Share Issuance
- a22162
- Apr 9
- 6 min read
Hong Kong Share Issuance Explained
Share issuance in Hong Kong refers to the process by which a Hong Kong-incorporated company creates and offers new shares to raise capital. This is distinct from a share transfer, which involves the reallocation of existing shares. The issuance and allotment of new shares are governed primarily by the Companies Ordinance (Cap. 622) in Hong Kong. For companies listed on the Hong Kong Stock Exchange (HKEX), additional rules and regulations apply as outlined in the Listing Rules of the HKEX.
Here's a breakdown of the key aspects of share issuance in Hong Kong:
For Non-Listed Companies (Private Companies):
Legal Framework: The primary legislation is the Companies Ordinance (Cap. 622).
Issuance vs. Allotment:
Issuing shares: The creation of new shares to increase the company's share capital.
Allotting shares: The distribution of these newly created shares to specific investors (new or existing shareholders).
Minimum Requirement: At least one share must be issued to the founder member(s) upon incorporation.
Procedure for Issuing New Shares:
Assess Capital Needs: The company evaluates its financial requirements and determines the amount of capital to be raised through share issuance.
Obtain Stakeholders' Approval:
Directors prepare a written resolution specifying the number and type of shares to be issued.
This resolution is presented to shareholders for approval, either through a signed written proposal or by voting at a general meeting (majority decision usually required).
The company's Articles of Association (AoA) must be reviewed for any specific clauses or conditions related to share issuance.
Execute Agreements and Process Payments:
A formal agreement is drafted and signed with the investors.
Investors transfer the funds to the company.
Post-Allotment Obligations:
Submit the Return of Allotment (Form NSC1): Within one month of the allotment, this form must be filed with the Companies Registry, including details of the shares allotted, the allottees, and any increase in share capital.
Update the Register of Members: Within two months, the company must update its register of members with the new shareholders' details, the shares they hold, and payment information.
Issue Share Certificates: Share certificates, serving as proof of ownership, must be prepared and delivered to the new shareholders within two months of the allotment. These certificates contain details of the issuing organization, the shareholder, the number and class of shares, and the certificate number.
Directors' Authority to Allot Shares: Generally, directors need prior approval from the company (via a resolution) to allot shares, except in specific circumstances such as:
Pro-rata offers to existing members.
Bonus share issues to existing members.
Allotment to founder members as per the AoA.
Exercise of pre-approved rights to subscribe or convert securities into shares.
No Par Value: Hong Kong has abolished the concept of par value for shares. This means there's no minimum issue price, giving companies more flexibility. The full amount received for issuing shares is recorded as part of the share capital.
Authorized Share Capital: The concept of authorized share capital (the maximum number of shares a company can issue) has also been abolished. However, shareholders can still set a limit in the company's Articles of Association if they wish.
For Listed Companies (on the Hong Kong Stock Exchange - HKEX):
In addition to the requirements of the Companies Ordinance, listed companies are subject to the Listing Rules of the HKEX, which include more stringent regulations regarding share issuance to protect the interests of public shareholders and maintain market integrity. Some key aspects include:
Shareholders' Approval: New issues of equity securities must generally be offered to existing shareholders pro-rata unless specific or general mandates for issuing new shares are obtained from shareholders.
General Mandate: Allows the issuance of new shares up to 20% of the existing issued shares at the time the mandate is granted, with a maximum discount of 20% to the benchmarked price.
Specific Mandate: Required for share issues exceeding the general mandate limit or involving specific arrangements.
Restrictions on Value Dilution: Rights issues, open offers, and specific mandate placings that result in material "value dilution" (individually or cumulatively over 12 months) are generally prohibited, except in exceptional circumstances.
Public Float: Listed companies must maintain a minimum percentage of their shares held by the public (typically 25%, but can be lower under specific conditions for very large companies). There are also minimum numbers of public shareholders.
Disclosure Requirements: Listed companies have strict disclosure obligations regarding any new share issuance, including announcements made in a timely manner.
Pricing of New Issues: While there's no strict minimum trading price set by the HKEX, the pricing of new shares must be fair and reasonable. Discounts on new issues (especially under a general mandate) are limited.
