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2017年3月10日 金曜日

HK Company Law Topics2: Acquisition of Shares in a HK Private Company

Date: 10/03/2017
Christy Li

If a purchase wishes to acquire the entire or part of the issued share capital of a private company incorporated in Hong Kong and to obtain the legal and beneficial title therein, this could be done in a simple way by executing the instrument of transfer and the bought and sold notes in relation to the targeted shares. As a reminder, share transfers are sometimes restricted by, for example, provisions in the company's articles of association.

However, in the case of acquisition of a company with substantial assets and/or operation, the transaction will be structured and relevant legal documents would be involved to ascertain parties' rights and liabilities in the contemplated transaction, which are similar to that used in many international jurisdictions and typically includes the following:
(1) a confidentiality letter or non-disclosure agreement in which the parties undertake to keep confidential the actual transaction and any information they may obtain during the due diligence process. In some cases, it may include a provision for exclusive negotiations for a particular period so that the purchaser knows that there will be no dual negotiations or auction type process;
(2) a due diligence questionnaire and report in relation to the business or company;
(3) a sale and purchase agreement that specifies the obligations and liabilities of each party in relation to the sale. This normally includes detailed representations and warranties regarding the business or company;
(4) a disclosure letter in which the seller makes disclosures against the representations and warranties in the sale and purchase agreement;
(5) share transfer forms where the sale and purchase involves, including but not limited to the instrument of transfer and bought and sold notes.
The transfer of Hong Kong stock attracts stamp duty at 0.2% on the higher of the consideration or market value of the shares (that is, 0.1% on the shares sold and a further 0.1% on the shares bought) together with a fixed amount of HK$5 on the instrument of transfer. For unlisted shares, the Stamp Office looks to the net asset value of the company to ascertain its market value. Contract notes must be submitted to the Stamp Office for stamping within 2 days (30 days if the sale takes place outside Hong Kong) of their execution. There are also stamp duty mitigation techniques such as issuance of new shares to the buyer instead of transferring existing shares. Any mitigation techniques require proper implementation.

In the case of a private company, a certified copy of the latest audited accounts (consolidated where relevant) or latest management accounts (if audited accounts have not been prepared or if they are not up to date) together with details of any land and properties held and a copy of any sale and purchase agreement must normally be submitted when the documents are lodged for stamping. The Stamp Office may also require additional information.

Penalties for failure to stamp documents within the required time range from 2 to 10 times the amount of duty payable, although the Collector of Stamp Revenue has power to remit the whole or any part of any penalty in appropriate cases. Neither the company nor any other person is permitted to act on or in general rely in court proceedings on any stampable instrument which is not duly stamped. An unstamped instrument may not be registered in the company's books.

After stamping (and compliance with any other formalities prescribed by the articles of association), the transfer can be registered in the statutory books of the company and a new share certificate issued.

投稿者 Kuribayashi Sogo Law Office

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