HONG KONG SAR, CHINA Law and Practice Contributed by: Vincent Lung and Mike Yeung, Parkside Chambers
1. Corporate Governance Requirements 1.1 Corporate Forms and Governance Requirements Principal Business Forms The principal forms of business organisation in Hong Kong are: • companies limited by shares; • companies limited by guarantee; • sole proprietorships; and • partnerships. In commercial practice, the most common vehicle for carrying on business is a private company limited by shares incorporated under the Companies Ordinance. It provides separate legal personality, limited liability and a flexible structure for ownership and manage - ment. Companies limited by guarantee are commonly used for charities, clubs, trade associations and other non- profit organisations. They do not have share capital. Members undertake to contribute up to a specified amount if the company is wound up and to that extent liability is limited. Sole proprietorships are usually for small-scale busi - nesses, while partnerships are common for specific professions (eg, solicitors and accountants). Overseas companies may also register in Hong Kong as registered non-Hong Kong companies if they establish a place of business in Hong Kong. They remain incorporated under their home country, but must comply with Hong Kong registration, filing and disclosure obligations. This will commonly be the case for companies listed in Hong Kong but are incorpo - rated in one of the offshore jurisdictions (BVI, Cayman Islands, etc). Principal Sources of Governance Requirements The principal source of corporate governance require - ments is the Companies Ordinance. It covers essential - ly all matters associated with limited companies, from incorporation, corporate capacity, directors, company secretaries, share capital, registers, accounts, audits,
shareholder meetings, statutory filings to shareholder remedies. A company’s articles of association are also impor - tant. They are regarded as internal contracts between the company and its shareholders (and also amongst the shareholders themselves), which regulate the internal relationship between the company, its share - holders and directors. They usually deal with board powers, shareholder meetings, share transfers, divi - dends, director appointments and the conduct of board meetings. The common law and equitable principles remain important. They impose duties on directors, includ - ing duties to act in good faith in the interests of the company, to exercise powers for proper purposes, to avoid conflicts of interest and to exercise reasonable care, skill and diligence. Publicly Traded Companies Companies whose shares are listed on The Stock Exchange of Hong Kong Limited are subject to addi - tional governance requirements under the Listing Rules, the Corporate Governance Code, the ESG (Environmental, Social and Governance) Reporting Code and the Securities and Futures Ordinance. These requirements address matters such as: • board composition; • independent non-executive directors; • audit, remuneration and nomination committees; • disclosure of inside information; • financial reporting; • connected transactions; • notifiable transactions; • shareholder approval requirements; • voting by poll; and • corporate governance and ESG reporting. For listed companies, corporate governance is not treated as a purely internal matter. It is part of the investor protection framework. The board is expected to be accountable to shareholders, supervise man - agement, maintain effective internal controls and pro - vide transparent public disclosure.
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