HONG KONG SAR, CHINA Law and Practice Contributed by: Vincent Lung and Mike Yeung, Parkside Chambers
1.2 Corporate Governance Legislation and Regulation Companies Ordinance The Companies Ordinance is the core statute govern - ing Hong Kong companies. It regulates incorporation, corporate capacity, directors, company secretaries, share capital, registers, accounts, audits, shareholder meetings, statutory filings and shareholder remedies (including inspection rights). Articles of Association The articles of association are the company’s con - stitution. They form a statutory contract between the company and its members, and between the mem - bers themselves. In practical terms, the articles often determine whether a decision belongs to the board, the shareholders or both. For private companies and joint ventures, bespoke articles are often used to regulate reserved matters, quorum requirements, transfer restrictions, drag- along and tag-along rights, board appointment rights and deadlock mechanisms. On the other hand, the Companies Ordinance provides a template set of arti - cles which companies may choose to opt-in (whether in its entirety or only for specific provisions). Directors’ Duties Directors’ duties arise from statute, common law and equity. The Companies Ordinance contains a statu - tory duty of care, skill and diligence. Other common law and equitable duties include the duty to act in good faith in the interests of the company, to exercise powers for proper purposes, to avoid conflicts, not to make secret profits and not to misuse company property or information. Companies (Winding Up and Miscellaneous Provisions) Ordinance Companies winding up matters are governed by the Companies (Winding Up and Miscellaneous Provi - sions) Ordinance. There are detailed provisions and rules regarding winding up procedures including the appointment of liquidators and their duties and pow - ers.
Listing Rules and Securities Regulations For listed companies, the Listing Rules and the Corpo - rate Governance Code are major sources of govern - ance obligations. They impose specific requirements on board composition, independent directors, board committees, financial and non-financial disclosure, shareholder approvals regarding connected and/or substantial transactions and continuing obligations. The Securities and Futures Ordinance also regulates disclosure of inside information, market misconduct, insider dealing and disclosure of interests in listed corporations. The Takeovers Code applies in public takeover and merger situations. Sector-Specific Regulation Certain sectors are subject to more intensive statutory and governance rules. These include limited compa - nies in the businesses of banking, insurance, securi - ties firms, money lenders or other regulated activities. Regulated entities may be required to maintain speci - fied internal controls, appoint fit and proper persons, allocate senior management responsibility, conduct AML checks and report to regulators. The governance burden is therefore much heavier for these businesses. 1.3 Companies With Publicly Traded Shares Listing Rules and Corporate Governance Code There are two listing boards in Hong Kong: the Main Board and the GEM Board (for small to mid-sized growth companies). Companies listed in Hong Kong must comply with the Listing Rules (with varying rules for each of the Boards). These rules govern admission to listing, continuing obligations, corporate transac - tions, disclosure, shareholder approvals, board com - position and dealings by directors. The Corporate Governance Code forms part of the Listing Rules framework. It contains: • mandatory disclosure requirements; • code provisions, which operate on a “comply or explain” basis; and • recommended best practices. Mandatory disclosure requirements must be followed. Code provisions are not strictly mandatory in the same
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