Rights Issues and Open Offers: These are common methods for listed companies to raise capital by offering new shares to existing shareholders. The Listing Rules specify procedures for these, including potential requirements for minority shareholder approval if the issuance increases the number of issued shares or market capitalization by more than 50%.
Treasury Shares: The HKEX Listing Rules also cover the repurchase and subsequent sale or cancellation of a company's own shares (treasury shares).
Lock-up Periods: For cornerstone investors in IPOs, there are often lock-up periods restricting the sale of their shares for a certain time after listing.
Key Considerations for All Companies:
Purpose of Issuance: Clearly define the reasons for issuing new shares (e.g., expansion, debt reduction, acquisitions).
Impact on Existing Shareholders: Consider the potential dilution of existing shareholders' percentage ownership and earnings per share.
Market Conditions: For listed companies, market sentiment and conditions will significantly impact the success and pricing of a share issuance.
Underwriting: For large public offerings, companies often engage investment banks as underwriters to help manage the issuance process and ensure the shares are sold.
Understanding the Companies Ordinance and, if applicable, the HKEX Listing Rules is crucial for any company considering a share issuance in Hong Kong to ensure compliance and achieve its capital-raising objectives effectively.
How Bestar can Help
Bestar can provide invaluable assistance across various aspects of share issuance in Hong Kong, ensuring compliance, efficiency, and maximizing the chances of a successful capital raise. Our expertise helps navigate the complex legal, regulatory, and strategic considerations involved. Here's how Bestar can help:
Navigating the Legal Framework: We provide expert advice on the Companies Ordinance (Cap. 622) and, for listed companies, the HKEX Listing Rules and other relevant regulations.
Structuring the Share Issuance: We help determine the most appropriate structure for the issuance based on the company's needs and objectives, ensuring legal compliance.
Drafting and Reviewing Documentation: We prepare and review crucial legal documents such as:
Shareholders' resolutions.
Subscription agreements.
Underwriting agreements (for IPOs and large offerings).
Prospectuses (for public offerings).
Placement agreements.
Ensuring Regulatory Compliance: We guide the company through the necessary filings with the Companies Registry and the HKEX (for listed companies), ensuring all deadlines and requirements are met.
Providing Professional Opinions: We provide professional opinions on the validity and legality of the share issuance.
Strategic Advice: We help the company define its capital-raising goals, assess market conditions, and determine the optimal timing and size of the share issuance.
Valuation: We assist in determining the appropriate pricing for the new shares, taking into account market benchmarks, company performance, and investor demand.
Structuring the Transaction: We advise on the type of share issuance (e.g., rights issue, open offer, placement, IPO), the offering structure, and any associated terms.
Investor Relations: We help identify and engage potential investors, prepare investor presentations and roadshows, and manage investor communication.
Due Diligence: We conduct financial due diligence on the company to ensure accuracy and completeness of information provided to investors.
Negotiation: We assist in negotiating terms with investors and other parties involved in the transaction.
Project Management: We manage the overall share issuance process, coordinating with other professionals and ensuring smooth execution.
Financial Due Diligence: We conduct thorough financial due diligence to ensure the accuracy and fairness of the company's financial statements.
Financial Reporting: We assist in preparing the necessary financial information for disclosure in prospectuses and other offering documents.
Tax Advice: We provide advice on the tax implications of the share issuance for the company and investors.
Comfort Letters: Bestar may provide comfort letters to underwriters, verifying the financial information presented in the offering documents.
Compliance with Accounting Standards: We ensure that all financial reporting complies with relevant accounting standards in Hong Kong (HKFRS).
In summary, engaging Bestar provides numerous benefits:
Expertise and Experience: We bring specialized knowledge and experience in share issuance, which can significantly improve the chances of success.
Compliance: We ensure adherence to complex legal and regulatory requirements, minimizing the risk of penalties and legal challenges.
Efficiency: We streamline the share issuance process, saving the company time and resources.
Risk Mitigation: Our expertise helps identify and mitigate potential risks associated with the issuance.
Access to Networks: Bestar has established relationships with institutional investors, facilitating the placement of shares.
Credibility: Engaging reputable professionals enhances the credibility of the share issuance in the eyes of investors and the market.
By leveraging the expertise of Bestar, companies in Hong Kong can navigate the complexities of share issuance effectively and achieve their capital-raising objectives while maintaining compliance and protecting their reputation.
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