Elevate Your Hong Kong Company : 5 Share Types for Optimal Structure

The flexible business landscape of Hong Kong allows companies to tailor their share structures to suit their unique needs and priorities perfectly. While many private limited entities maintain a single-class share model, some choose to incorporate multiple share types.

The Companies Ordinance lets corporations carefully define and label their shares, ensuring the associated rights and privileges are clearly stated in the company’s Articles of Association during their registration process. This information is then made publicly available to all stakeholders.

Let’s explore how you can harness the power of Hong Kong’s flexible shareholder framework and find which one works best for your business :

• Core Concepts of Shareholder Rights
• Strategic Share Classes for Modern Companies
• 5 Must-Know Share Types in HK
• Optimise Your Share Structure with AsiaBC

A Hong Kong company typically has one type of share – ordinary shares. This gives the shareholder one vote regardless of the circumstances. During the distribution of dividends or in case the company undergoes liquidation, each ordinary share has equal rights to the proceeds and remaining assets. The more ordinary shares you own, the greater your control and stake in the company.

In contrast, a company with multiple share classes can have more flexibility or complex distribution of control and ownership among shareholders. Thus, creating a shareholders’ structure balances the various factors :

Dividend rights & preferences. Shares can come with or without dividends. Granted dividend rights may only occur under certain circumstances such as preferential dividends wherein a shareholder is paid out before other shareholders or receive a fixed dividend amount.

Asset distribution. Upon a company’s permanent closure, remaining assets after debt settlement are distributed to shareholders in order of priority with the highest priority being paid first before the lower priority classes. In most cases the company’s total assets are insufficient, lower priority may not be entitled to receive the full entitled amount.

Voting rights. Voting and non-voting shares are the most common categories within a company. These entities implement a more detailed system to distinctly define how control and authority is distributed among shareholders. This often involves granting shareholders greater voting rights, influencing important decision-making. While non-voting shares are generally excluded from general assemblies.

Corporations often establish multiple types of share classes to fulfil one or more of these objectives:

• Appeal to a broader range of investors by catering to their specific needs.
• Distribute dividend payments in a strategic manner.
• Adjust the voting privileges of particular shareholders.
• Incentivize employees through the issuance of shares with limited or no voting rights.

Stock share classes often come with certain standard purposes, but the specific rights associated with each type can vary between companies since they have the liberty to label their share classes as they choose. Here’s a summary of common stock share types and their general uses. The company’s Articles of Association contain the authoritative information on the precise entitlements of each share class : 

1. Ordinary shares. The simplest type of shares, offering no special privileges or restrictions. Each share grants the owner one vote and one dividend.
2. Preferred shares. Entitled to a fixed yearly dividend and prioritised over ordinary shares. In case of liquidation, they typically receive their capital first. Generally, preferred shares do not have voting rights.
3. Non-voting ordinary shares. Provide the same benefits as regular ordinary shares but without voting rights. They may gain voting rights under certain conditions or not at all.
4. Deferred ordinary shares. Have voting rights like ordinary shares. Dividends are given only after other classes have been paid. During liquidation, these shareholders are last to receive any remaining assets.
5. Cumulative preferred shares. Missed or unpaid dividends are covered by the company when funds are available. Cumulative preferred shares are often preferred over non-cumulative shares for their better returns to shareholders.

Most private companies in Hong Kong start with ordinary shares. To gain more flexibility with voting rights and dividends, they can create additional share classes rather than continually updating their Articles of Association. This allows shareholders to hold multiple share types with varying rights, and eliminates the need for the company to create a separate share class for each individual shareholder.

Want more flexibility with your shares? Talk to our experts via WhatsApp at +852 6547 1314  or email us at business@asiabc.com.hk to explore personalised solutions and optimise your share classes for ultimate control and efficiency.