2011 HK Company Law PPT_Ch01

Hong Kong Company Law

13th Edition• Vanessa Stott, Thomas Ng

© 2011 Hong Kong Company Law 13th Ed3

Chapter 1The Nature of a Company

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Chapter Outline

1.1 Introduction1.2 The Separate Legal Entity1.3 Liability1.4 Companies and Partnerships Compared1.5 Abuses of Incorporation1.6 Private and Public Companies1.7 Listed Companies

© 2011 Hong Kong Company Law 13th Ed

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1.1Introduction

1.1© 2011 Hong Kong Company Law 13th Ed

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1.1 Introduction

The concept of incorporation

INCORPORATION

Registrationunder the Companies Ordinance (Cap 32)

by an ordinance


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1.1 Introduction

Introduction to the Companies Ordinance (Cap 32)• Originally based on the UK Companies Act


Q: Although the Hong Kong Companies Ordinance is based on the UK Companies Act, do you think there has been a substantial deviation between the current Hong

Kong Company Ordinance and the modern UK Companies Act 2006 (c.46)? If so, why?

Question: What is the distinction between a company, a partnership and a sole proprietorship?

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1.2The Separate Legal Entity


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1.2 The Separate Entity

• Salomon v Salomon and Co Ltd (1897)


Salomon

Employees

Shop

Materials

Cash

Customers

Salomon-Sole Proprietor

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• Salomon v Salomon and Co Ltd (1897)


Wife and ChildrenSalomon

Aron Salomon & Co Ltd

20007 shares

20001 shares7 shares

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Q: What was the difference in reasoning between the trial judge and the House of Lords? Do you think this judgment

is equitable?

• Q: How are secured and unsecured creditors are protected today?

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• Macaura v Northern Assurance Co Ltd

• Good Profit Development Ltd v Leung Hoi

• Lee v Lee’s Air Farming Ltd


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1.3Liability


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1.3 Liability


Q: Does a ‘limited liability company’ mean the liability of the company is limited?

• Q: What is the difference between a company• (a) limited by shares, (b) limited by guarantee,• (c) without limited liability?

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1.3 Liability

Section 4(2) Companies OrdinanceSuch a company may be either-

a) a company having, or deemed by virtue of subsection (3) to have, the liability of its members limited by the memorandum to the amount, if any, unpaid on the shares respectively held by them (in this Ordinance termed a company limited by shares); or (Amended 6 of 1984 s. 4)


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1.3 Liability

Section 4(2) Companies OrdinanceSuch a company may be either-

b) a company having the liability of its members limited by the memorandum to such amount as the members may respectively thereby undertake to contribute to the assets of the company in the event of its being wound up (in this Ordinance termed a company limited by guarantee); or

c) a company not having any limit on the liability of its members


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1.3 Liability

Limited by Shares

• A company may be registered as limited by shares. Its memorandum (part of its constitution, will state the maximum number of shares which it may issue and each share will have a nominal value (also termed par value).

• For example, ‘The share capital of the company is $15,000,000 divided into 150,000 shares of $100 each.’ The nominal value of the share is $100.


• Q: What is the different between a public company and private company?

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1.3 Liability

Limited by guarantee

• A company may be registered as limited by guarantee. The liability of its members is limited to the amount which they agree to contribute to its assets in the event of the company being wound up.

• The amount guaranteed by each member is specified in the memorandum.

• For example, the members may undertake ‘to contribute such an amount as may be required, not exceeding $100’.


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1.3 Liability

Limited by guarantee

• This type of company is appropriate when there is no intention to distribute the company’s profits to its members and does not therefore need to have shares; it is typical of charities and quasi-charitable organisations such as schools and hospitals, but is only suitable if the company does not need an initial share capital.


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1.3 Liability

Without Limited Liability

• If a company is registered as unlimited, its members will be personally liable for the debts of the company without limit.

• Unlimited companies may be formed with or without a share capital. If the company is trading and intending to distribute profits, shares are a useful method of measuring each member’s interest in the company.


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1.3 Liability

Without Limited Liability

• If an unlimited liability company with a share capital goes into liquidation, the members will be liable to pay whatever price they agreed for their shares; if this amount is not adequate to satisfy the debts and liabilities of the company together with the costs of winding-up, the members must contribute rateably according to their shareholdings.


