Transfer of shares resulted from the withdrawal of shareholders, or a transfer of business is common among limited companies in Hong Kong. This article will break down the procedures, required documents, stamp duty and limitations for that, so that you can be well prepared for such matters.

What is share transfer?

A share transfer occurs when there is a change in the number of shareholders, or a shareholder sells or gives away his or her shares to a new or existing shareholder, thus changing the share proportion.

Why do share transfers happen?

There are a number of reasons that initiate a transfer of shares in a company, the following are some common examples:

• A shareholder exits and withdraws his investment
• An existing shareholder transfer his/her shares to a third party
• Corporate restructuring occurs, and then shares are transferred from the parent company to the new company
• Sale of business, or sale of part of the shareholding for cash

Share Transfer Process 

Generally speaking, a transfer of shares can be completed in just 2-5 working days and the process is as follows:

• If the articles of association specify preferential rights in respect of shares, the implementation or waiver of such rights has to be ensured;
• Share transfers must be approved by the board of directors;
• Have the transferor and transferee sign the share transfer;
• Have the board of directors sign a resolution approving the share transfer;
• Prepare all required documents (audit report if necessary) to the Stamp Office for stamping;
• After all documents are stamped, confirm the transferee's details and complete the transfer.

Do I need to notify the Companies Registry when the transfer of shares is completed?

No, the company is not required to immediately report the transfer of shares to the Registrar of Companies. However, the latest distribution of shares must be reported in the first annual return for the upcoming year, which is prepared after the transfer.

Documents required for transfer of shares

• Articles of Association

• Latest financial statements, or management accounts for the last 3 months if the former is not available, written confirmation signed by a director is required if the company is not in business yet and is an unaudited new company.
• Certificate of Incorporation
• Share Transfer Agreement
• Bought Note & Sold Note
• Resolution signed by all directors
• Relevant documents detailing the name, number and price of the transferred shares
• Personal information of new shareholders (e.g. identity card/passport, proof of address copy)

Notes on transfer of shares

According to the Hong Kong Companies Ordinance, all Hong Kong private limited companies are required to stipulate restrictions on the transfer of shares in their articles of association, and the company is required to carry out the transfer in accordance with its regulations.

If the transfer involves the transfer of the whole company, the transferee should check if there is unpaid tax and government fees by the company, and confirm if they have conducted audit reports.

Restrictions on transfer of shares

According to the Hong Kong Companies Ordinance, Hong Kong companies are prohibited from providing financial assistance when third parties purchase their company's stocks. Otherwise the company can be sentenced and fined. If the investor is in debt after purchasing the company's shares, the Hong Kong company, even its subsidiaries, cannot share the debt troubles of the relevant person.

Stamp duty on transfer of shares

Under the Stamp Duty Ordinance, any transfer and sale of shares will incur stamp duty and the rate of that will depend on the amount or value of the shares.

A fee of HK$5 will be charged for each share transfer. In addition to this, both parties to the transfer will be required to pay a tax of 0.13% on the net assets of the transferring stock company respectively, making a total of 0.26%.

Overview

The process of transferring shares of a company involves a great deal of paperwork to be signed and submitted. Smooth co-ordination between various parties is also vital. For tasks like this, it is best to hire a company secretary to help you out and let them handle the administration, represent your company in dealing with the government authorities and maintain good communication between the transferring parties. OneStart Business Centre offers a wide range of company secretarial and accounting tax services. For interested parties, please call 3575 6888 or WhatsApp OneStart Business Consultants to learn more.