[ESTABLISHING A BUSINESS ENTITY IN HONG KONG]
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have an auditor appointed for each financial year; keep accounting records in accordance with the statutory requirements; have its directors prepare financial statements (or consolidated financial statements if the company is a holding company), which must be audited, as well as directors’ reports for each financial year and lay such reporting documents before the company in annual general meetings; hold an annual general meeting in respect of each financial year within the prescribed period to approve various matters such as the adoption of audited financial statements, directors’ report and auditors’ reports, declaration of dividends if any, re-election of directors and appointment of auditors; file annual tax returns and (if an employer) employer’s returns to the Inland Revenue Department for each year of assessment; renew business registration before expiry; and maintain registers (comprising the register of members, register of directors, register of company secretaries, register of charges and significant controllers register) and the records of resolutions and meetings of directors or members. the statutory
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
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Separate Legal Entity Under the doctrine of separate legal entity, a company is a different person from its members. As such, a company has its own rights and liabilities which are generally not regarded as those of its members nor of its directors. The officers and employees of a
ILN Corporate Group – Establishing a Business Entity Series
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