Company transfers are a very common business practice. Whether you are bringing in new shareholders, removing existing shareholders, increasing or reducing the number of shareholders, changing shareholding percentages, transferring ownership of a limited company, or even selling the entire company, all of these are forms of company transfer—the only difference is the percentage of shares being transferred. This article shares the share transfer process, required documents, share transfer fees, and key points to note, guiding you step by step through the correct equity transfer procedures to help you avoid mistakes.
For more details:Company Transfer Services | Hong Kong Limited Company Incorporation Services
Methods of Company Transfer
1. Transfer of the Entire Company
The easiest to understand: transfer all existing shares to the new buyer, i.e., transfer ownership of the entire limited company.
2. Add New Shareholders
This can be understood as increasing the number of shareholders and changing the shareholding ratio.
Example: The company currently has only one shareholder and transfers 30% of the equity to a new shareholder. The company then increases from one shareholder to two shareholders.
3. Remove Existing Shareholders
This can be understood as reducing the number of shareholders and changing the shareholding ratio.
Example: The company currently has three shareholders. One shareholder exits and sells their shares to the existing shareholders. The number of shareholders changes from three to two.
4. Change in Shareholding Ratio
Simply put, the number of existing shareholders remains unchanged; only the shareholding ratio changes.
Example: Existing shareholders buy and sell shares among themselves.
Documents Required for Share Transfer
Below are the documents required for the simplest share transfer. If the company structure is more complex or involves substantial assets (e.g., the company owns property), the required documents may differ slightly. The following are generally required for adding/removing shareholders:
Share Sale and Purchase Agreement
A company transfer must be supported by a sale and purchase agreement. In legal terms, this includes the bought and sold note and the instrument of transfer. It is commonly referred to as a company sale and purchase agreement or a share sale and purchase agreement.
Company Information
- Articles of association
- LatestNAR1 Annual ReturnorNNC1 Incorporation Form
Company Financial Statements
Stamping requires the calculation of stamp duty, so the latest audited report must be provided. In addition, the company transfer date must be no more than six months from the financial year-end date of the audited report; otherwise, you will need to prepare a profit and loss statement and balance sheet within three months of the transfer date. For a newly incorporated company, financial statements from commencement of business up to within three months of the share transfer date are required.
6 Key Steps in the Share Transfer Process
1. Buyer and seller agree on the share transfer terms
2. Transferor and transferee sign the share sale and purchase agreement
3. Directors sign the meeting minutes
Prepare meeting minutes to confirm the share transfer arrangements.
4. Stamping
5. Pay stamp duty
After paying stamp duty (also known as the stamping fee), you can collect the officially stamped share transfer agreementPay stamp duty.
6. Cancel old share certificates and issue new share certificates
Cancel the transferor’s share certificates and issue new share certificates to the transferee.
Share Transfer Fees
Share transfer fees consist of the company secretarial service fee and share transfer stamp duty (stamping fee).
Secretarial Service Fee
Secretarial service fees are usually charged per transfer procedure. The fee for transferring shareholders is approximately $1,000 per transaction.
For example, if A transfers 10% of shares to B and 20% of shares to C, two sets of bought and sold notes and instruments of transfer must be prepared—i.e., two transfer procedures. The fee would be $1,000 x 2 = $2,000.
How Share Transfer Stamp Duty Is Calculated
Share transfer stamp duty (stamping fee) is calculated at 0.2% of either the company’s assets or the share transfer sale price, whichever is higher.
Post-Transfer Notes
After completing the change in shareholding, the company is responsible for notifying relevant institutions and following up on post-transfer matters handled by the company secretary.
- Notify the bank: Very important. Notify the bank as soon as possible of the new shareholders’ and directors’ details and contact information, and update the authorised signatory specimen.
- Update the Significant Controllers Register: Pursuant to the Companies (Amendment) Ordinance 2018,Significant Controllers Registerthe designated representative must update the company’s significant controller information within 14 days after the change in shareholding.
Source: Companies Registry
- Update the Register of Members: The company secretary must update the shareholders’ details and share certificate numbers in the company registers.
Company Transfer and the Company Bank Account
It is recommended that both parties clarify, when agreeing on the share transfer terms, whether the company transfer includes the company bank account. The transferee (buyer) must verify whether the company account includes any liabilities in addition to cash and assets, such as bank loans and mortgages.
For more details:Company Bank Account Opening Process ｜ How to Avoid Having Your Bank Account Closed
After completing the company transfer, do we need to notify the bank?
After the share transfer is completed, what documents are required to open a company bank account?
Certificate of Incorporation, Business Registration Certificate, Articles of Association, Annual Return, the original stamped company transfer agreement, CPA-certified copies, etc. It is recommended to consult the bank and make an appointment in advance, as required documents vary by bank.
How should the transferor’s (seller’s) bank account be handled?
It is recommended that the transferor close the company bank account before the company transfer, or withdraw all cash from the company bank account before signing the share transfer agreement.
Frequently Asked Questions
Q: Must we engage a company secretarial firm or a law firm to handle adding/removing shareholders?
A: No. You may handle the share transfer process yourself, but it is not recommended. This is because a share transfer requires verifying various aspects such as the Articles of Association, company members, and financial position. The general public may not have sufficient knowledge or time to verify these, so it is recommended to engage professionals.
Q: Does transferring shareholders mean transferring directors?
A: No. Shareholders and directors are two different roles in a company. You may transfer shareholders without transferring directors, or transfer directors without transferring shareholders. It is essential to distinguish between the two.
Conclusion
A company transfer involves changes in shareholding, adding/removing shareholders, changes in shareholding ratios, and the sale of the entire company. Properly handling the share transfer process and the subsequent company secretarial matters requires a certain level of professional knowledge. Particular attention should also be paid to arrangements for the company bank account. It is recommended that both parties discuss the bank account arrangements before the share transfer and consult professionals to assist with the company transfer.
