The Essential Guide To Business & Share Transfer in Hong Kong

Every company faces operational challenges, business reorganisation or significant personnel changes as the business develops. When it reaches that point, some owners may consider selling their business or transferring their company’s shares to secure more capital or acquire new partners. Some may even choose to exit the business at an opportune time1. From the buyer’s perspective, acquiring an existing and operating business brings the advantage of an already-established brand reputation, a solid customer base, easier access to financing, etc². 

If you have decided to sell or buy a business of a limited company, read on to learn more about the procedures and processes of business and share transfers, as well as document requirements. 

Limited Company Business Transfer Procedures

Simply put, a business transfer refers to the transfer of all or an essential part of the business to another entity or individual by an entity merger, reorganisation, asset acquisition, share transfer, or any other similar business transaction3. Specifically for small and medium-sized enterprises (SMEs), these are the two most prevalent types of share transfers:

1.    A transfer of all shares of the company²: 

This refers to a transfer of all of the company’s rights, obligations and liabilities, as well as its assets and debts, to the buyer. Before the transaction is complete, the subject company selling shares needs to undergo a due diligence investigation, of which the buyer is responsible. 

2.    A transfer of part of the company’s share²:

This is where the company transfers only part of the business; e.g., if a company operates different brands simultaneously, the buyer may opt to purchase only one of these brands.

Both buyers and sellers need to sign an Agreement for Sale and Purchase of the shares to determine the share price, completion date, warranties and representations by the seller, indemnity for tax liabilities, the limitation of the seller’s liability, etc². Both parties must publish a Notice of Transfer of Business in the Government Gazette not more than 4 months and not less than one month before the transfer date to clarify that the new shareholders would bear all debts and liabilities of the business². 

Limited Company Business Transfer Process

Setting up a limited company allows shareholders to transfer shares to other shareholders or introduce new shareholders without interfering with the company structure¹. Nonetheless, during the share transfer, the owner(s) or shareholder(s) are required to ensure that all conditions of a limited company business transfer are met, such as: 

• the existing shareholders must be given priority to buy the shares¹,
• unless there is malicious intent, the board of directors have the right to veto potential new shareholders¹, 
• in the event of a share disposal, the share transfer arrangement needs to be aligned with the Shareholders' Agreement at the time of the company’s commencement¹. 

After a limited company obtains permission from the board of directors and ensures compliance with the company’s Article of Association, it is required to fulfil the essential procedures of a limited company business transfer in Hong Kong, such as: 

• the buyer needs to conduct a due diligence investigation on the selling company²,
• execute a verbal or written “Agreement for Sale and Purchase”⁴, 
•  execute a written “Deed of Assignment”⁴,
• sign an instrument of transfer and a bought and sold note (based on the latest audited balance sheet and management accounts)¹, 
•  stamp duty must be affixed and paid within 2 days following the sale of purchase⁵;

1. stamped within 7 days following the execution of a transfer operating as a voluntary disposition inter vivos⁵, 
2. Stamped within 30 after the execution of a transfer of any other kind⁵, 

• publish a Notice of Transfer of Business in the Government Gazette within the first and fourth month after the business transfer is effective², 
• declare the company’s share transfer in the first Annual Return prepared after the transfer⁶. 

Document Requirement For Limited Company Business Transfer

For a business transfer to take place, the following documents must be submitted to the Stamp Office of the Inland Revenue Department⁵:  

• Copy of the Certificate of Incorporation of the company if the company is newly formed and has not commenced business;
• The Article of Association if the company has been incorporated for less than 18 months;
• The latest copy of the company’s Annual Return (Form NAR1) that is filed with the Companies Registry if the  company has been incorporated for more than 18 months;
• The latest copy of the Return of Allotment (Form NSC1) that is filed with the Companies Registry if the company has increased its share capital and has not reported in the Annual Return;
• A certified copy of the Agreement for Sale and Purchase of the shares from both the seller and the buyer;
• A statement on the company and its subsidiaries regarding acquired investments, landed property or rights to acquire landed property, if it applies; and
• The latest audited accounts of the company.

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The above information is only for your reference. For detailed information, please refer to the sources and seek professional advice if necessary. 

Article published on 19 March, 2024
 

¹Source: Law & Technology Center, The University of Hong Kong - Community Legal Information Centre - “1. What are the characteristics of sole proprietorships, partnerships and limited companies? What are the advantages and disadvantages of each type of business?”  (https://www.dbs.com.hk/sme/disclaimer.page?url=https://clic.org.hk/en/topics/businessAndCommerce/setting_up_business_in_Hong_Kong/types_of_business_organisation/q1) 
²Source: Law & Technology Center, The University of Hong Kong - Community Legal Information Centre— “3. Instead of setting up a new business, can I acquire an on-going business? What do I have to bear in mind if I intend to do that?” (https://www.dbs.com.hk/sme/disclaimer.page?url=https://www.clic.org.hk/en/topics/businessAndCommerce/setting_up_business_in_Hong_Kong/types_of_business_organisation/q3)
³Source: Law Insider - Definitions of BUSINESS TRANSFER (https://www.dbs.com.hk/sme/disclaimer.page?url=https://www.lawinsider.com/dictionary/business-transfer#:~:text=BUSINESS%20TRANSFER%20means%20any%20change,under%20new%20ownership%20or%20a)
⁴Source: Law & Technology Center, The University of Hong Kong - Community Legal Information Centre— 2. Other than the essential elements as mentioned on question 1, what are the other important matters that the parties should note when making a contract?
(https://www.dbs.com.hk/sme/disclaimer.page?url=https://clic.org.hk/en/topics/businessAndCommerce/setting_up_business_in_Hong_Kong/making_a_business_contract/q2) 
⁵Source: Gov.HK - Method of Stamping (https://www.dbs.com.hk/sme/disclaimer.page?url=https://www.gov.hk/en/residents/taxes/stamp/methods_of_stamping.htm) - “Stamping of Share Transfer PDF”  (https://www.dbs.com.hk/sme/disclaimer.page?url=https://www.ird.gov.hk/eng/pdf/sog_pn04a.pdf) 
⁶Source: Companies Registry: Documents relating to Share Capital / Shares (https://www.dbs.com.hk/sme/disclaimer.page?url=https://www.cr.gov.hk/en/faq/local-company/doc-sharecapital.htm)

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