must notify the Registrar of any change (other than a change of the address of the company’s registered office) in the place at which the records mentioned in section 618 are kept. The notice must be in the specified form and delivered to the Registrar for registration within 15 days after the change.

 

Non-compliance

 

If a company contravenes subsection (1), (2) or (3), the company, and every responsible person of the company, commit an offence, and each is liable to a fine at level 5 and, in the case of a continuing offence, to a further fine of $1000 for each day during which the offence continues.

 

Note : A fine at level 4 is HK$25,000; a fine at level 5 is HK$50,000. 

 


 

Choice between de-registration and liquidation

 

Please refer to the analysis under the heading HK Companies Ordinance [Read]

 


 

Guidelines for Directors (4th edition)

 

Guidelines for Directors [read] is an official publication of the Hong Kong Institute of Directors. The Guidelines is a desk-top and easy-to-carry reference book for both practising directors and newly appointed directors.  The 4th edition includes the latest legal and regulatory updates, particularly the Companies Ordinance (Cap 622) effective commencing 3 March 2014.  Issues addressed in the Guidelines include:-
  • The board, the company, general meeting and management; the functions of directors and how the board operates.
  • Directors’ legal status, powers and duties; conflicts and declaration of interest; disclosure, reporting and accounting, etc; how to perform duties.
  • The directors as an individual: eligibility; appointment, removal, disqualification; remuneration and compensation.