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A Beginner’s Guide to Share Transfer in Hong Kong

In this article, we describe what the share transfer process is like, why companies transfer shares, and dive into the process itself.

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Have you ever wondered how companies gain new shareholders? What about how a company decides ownership? What about stamp duty and how much do you need to pay? Or which limitations you might face? If you’re looking for answers to these questions, then you’ve come to the right place. 

This guide will give you a top-to-bottom rundown on share transfer in Hong Kong, as well as answer common questions about the process.

The information in this article is meant to provide general guidance only and is not intended to be a substitute for professional advice with regard to your specific circumstances. 

Let’s get started!

What is Share Transfer?

Share transfer is the process of transferring ownership of a company’s shares from one individual to another. This can happen between two shareholders or between a shareholder and a third party. Shares can be transferred either by gifting or selling.

Share transfer is not to be confused with issuing shares, where the transfer of shares happens when a company is already formed and the issuance of shares happens while the company is being set up. 

Why do Companies Transfer Shares?

Most companies that transfer their shares do so for one or more of the following reasons:

  • Company restructuring: this may happen when a company has a new subsidiary company
  • Company sale: when a company is being sold in whole or in parts, and its shares must be transferred to the new owners
  • When a shareholder dies or leaves the company
  • When a company goes bankrupt 

How to Transfer Shares in Hong Kong

Preconditions for Transfer of Shares

Before a company can transfer shares, your company may have some preconditions that have to be met first. For example:

  • Check your company’s share agreement to see if there are any rules on share transfer. Ex. Your company may have to have existed for a certain period before shares can be transferred
  • Check your company’s Article of Association for any clause that limits or restricts share transfers
  • If shares are being sold to third parties, make sure that all your company’s existing shareholders are aware of the transfer
  • Ensure that resolutions have been passed to authorize the transfer, either through a board or a general meeting, 

Documents Required

When transferring shares in Hong Kong you’ll need to hold on to the following documents:

  • Equity transfer agreement: this is also known as the share purchase agreement and while it’s not mandatory for the process it’s safer to have it in case it is needed
  • Contract notes: bought and sold*
  • An instrument of transfer – document detailing the parties involved in the transfer and the shares transferred
  • A written resolution signed by all shareholders
  • A recent audit report, dated within 6 months of the transfer. 
  • If the company doesn’t have audit reports, management accounts created within 3 months of the transfer can be substituted.
  • Details of the new shareholder – copies of identity card/passport and residential address
  • The name of transfer, or
  • The number of shares being transferred
  • Copy of the company’s Article of Association

*The Hong Kong government doesn’t specify the format of the contract notes, but the following information should be included in them:

  • Date of settlement
  • Date of transaction
  • Price per unit of the shares
  • The description and quantity of the shares
  • Whether the person processing the transfer is the principal or agent. If the person is acting as the agent, the principal’s name is required.

Note: When transferring shares as gifts, contract notes are NOT needed. 

The updated audit report or management accounts required helps the revenue department calculate stamp duty (more on this later).

Share Transfer Process

After collecting the required documents, the next step is to submit them to the Inland Revenue Department for stamping. 

The documents will be reviewed for accuracy and adherence to local laws before they are stamped. If the documents meet all the requirements and stamp duty is paid, the documents will be stamped. The process is complete once the documents are stamped. 

At the end of the share transfer process, the buyer will receive a share certificate issued by the company. The company’s register of members should be updated within 2 months of issuing the certificate to reflect the change.

Note: The Hong Kong government has a time limit for stamping share transfer documents. If the share transfer is effected within Hong Kong, the limit is within 2 days after purchase or sale. If the process is effected outside Hong Kong, the limit is within 30 days after purchase or sale.

Let’s now look at what stamp duty is and how it’s calculated.

Stamp Duty on Share Transfer in Hong Kong

Transferring shares in Hong Kong requires stamp duty to be paid. Stamp duty is a tax imposed by the government of Hong Kong on certain documents, contracts, and legal instruments. 

