There are a number of ways which shareholders can take money out of the company :
Dividends
The Hong Kong Companies Ordinance (Cap. 622) identifies dividends as distributions of a company’s assets to its members according to their shareholdings. Company in Hong Kong may only pay dividends to its shareholders if it has any available profits. Dividends can be made by cash or by share options.
Generally it is the directors who decide whether the company should pay dividend unless the Articles of Association contain different provisions. The dividends received by shareholders provide an income source for the shareholders.
Shares Buy-back
For private companies, they are allowed to buy back the shares from shareholders using the distributable profits or the proceeds of a new allotment of shares based on a solvency test. Documents have to be submitted to the Companies Registry for the share-buy back transaction.
A solvency statement is to be made and signed by directors having formed the opinion that the company satisfies the solvency test. A director must inquire into the company's state of affairs and prospects and take into account all liabilities (including contingent and prospective) of the company in forming his opinion. There is no requirement for submission of auditor’s report to the Companies Registry for registration of the shares buy-back transaction.
A director who makes a solvency statement without having reasonable grounds for the opinion expressed in it will be a criminal offence.
Distribution of surplus assets upon liquidation
If a company goes into liquidation and there are any assets left over after all the company’s debts have been paid, the remaining assets is distributed to shareholders in accordance with the rights attaching to their respective shares.
In practice, for the case of compulsory winding up (liquidation by the court), there is usually nothing left for the shareholders.
All of the above arrangements should only take place in accordance with the Articles of Association of the Company and the relevant laws and regulations. The shareholders may have committed misappropriation of the assets of the company, causing loss and damage to the company or other shareholders.
For legal advice or services on corporate and commercial matters, please contact CHOW & CHEUNG, Hong Kong Solicitors & Notary Public. [Tel: +852 2856 3799 Email: cac@ccsn.hk]
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