New Hong Kong Companies Ordinance: Articles of association

01 Dec 2013 | Newsletter/briefing

WHEN IN FORCE: 3 March 2014

COMPANIES AFFECTED: All Hong Kong incorporated companies. This alert focuses on existing companies limited by shares

NEW PROVISIONS: Part 3 of new CO

1. NO REQUIREMENT TO AMEND ARTICLES

  • the new CO does not require existing companies to amend their articles of association. We expect, however, that many will wish to do so to reflect or take advantage of changes under the new legislation
  • set out in this alert are some areas in respect of which an existing company limited by shares may wish to amend its articles
  • please see our previous alert "Memorandum of Association is retired from the constitutional documents" for details on how provisions previously contained in an existing company’s memorandum will be deemed to be provisions of its articles

2. DESCRIPTION OF CERTAIN POSSIBLE AMENDMENTS TO THE ARTICLES

Removal of object clause

  • under the new CO, the object clause (along with other provisions) previously included in an existing company’s memorandum of association are deemed to be contained in the articles. Shareholders may wish to pass a special resolution to remove the object clause, thereby broadening the company’s powers

Abolition of nominal value

  • the new CO prescribes that shares in a company, whether issued before or after the commencement date of the new CO, have no nominal value. The concept of nominal value is therefore abolished
  • the new CO does not require any change to be made to the articles to reflect the abolition of nominal value. Deeming provisions treat a reference to nominal value of a share as meaning the nominal value the share would have had if it had been issued immediately before the commencement date of the new CO
  • notwithstanding the deeming provisions, an existing company may wish to review its articles to determine whether any specific change should be made, having regard to its unique circumstances, such as to ensure that any contractual rights and obligations will not be affected by the abolition of nominal value and the deeming provisions

Maximum number of shares

  • with the abolition of nominal value, the statement in a company’s memorandum of association regarding its authorized share capital is deemed deleted
  • a company may, however, choose (but is not required) to state in the articles the maximum number of shares it may issue. Any change to that maximum number stated in the articles may be made by way of shareholders’ ordinary resolution

3. FURTHER POSSIBLE AMENDMENTS TO THE ARTICLES

In addition to the above, an existing company may consider amending its articles in respect of the following areas:

Meetings and resolutions

  • timing for the appointment and termination of proxies - to be in line with the new statutory limits
  • demanding a poll - to lower the minimum shareholding requirement to 5%
  • notice for passing a special resolution at an extraordinary general meeting - to reduce the notice period to 14 days
  • annual general meetings - to dispense with AGMs by unanimous shareholders’ consent (not for listed companies)
  • timing of annual general meeting - to comply with new time limits
  • proxies - to permit proxies to vote on a show of hands
  • amending proposed resolutions - to revise procedures
  • written resolutions - to simplify the default procedures in the new CO

Directors

  • declaration of interests - to revise procedures

Share capital

  • granting share options or issuing convertible securities - to reflect the requirement for shareholder approval to empower the board to grant the same (which is a broader requirement than under existing legislation)
  • issue of stock or bearer share warrants - to remove the power as this is now redundant
  • determination of terms, conditions and manner of redemption of redeemable shares - to authorize directors to so determine without requiring further shareholder approval

Removing restrictions

  • the new CO sets out more flexible procedures to carry out alterations to, and reductions of, share capital. The articles should be checked to ensure they do not constrain the company from making use of these new procedures

Execution of documents

  • ability to execute deeds under hand - to provide flexibility for executing deeds without using the seal

Communication

  • communication with members through electronic means and deemed timing of receipt of information communicated through electronic means - to provide for this in the articles and to specify timing

4. PROCEDURE FOR AMENDING ARTICLES

Timing

  • since amendments are not compulsory, most companies may decide to change their articles at the first AGM following the new CO coming into effect (or, for private companies, by shareholders’ written resolution) rather than holding a specific general meeting for this purpose

Type of shareholders’ resolution

  • an amendment to the articles will require a shareholders’ special resolution, with the exception, as discussed above, of the provision (if any) limiting the maximum number of shares that the company may issue

Companies Registry formalities

  • following an amendment to the articles, certain specified forms and documents including a notice of alteration and a certified copy of the articles as altered must be delivered to the Companies Registry within 15 days after the alteration takes effect, except for the types of amendments referred to in the next paragraph, where a different time period applies to cater for the objection process
  • in the case of an amendment by a private company to (i) its objects or (ii) provisions currently contained in its memorandum of association which could lawfully have been contained in its articles instead (and which will be deemed under the new CO to form part of the articles), an application to court to cancel the alteration may be made - within 28 days after the passing of the resolution by an application of holders of at least 5% of the issued shares (or shares in any class) of the company - and the alteration will not have effect except insofar as it is confirmed by the court. If no application to court is made within the 28-day period, the company must then deliver certain specified forms and documents to the Companies Registry within 15 days thereafter

New CO mandatory provisions

  • the new CO requires that certain mandatory provisions must be included in a company’s articles, namely: (i) the company name; (ii) a statement that the liability of the members is limited; (iii) a statement that the liability of the members is limited to any amounts unpaid on the shares; and (iv) its initial shares and initial share capital. Items (iii) and (iv) above do not apply to an existing company. Items (i) and (ii) do apply to an existing company and given they are already contained in its memorandum of association, they will be deemed to be contained in its articles by virtue of the new CO. Therefore, the mandatory provisions are satisfied automatically for existing companies
  • if an existing company amends its articles or adopts new articles, it should consider including the company’s name as a numbered article in the articles rather than relying on the new CO deeming provisions. There is no need for existing companies to expressly include the other mandatory provisions because either the relevant deemed mandatory provision cannot be altered or the relevant mandatory provision does not apply to existing companies

Contacts

Peter Brien (partner), Lisa Chung (partner), Peter Lake (partner)


Publications and seminars landing page