What are the powers of a larger shareholder? Explain the different types of shares and their functions!

As an international financial center, the power to issue and hold shares in a company is a core issue that investors, entrepreneurs and businessmen must understand. With the promulgation of the new Companies Ordinance, there have been significant changes to the share regime in Hong Kong. In this article, we will explore the impact of these changes on the power to issue and hold shares in companies.

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Share issuance and share classes in Hong Kong companies

What is the right to hold shares in a company?

Issuance and Classes of Shares in Hong Kong Companies

Under the Hong Kong Companies Act, a company may issue shares with various specific rights through its articles of association or by published terms. In the past, companies usually issued ordinary shares, but nowadays more and more companies are issuing different types of shares with different rights.

Companies may identify the rights of holders through different types or classes of shares, which typically include

Ordinary shares (Ordinary shares):

Holders have one vote and equal rights to dividends, and have the same rights to the company’s surplus assets after the company has paid off its debts.

Preference shares:

No voting rights, but have agreed to pay a fixed amount of dividends.

Deferred ordinary shares:

Shareholders holding these shares are entitled to dividends only if other shareholders receive minimum profits.

Non-voting shares:

Usually issued as employee compensation, the holder participates in the profitability of the business only through dividend income.

Redeemable shares:

A shareholder may buy back his or her shares at a fixed date or at an agreed price as determined by the board of directors.

Management shares:

Issuing more shares to gain more voting rights in order to better control the management of the company.

What are the rights of holding shares in a company?

In general, companies issue shares for the purpose of sharing responsibilities and receiving benefits. Under the Hong Kong Companies Act, shareholders of a company hold shares invested in the company’s share capital. The rights, duties and benefits of shareholders must be defined and set out in the company’s articles of association. In addition, shareholders are members and holders of the company and have the right to express their views in the company, but the extent of their rights depends on the percentage of shareholding.

From a legal point of view, a shareholder who holds shares in a company will enjoy specific rights.

If the shareholder holds more than 50% of the shares, the shareholder has the right to dismiss the directors and to buy the shares of other minority shareholders.

If the shareholder holds 75% of the company’s shares, he or she has the right to amend the articles of incorporation, the company’s name, reduce the share capital, allow the company to purchase its shares, and terminate the business.

If you own all the shares of the company, you will have all the powers of the company, but this is less common in practice.

When the company makes a profit, the shareholder will be entitled to dividends and voting rights, but in some cases, the shareholder may hold different types of shares at the same time and enjoy different rights and entitlements. At the same time, shareholders have an obligation to pay their share capital and, in particular, the sole shareholder must be fully informed of the company’s affairs. The above information is provided for reference. If you have any questions or inquiries about tax filing (personal tax return, corporate tax return, accountant tax return), you are welcome to contact our professional advisors and we will provide you with a free quote and consultation service later.