The shareholders of a Hong Kong company may choose to transfer their shares either by sale or gift to an existing or a new shareholder at any time. A share transfer may be triggered to, for instance, facilitate the restructuring of a company or the rearrangement of profit sharing or ownership etc. However, such transfer of shares must be carried out in accordance with the company’s Articles of Association and the procedure set out in the Companies Ordinance. This article will help you understand (i) the shares transfer process; (ii) required documents; and (iii) the stamp duty assessment.&nbsp;



Share Transfer Process



Shares may be transferred by means of an instrument of transfer in any usual form or any other form approved by the directors, which is executed by or on behalf of both the transferor and the transferee. Share transfer must accord with the provisions relating to share transfer in the Articles of Association. Generally, it requires approval of the board of directors; and offering of the shares to the existing shareholders before transferring them to new shareholders.  



Before the shares are transferred, the transferee should



<ul class="wp-block-list"><li>Check the company’s Articles of Association for any limitations or restrictions on share transfers</li><li>Ensure that any pre-emptive rights stated in the company’s articles of association have been satisfied or waived</li><li>Review the company’s shareholders agreement for limitations or restrictions</li><li>Obtain approval to conduct the share transfer from the company’s shareholders</li></ul>



What documents should be submitted for stamp duty assessment?&nbsp;



Some of the documents required are:



<ul class="wp-block-list"><li>Bought and Sold Notes / Contract Notes</li><li>Sale and Purchase agreement (if any)</li><li>Articles of Association of the company</li><li>Certificate of Incorporation</li><li>Latest audited financial statements of the company (if consolidated accounts are not prepared)</li><li>Latest certified management accounts of the company (if consolidated accounts are not prepared or they are not up to date.</li></ul>



For the complete list of documents required for stamp duty assessment read <a href="https://www.ird.gov.hk/eng/pdf/sog_pn04a.pdf" target="_blank" rel="noreferrer noopener">Stamping Procedures and Explanatory Notes&nbsp;</a>



Stamp duty&nbsp;



Stamp duty is a tax on documents that would be imposed in a shares transfer. For <a href="https://www.ird.gov.hk/eng/pdf/irsd124.pdf" target="_blank" rel="noreferrer noopener">stamp duty assessment</a>, relevant documents should be submitted to the Inland Revenue Department. The <a href="https://www.ird.gov.hk/eng/pdf/irsd124.pdf" target="_blank" rel="noreferrer noopener">stamp duty rates</a> are dependent on the value of the shares being transferred. To check the current stamp duty rate, click <a href="https://www.gov.hk/en/residents/taxes/docs/IRSD123_0310(e).pdf" target="_blank" rel="noreferrer noopener">here</a>.&nbsp;



Late stamping would be accepted with a penalty. If the delay does not exceed 1 month, the penalty is double the amount of stamp duty. If the delay exceeds 1 month but does not exceed 2 months, the penalty is 4 times the amount of stamp duty. In any other case, the penalty is 10 times the amount of stamp duty.&nbsp;



Share certificate



A share certificate specifies the amount and numbers of shares, as well as what class the certificate is issued.&nbsp;



Upon completion of the share transfer, the company should issue a share certificate to the shareholders. A private company should do so within 2 months after the transfer is filed with the company, while other companies should do so within 10 business days after the transfer is filed with the company.&nbsp;



There is no need to report a shares transfer to the Registrar of Companies once the transfer is complete. It should be reported in the <a href="https://www.cr.gov.hk/en/companies_ordinance/docs/NAR1_fillable.pdf?formref=COR-F003" target="_blank" rel="noreferrer noopener">annual return</a> made by the company after such a transfer took place.&nbsp;



Register the share transfer



A company must not register a transfer of shares in the company unless a proper instrument of transfer has been delivered to the company. Within 2 months after the transfer is lodged with the company, the company must either register the transfer or refuse to register it by sending a notice of refusal to the transferor and transferee.&nbsp;



Refusal to register the transfer of shares by the directors of the company generally can happen on the following grounds:&nbsp;



<ul class="wp-block-list"><li>the share is not fully paid;&nbsp;</li><li>the instrument of transfer is not lodged at the company’s registered office or another place that the directors have appointed;&nbsp;</li><li>the instrument of transfer is not accompanied by the certificate for the share to which it relates, or other evidence the directors reasonably require to show the transferor’s right to make the transfer, or evidence of the right of someone other than the transferor to make the transfer on the transferor’s behalf; or</li><li>the transfer is in respect of more than one class of shares.</li></ul>



Please check your Articles of Association for the relevant grounds of refusal.&nbsp;



If a statement of the reasons for the refusal is requested by the transferor or transferee, the company must send a statement of the reasons for the refusal or register the transfer within 28 days.



The registration of a transfer of shares may be <a href="https://www.elegislation.gov.hk/hk/cap622H" target="_blank" rel="noreferrer noopener">suspended</a> for any period or periods not exceeding 30 days in each year, or not exceeding the extended period if the 30-day period is extended.



Key Takeaways



<ul class="wp-block-list"><li>A share transfer can be carried out in accordance with restrictions set out in the company’s Articles of Association and the procedure set out in the Companies Ordinance.&nbsp;</li><li>It is important that you have prepared and submitted all relevant documents to the Inland Revenue Department for stamp duty assessment.</li></ul>



References:&nbsp;



<ol class="wp-block-list"><li>Documents relating to Share Capital / Shares: <a href="https://www.cr.gov.hk/en/faq/local-company/doc-sharecapital.htm" target="_blank" rel="noreferrer noopener">https://www.cr.gov.hk/en/faq/local-company/doc-sharecapital.htm</a>&nbsp;</li><li>Companies Ordinance</li><li>Companies (Model Articles) Notice</li><li>Stamp duty assessment FAQ: <a href="https://www.ird.gov.hk/eng/faq/sda.htm" target="_blank" rel="noreferrer noopener">https://www.ird.gov.hk/eng/faq/sda.htm</a>&nbsp;</li><li>Stamp duty rates: <a href="https://www.ird.gov.hk/eng/pdf/irsd124.pdf" target="_blank" rel="noreferrer noopener">https://www.ird.gov.hk/eng/pdf/irsd124.pdf</a> , <a href="https://www.gov.hk/en/residents/taxes/docs/IRSD123_0310(e).pdf" target="_blank" rel="noreferrer noopener">https://www.gov.hk/en/residents/taxes/docs/IRSD123_0310(e).pdf</a>&nbsp;</li><li>Documents required for stamp duty assessment: <a href="https://www.ird.gov.hk/eng/pdf/pn04a.pdf" target="_blank" rel="noreferrer noopener">https://www.ird.gov.hk/eng/pdf/pn04a.pdf</a>&nbsp;</li><li>Time limit for stamping: <a href="https://www.gov.hk/en/residents/taxes/stamp/time_limit_for_stamping.htm" target="_blank" rel="noreferrer noopener">https://www.gov.hk/en/residents/taxes/stamp/time_limit_for_stamping.htm</a>&nbsp;</li><li>Late stamping: <a href="https://www.gov.hk/en/residents/taxes/stamp/late_stamping.htm" target="_blank" rel="noreferrer noopener">https://www.gov.hk/en/residents/taxes/stamp/late_stamping.htm</a></li></ol>