Introduction to Company Law

Introduction

A company can do things a natural person can do in law such as enter into contract, take out loan, own property and sue/be sued. It is therefore essential for startups to have adequate understanding of the company law to ascertain their statutory rights and obligations, identify legal risks, implement measures to manage these risks, and most importantly ensure compliances with the law.

In Hong Kong, the Companies Ordinance (Cap. 622) and the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) are the most important legislations related to companies.

 Companies Ordinance (Cap. 622)Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32)
ScopeGoverns how companies and their officers conduct their affairs  Governs winding-up and insolvency of companies;  prospectuses (i.e., public offers of company’s shares or debentures for sale)
Key aspects  Types of companiesIncorporation and registration Company nameCapacity and powers of companiesExecution of documents by companiesShare capital Distribution of profits and assetsDebenturesRegistration of charges Accounts and auditFinancial statements, directors’ report, auditor’s reportAppointment and removal of directors and company secretaries Duties and powers of directorsMeetings and decision-making processAmalgamation of companiesCompulsory share acquisitionProtection of companies and membersDissolution by striking off or deregistrationNon-Hong Kong companiesCommunications and service of documents on companiesProspectusesDisqualification of persons in connection with companies Winding-up Miscellaneous offences

This website focuses on the company limited by shares which is the most common business form startups choose for carrying out their business.

Selected topics include:

  • Business Forms
  • Incorporation and Registration of Business
  • Share Structure & Capital
  • Corporate Governance (i.e., decision-making process)
  • Share Allotment & Subscription
  • Shareholders’ Agreement
  • Share Vesting
  • Maintain a Private Limited Company

Glossary of Legal Terms in Company Law

Below is a non-exhaustive list of legal terms commonly used in our articles. However, you should be aware that the legislation and business documents may adopt their own definitions and therefore interpret these terms accordingly. 

TermsDefinition
Annual general meeting (AGM)Annual meeting of shareholders.
Articles of AssociationA constitutional document of a company governing the company’s internal matters.
Board of directorsA group of people (i.e., directors) which acts as a whole to manage the company and make decisions on behalf of the company.
Confidential InformationThis term is often included in documents within the company as well as agreements between the company and third parties. The definition varies depending on the purpose of the documents and commonly includes information of the company that should not be made known to public. In any event, the definition must be clear to ascertain what is confidential and so subject to restriction (e.g. should be kept in strict confidence).
DilutionReducing shareholders’ percentage ownership (i.e., (shareholding) of the company by way of issuing additional shares.
Director(s)A member of the board of directors; usually elected by the shareholders. A director can be a natural person or a body corporate.
DividendsAmounts paid out by the company to its shareholder from its profit.
Extraordinary General Meeting (EGM)Any meeting of shareholders other than an AGM.
EquityAn ownership interest in a company, which is generally in the form of ordinary shares or share options.
Member(s)An alternative word for shareholders.
Non-Disclosure Agreement (NDA)An agreement of confidentiality for a certain period of time.
Ordinary ResolutionA resolution passed by a simple majority (i.e. more than 50%).
Ordinary SharesShares with voting rights but no priority rights in case of liquidation.
Preference SharesUsually refer to shares granted to angel investors / venture capitalists – no voting rights but enjoy priority rights in case of liquidation.
ProxyAn instrument with which a member appoints another person (whether a member or not) to attend shareholders’ meetings and vote on his/her behalf.
Redeemable SharesShares that will or may be bought back by the company on a certain future date.
Shareholder(s)An owner of the company holding one or more shares of the company and recorded in the company’s register of members.
Shareholders’ AgreementAn agreement governing rights and obligations of shareholders, as well as the management affairs of the company.
Special ResolutionA resolution passed by a majority of at least 75%.
SubscriptionAct of a third party purchasing unissued shares from the company.
Winding-up (Liquidation)A process to realize all the assets of the company and pay off all the debts with the remainder distributed back to the shareholders, such that the company will cease to exist upon completion.
Written ResolutionAn agreement in writing signed by all shareholders. Anything that may be done by the ordinary or special resolution of a company may be done by way of written resolution, except for the removal of directors or auditors.
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