[ESTABLISHING A BUSINESS ENTITY IN HONG KONG]
232
officers and employees of a company are generally not liable for the company’s contracts. In limited circumstances though where the separate legal entity doctrine is abused to perpetrate fraud or evade legal obligation and liabilities, the rights and liabilities of a company may be treated as those of the persons behind the company (usually its shareholders or directors). This is known as the lifting or piercing of the corporate veil. Minority Shareholders’ Rights and Protection The Companies Ordinance has built in some safeguards for minority shareholders. An example of them relates to the resolutions through which the members make decisions. The Companies Ordinance provides for two types of members’ resolutions, namely ordinary resolutions, and special resolutions. An ordinary resolution is one that is passed by a simple majority whereas a special resolution is one that is passed by a majority of at least 75%. While most decisions of the general meetings can be made by way of ordinary resolutions, certain types of matters (such as the alteration of articles, change of company name, reduction of share capital and voluntary winding up of the company) require the passing of special resolutions. Members holding more than 25% of the voting rights effectively have a veto right over such matters. Minority protection can also be achieved by the use of shareholders’ agreement, which is a contract entered into by some or all of the shareholders (and sometimes the company as well) to
regulate the operations of the company and is most often used for small private companies such as family companies and incorporated joint ventures. It is possible to provide in the shareholders’ agreement specific rights in favour of individual or minority shareholders, such as the right to inspect the company’s books, the right to nominate directors to the board, veto rights in respect of major decisions requiring unanimous consent of all shareholders, and pre-emptive rights and tag-along rights in relation to transfer of shares. In case of breach of a shareholders’ agreement, the full range of ordinary contractual remedies are generally available. Further, while in general the proper plaintiff to seek legal redress for a wrongdoing to the company is the company itself, a range of legal remedies may be available to minority shareholders in case of abuse of powers or wrongdoings by the company’s directors or majority shareholders. They include statutory or common law derivative actions brought by a shareholder in the name and on behalf of the company for any misconduct against the company, personal actions for infringement of personal rights of a shareholder, and the unfair prejudice remedy under the Companies Ordinance where the company’s affairs are conducted in a manner (or an actual or proposed act or omission of the company is or would be) unfairly prejudicial to the interests of the members generally or of one or more members. In appropriate situations, an aggrieved shareholder may seek statutory injunctions or, as a last resort,
ILN Corporate Group – Establishing a Business Entity Series
Made with FlippingBook Ebook Creator