ABOLITION OF PAR VALUE OF SHARES

29 January 2014

ABOLITION OF PAR VALUE OF SHARES FOR HONG KONG COMPANIES

OBJECTIVE
In line with international trends and to provide companies with greater flexibilities in structuring their share capital. Par value is the minimum price at which shares can generally be issued and under the old arrangement, companies incorporated in Hong Kong are required to have a par value. However, it is generally accepted that par value does not serve its original purpose of protecting creditors and shareholders, and in fact may even be misleading because the par value does not necessarily give an indication of the real value of the shares.

WHAT IT MEANS TO YOU
The “no-par” regime will take effect with the enactment of the subsidiary legislation and abolishes the concept of nominal value. The abolition of par value will create a number of changes, namely that of:-

Capitalisation of profits without issuing new shares
Allot and issue bonus shares without increasing share capital
Share Premium as a result of the changes will no longer exist

There are transitional and deeming provisions in the new CO relating to the move from par value shares to no-par value shares. The provisions are intended to provide legislative safeguards to ensure that contractual rights defined by reference to par value and related concepts will not be affected by the abolition of par.

RECOMMENDATION

The New Companies Ordinance will deem all shares issued before the abolition to have no par value. Companies should review their particular situation to determine if they need to introduce specific changes to relevant company documents previously prepared. The documents may include the company's constitutional documents, contracts entered into by the company, trust deeds involving the company and share certificates issued by the company. Due to the changes in the Companies Ordinance, for the preparation of the financial statements the Company needs to transfer the amounts standing to the credit of the share premium account and capital redemption reserve account (if any) to the share capital account on or after the commencement date of the new Companies Ordinance. ALCPA would be able to assist with the above changes during the transitional period in order to comply with the company’s needs. For more information, contact us today to find out more.

CONTACT INFORMATION

info@alcpa.com.hk
(852) 2574 8289

Note that any information, publication, design, product, process, idea or know-how described in this website may be the subject of other rights, including other intellectual property rights, which are owned by ALCPA or other interested parties and are not licensed to you hereunder. ALCPA does not warrant the website to be error-free and will not be liable for any damages whatsoever, whether in an action of contract or otherwise relating to the use of the information contained in the website. Certain links in this website may connect you to website maintained by third parties, ALCPA has not verified the contents on these websites and will not be liable for any damages as a result of the use of these information contained in these links.