Hong Kong Guide: Issue & Allotment of Shares

For limited corporations operating in Hong Kong, share capital is essential. As the company grows, its capital may require many revisions to meet present demands. Most likely, shares will be issued and distributed to implement these adjustments.

The procedures above help businesses raise capital, a crucial part of corporate finance. Consequently, in today’s post, let us examine the meanings of issue and allotment of shares, together with the critical procedures.

Summary of the Hong Kong issue and share allocation 

This section will give you comprehensive definitions and information regarding the issuance and allocation of shares in this strong jurisdiction to assist you in better comprehending these procedures.

What is the Hong Kong share issue?

When a business creates and offers new shares, it raises its share capital by issuing shares. To do this, the corporation must decide whether to issue more shares and then make them available for purchase by investors.

Businesses frequently issue shares to raise money for various objectives, including debt reduction, funding R&D, financing expansion ambitions, and improving overall financial flexibility.

What is the Hong Kong share allocation?

The process of assigning bought shares to specific people or organisations that applied to purchase shares during the issuance period is known as the allocation of shares. This action happens immediately following the announcement and issuance of the new shares.

To put it concisely, allocation of shares is distributing those freshly issued shares to particular buyers, whereas issuing shares comprises the complete process of creating and selling new shares.

A Hong Kong company’s shares can be allocated by whom? 

A company’s directors may allocate shares per the Hong Kong Companies Ordinance (Cap.622), provided that the company gives prior approval through a formal resolution with a defined expiration date.

It should be noted that the approval of a share allocation right may be granted generally or in specific circumstances, subject to several restrictions, or both. Additionally, another company resolution may change or overturn this decision at any time.

After reviewing the necessary definitions and prerequisites, it’s time to examine the specific procedures involved in the issue and allocation of Hong Kong shares in the next part.

Ways in which businesses can issue and distribute new shares 

Some popular techniques for this process include the following ones:

IPOs, or initial public offerings

An initial public offering (IPO) occurs when a privately held firm decides to list on a stock market and makes its shares available to the general public.

In this scenario, the business decides on the offer price and the quantity of shares to be issued in collaboration with investment banks and underwriters. The company subsequently goes from private to public ownership when the shares are offered to consumers and institutional investors via the stock exchange.

Rights-related concerns 

This approach includes issuing new shares to present Hong Kong owners, granting them the opportunity—but not the duty—to buy more shares at a fixed price, frequently less than the going market rate.

Interestingly, to preserve their proportionate ownership, firms typically grant rights to existing shareholders by their current shareholding. After that, they can sell or exercise their rights on the open market.

Private placements

The business bargains and sells shares to a select group of investors in a confidential transaction during private placements. When a business needs to raise money without undergoing the onerous regulatory processes and public scrutiny connected with an IPO, it usually turns to private placements.

In this instance, the company and the investors directly discuss the terms of the placement, such as the price and quantity of shares.

How to share in Hong Kong: the issuance and allocation process

In a strong jurisdiction like Hong Kong, issuing and allocating firm shares involves several necessary steps subject to strict legal frameworks.

The following contains comprehensive guidelines for Hong Kong businesses that have never conducted an IPO:

Step 1: Evaluate the amount of capital the organisation requires

The first step entails a detailed analysis to ascertain the precise amount of funding needed to support the enterprise’s goals. The organisation will determine the required money for plans through comprehensive financial studies that include forecasting, budgeting, and market circumstances.

Additionally, now is the time to decide which investors to offer your shares to and how many to issue if your company plans to issue shares without an IPO.

Step 2: Get consent from interested parties before issuing new shares

According to the Companies Ordinance (Cap. 622), before the appropriate directors can issue and distribute new shares, they must develop and sign a formal written resolution specifying the precise amount to be issued.

The resolution must be presented as a proposition to shareholders, if any, once passed. The decision will then be approved by the shareholders by:

• Directly signing the proposition; or
• Through a vote meeting when a majority decides approval.

In addition, the business must consider any additional terms or requirements found in its articles of association.

Step 3: Pay and sign the contract

Once the required approvals are obtained, the business moves on to the formalisation phase. The company and the underwriters or investors involved in the share offering prepare and execute a legally enforceable agreement.

The investors will pay all associated costs for the issue at the same time. This completes the financial component of the share offering and entails the transfer of monies from investors to the business.

Post-allotment responsibilities for businesses in Hong Kong

Following the conclusion of the allocation and problem processes, the company has a few required tasks to do. The top three are as follows:

Send in the Allotment Return

The entity shall notify the Registrar of the share allotment by delivering a designated Form NSC1 – Return of Allotment to them within one month after the share allotment. The following details will be included in this document:

• The precise quantity of shares allocated
• Name and address of each allottee
• The allocation led to an increase in share capital (if any)
• A capital statement that reflects the most recent information on the share structure, including the shareholders’ identity, the total number of issued shares, and the current share capital amount.

If the company’s filing deadline is missed because of unforeseeable or uncontrollable circumstances, the responsible party or parties may request a court extension.

Revise the membership registrations 

The company must update the information about its present members in the register of members and register the allotment of shares within two months of the date of the allotment.

• Each member’s name and address;
• The day on which they join the group formally;
• The date (if any) on which they cease to be a member;
• The precise shares each member owns and the sum each member has paid or agreed to pay for their shares.

Issue the share certificates to shareholders.

Lastly, the company needs to finish the share certificates and deliver them two months after the shares are allotted. The contents of these certificates match the information that was previously provided on the Return of Allotment form.

It’s crucial to remember that there are consequences for not precisely and on time issuing share certificates, updating the membership register, or submitting the Return of Allotment:

• A level 4 fine (HK$25,000) for the offending company and each individual.
• An extra $700 in fines for every day the offense is committed.

To conclude

In conclusion, for Hong Kong limited companies looking to increase their capital structure, promote growth, and interact with possible investors, issuing and allocating shares are critical procedures.

Today’s article covered all the essential details, from definitions to the measures you need to take to issue and allot fresh shares so you can better understand the procedures. As an alternative, consider using our services for a hassle-free and easy travel.

For any questions, you may have or need help conducting business in Hong Kong, our committed staff can be reached at service@gerai.co.uk. Reach out to us right now!