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1.4Companies and Partnerships Compared


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1.4 Companies and Partnerships Compared


Q: What is the difference between a general and limited partnership?

• Q: What is a partnership?

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Company Partnership

Perpetual Succession Dissolved upon change in partnership/death

Limited liability Joint and severally liable

Written constitution Need not have any written documents

Separate legal entity Partnership is not a separate person

Shares transferrable Transfer of partnership need consent of other partners

Public company no limit as to maximum number of membersPrivate company maximum limit is 50 members

No limit to number of partners

Owners (members) are generally not involved in management. Directors are employed to manage the company

Owners (Partners) are entitled to share in the management.

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Company Partnership

Capital subscribed by members for their shares, cannot ordinarily be returned to them, but (in a limited company) they are not liable for the company’s debts once they hold fully paid shares

Partners may withdraw capital, but are still liable without limit for the firm’s debts to its creditors.

Company can use current assets as security by creating floating charges

Partners cannot create floating charges, can only mortgage fixed assets.

Company required to deliver to the registrar of companies such documents as annual account, and annual return etc; the book of accounts are open for inspection by the directors and the shareholders of the company

Only partners are entitled to inspect the accounts of the firm

Dissolution of a company usually entails a formal liquidation

Partnerships can be dissolved by mere agreement of the partners, but the creditors have first claim on the assets

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Q: State the advantages and disadvantages of forming a company limited by shares or a partnership?

• Q: What form of security for loans can a company provide, but a partnership cannot?

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1.5Abuses of Incorporation


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1.5 Abuses of Incorporation

• Lifting the veil of incorporation– Circumstances in which the courts have ‘lifted the veil’ include– National emergency (Daimler Co Ltd v Continental Tyre &

Rubber Co)○ where the company is formed principally as a sham to evade

existing liability or to defeat the law– (Gilford Motor Co v Horne)– (Lee Sow Keng v Kelly McKenzie Ltd)– (HKSAR v Leung Yat Ming)○ when a director has acted dishonestly with the company’s

property○ where a holding and subsidiary relationship exists


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Q: In Hong Kong the courts have made a distinction between the court’s power to lift the corporate veil to overcome evasion of legal obligations, and using the corporate structure to avoid the incurring of legal obligations, discuss the distinction with reference to legal authority.

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• where an existing partnership is converted into a limited liability company and an application is made to wind-up the company on the grounds that it is ‘just and equitable’ (Ebrahimi v Westbourne Galleries Ltd)


• Q: Explain the concept of ‘quasi-partnerships’?

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• when a company commits an offence under any ordinance, and it is proved that the offence was committed with the consent or connivance of an officer concerned in the management of the company, then he will be guilty of the same offence (s 101E of the Criminal Procedure Ordinance, Cap 221):


• Q: In what instances will the courts life the veil of incorporation?

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1.6Private and Public Companies


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1.6 Private and Public Companies

• Section 29(1) - Meaning of private company

• Private Companies

• For the purposes of this Ordinance, the expression "private company“ ( 私人公司 ) means a company which by its articles-1. restricts the right to transfer its shares; and

2. limits the number of its members to 50, not including persons who are in the employment of the company and persons who, having been formerly in the employment of the company, were while in that employment, and have continued after the determination of that employment to be, members of the company; and


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3. prohibits any invitation to the public to subscribe for any shares or debentures of the company.


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Forms of Registrable Companies


Public

Limited by Shares

Private

Limited Unlimited

Limited by Shares

Limited by Guarantee

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1.7Listed Companies


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1.7 Listed Companies


Main Board

GEM

• Talking Point: What are the differences in listing requirements between the main board and GEM?

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Payment for Promotion Services

• The inability of a company to contract before its incorporation makes it impossible for promoters to obtain contractual rights to remuneration for their services, but Table A, art 82, provides the directors with power to pay all expenses incurred in promoting and registering the company.

• The promoters are usually the directors, so they do in practice receive their expenses


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• Q: List the documents which must be forward to the Registrar in order to incorporate a company.

• Q: Within what period must the details of the first director(s) and secretary be delivered to the Registrar?

• Q: Within what period must an overseas company file its registration documents?

2011 HK Company Law PPT_Ch01

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