The current stamp duty (as of August 1, 2021) rates are 0.26% of the highest value chosen between the company’s net assets and the value of shares being transferred.

The transferor and transferee are charged 0.13% each, and there is also a fee of HK$5 for each form. We can illustrate this with an example.

Alan is a co-founder of XYZ company and has 500 shares.

David is an investor that wants to buy the 500 shares from Alan for a total of HK$500,000, which is the sale price of the shares.

If we assume the net asset value of company XYZ is HK$400,000, the sale price of the company shares at $500,000 is comparatively higher, so we’ll use the price of the company shares to calculate the stamp duty. The total stamp duty payable is: 0.26% x $500,000 = HK$1,300, but because stamp duty is split between both parties, Alan and David would each have to pay 0.13% x $500,000 = $650.

The stamp duty might take longer to be calculated if the purchase price is not expressed in Hong Kong dollars as the revenue department would have to convert the other currency values into HKD.

eStamping of Share Transfer Documents

The Hong Kong government also offers an electronic stamping option when transferring shares. This option is available for GovHK users. To use eStamping the following conditions must be met:

  • The transaction must not involve more than 4 transferors and/or 4 transferees
  • The consideration amount should not need adjustment
  •  The share transfer transfers the full ownership of the business

eStamping has several advantages compared to typical stamping, including:

  • 24/7 access from anywhere there is internet connectivity
  • Costs and time saved
  • Offline and online payment methods, where offline is when you print the payment notice, then physically pay at the stamp office, and online methods that include Mastercard, Visa, Union Pay, JCB, or PPS
  • Instant issuance of the stamp certificate after payment

Restrictions on Share Transfer in Hong Kong

Section 47 of the Companies Ordinance prohibits financial assistance from third-party companies that fail the solvency test to provide funding for share purchase. This is a broad prohibition that has some exceptions.

Listed and unlisted companies can provide assistance if they pass the solvency test, which measures a company’s ability to pay debts. 

If the company passes the test of solvency, it must follow other certain procedures to provide financial assistance, for example:

  • Section 283 of the Companies Ordinance states that a company may provide financial assistance if the total assistance is less than 5% of shareholders’ funds. The assistance must be supported by the directors’ approval and a solvency statement. 

The assistance must be given within 12 months after the solvency statement is made. The company must notify its members of the details of any assistance provided within 15 days of giving it.

  • Section 284 states that companies are allowed to offer financial assistance if the directors of the funding company approve it in writing. This also requires the support of a solvency statement.

A resolution of the directors to support the assistance should also be presented. The assistance can only be given after a period of 12 months has passed since the company made the solvency statement.

  • Section 285 states that a third-party company can offer financial assistance after approval by an ordinary resolution of their board. The board must pass a resolution and make a solvency statement, and also send out a notice to all shareholders at least 14 days before the meeting at which the resolution is passed.

The assistance may only be given 28 days after the resolution is passed and not more than 12 months after the day on which the solvency statement is made. 

Sections 286 to 288 state that shareholders holding at least 5% of voting rights or members representing at least 5% of total members may ask the court to stop financial assistance within 28 days of receiving notice.

Share Transfer in Hong Kong FAQ

What are the Penalties for Late Stamping in Hong Kong?

The penalties depend on the length of the delay, and they are as follows:

  • One month or less – 2 times the stamp duty amount
  • Up to 2 months – 4 times the stamp duty amount
  • Any other case – 10 times the stamp duty amount

Who Pays the Stamp Duty on Share Transfer Hong Kong?

Stamp duty is paid by the transferor and transferred at a rate of 0.13% each. Therefore, the effective stamp duty rate in Hong Kong is 0.26%.

Conclusion

Transferring shares is a complicated process, but is often necessary for companies to add or remove shareholders. By understanding what share transfers are and their uses, you can make informed decisions when you’re trying to make your company’s continued growth possible.

We hope that you now have a better understanding of how share transfer works.

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