What are the classes of shares in Hong Kong
There are six common types of shares that companies in Hong Kong can issue:
1. Ordinary Shares: These are the most common type of share and come with voting rights on matters such as electing directors and approving major corporate actions. They also entitle shareholders to a share of the company's profits in the form of dividends.
2. Preference Shares: These shares offer certain preferential rights to shareholders, such as the right to receive dividends before ordinary shareholders. They may also have priority in the repayment of capital if the company is wound up. However, preference shareholders typically have fewer or no voting rights.
3. Deferred Ordinary Shares: These shares are similar to ordinary shares but come with the right to receive dividends only after ordinary shareholders have been paid their dividends in full.
4. Non-Voting Shares: These shares do not come with voting rights but may entitle shareholders to dividends.
5. Redeemable Shares: These shares can be bought back by the company at a predetermined price and time. This can be a way for a company to raise capital for a set period or to return capital to shareholders.
6. Management Shares: These shares are typically issued to a company's directors and managers and may come with special voting rights or other privileges. However, their issuance is strictly regulated to prevent abuse.
What is the meaning of RCPS
In the context of finance, RCPS refers to Redeemable Convertible Preference Shares (RCPS).
Here's a breakdown of the term:
Redeemable: These shares can be bought back by the issuing company at a predetermined price and time.
Convertible: These shares can be converted into ordinary shares of the company under certain conditions.
Preference: These shares offer certain preferential rights to shareholders compared to ordinary shares. This could include:
Priority in receiving dividends
Priority in repayment of capital if the company is liquidated
RCPS are a hybrid security that combines features of debt and equity. They are attractive to investors because they offer:
The potential for capital appreciation: If the company's stock price increases, the investor can convert their RCPS into ordinary shares and sell them at a profit.
A steady stream of income: RCPS typically come with a fixed dividend rate, similar to a bond.
The ability to exit their investment: The company can redeem the RCPS at a predetermined price, providing investors with liquidity.
However, RCPS also come with some drawbacks:
Limited upside potential: The conversion rights of RCPS may have a cap, limiting the potential gains compared to owning ordinary shares directly.
Lower voting rights: Preference shareholders typically have fewer or no voting rights compared to ordinary shareholders.
If you encounter RCPS in a financial document, it's important to read the specific terms and conditions attached to these shares to understand their rights and limitations.
What is the procedure to issue preference shares?
Issuing preference shares in Hong Kong involves several steps:
1. Board Resolution and Shareholder Approval:
The company directors first draft a resolution outlining the details of the preference share issuance, such as the number of shares, par value, and any special rights attached (e.g., dividend rate, redemption rights).
This resolution requires approval by the board of directors.
Depending on the company's Articles of Association (AoA), shareholder approval may also be necessary. A General Meeting would be convened for this purpose.
2. Drafting legal documents:
Once approvals are obtained, legal documents outlining the terms and conditions of the preference shares need to be drafted. This may involve a lawyer specializing in corporate law.
3. Issuing the Shares and Updating Records:
After the legal documents are finalized, the company can issue the preference shares to the investors.
The company's register of members needs to be updated to reflect the new shareholders and their holdings.
Share certificates are typically issued within two months of allotment.
4. Filing with the Companies Registry:
A Return of Allotment needs to be filed with the Hong Kong Companies Registry. This document details information about the issued shares, shareholders, and the company's updated capital structure.
Additional Considerations:
It's crucial to ensure the company's AoA allows for the issuance of preference shares.
For complex preference share structures, consulting with a corporate lawyer is highly recommended to ensure compliance with Hong Kong regulations.
Remember, this is a general overview. The specific steps may vary depending on the company's individual circumstances.
How Bestar can Help
What are the classes of shares in Hong Kong
Here's how Bestar can help with issuing preference shares in Hong Kong, alongside the general procedure:
Bestar's Role:
Understanding your Needs: We can discuss your goals for issuing preference shares, such as raising capital or offering investors specific benefits.
Advising on Share Structure: Bestar help design the terms of the preference shares, including:
Dividend rate and payment schedule (fixed or variable)
Redemption rights (whether the company can buy back the shares and under what conditions)
Voting rights (if any)
Conversion rights (if applicable, for convertible preference shares)
Compliance with Regulations: We can ensure your company adheres to Hong Kong company law and the Companies Ordinance (CO) regarding preference share issuance. This may involve reviewing your Articles of Association (AoA) to verify it allows for preference shares.
Preparing Legal Documents: Bestar can collaborate with our partnered lawyer to draft the necessary legal documents outlining the terms and conditions of the preference shares.
Accounting for the Issuance: We can guide you on the proper accounting treatment for the preference shares in your company's financial statements.
Bestar offers other accounting services beyond preference shares, such as bookkeeping, tax preparation, and financial reporting. Contact us to discuss your specific needs.
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