(a) What are the main form of business organisation for medium and large scale enterprises in this economy?

 

The major form of business organisation is a company, created by registration under Part I of the Companies Ordinance. Such companies may be incorporated as public or private companies. There also exist certain corporations, few in number but generally of major significance to the economic life of the territory, which are specifically incorporated under their own piece of legislation. (The Mass Transit Railway Corp is one example.)

In addition, there is a significant number of non-Hong Kong, China companies (known as 'oversea companies') that carry on business directly in Hong Kong, China - rather than by incorporating locally registered companies. The importance of foreign companies is particularly noticeable on the Hong Kong Stock Exchange: for the majority of listed companies are incorporated outside Hong Kong, China (very often in Bermuda).

Many companies in Hong Kong, China - even large publicly traded companies - are family controlled.

(b) Is there a system of registration for these business organizations? If so, briefly describe.

 

Hong Kong, China companies are created by registration under the Companies Ordinance, the registration process resulting in a certificate of incorporation. Foreign companies that have a place of business in Hong Kong, China are described in the Ordinance as oversea companies and are required to submit particulars and register under Part XI of the Ordinance.

(c) Are there any minimal capitalisation requirements for these enterprises?

 

There are no minimum capital requirements for Hong Kong, China companies in general. But it must be noted that companies operating in certain financial services sectors (eg, in insurance, trusts, and banking businesses) are subject to stringent financial regulation. Thus, for example, the Hong Kong Monetary Authority (the 'HKMA') follows international practices, as recommended by the Basle Committee on Banking Supervision, in respect of the capital adequacy framework and minimum standard for supervision of international banking groups.

Moreover, any corporation seeking to list on the HKSE must satisfy a wide range of conditions, including in relation to capital requirements. In addition, any Hong Kong, China corporation that wishes to have a secondary listing on a foreign stock exchange (eg, the New York Stock Exchange or NASDAQ) will have to comply with the often more stringent requirements of the foreign exchange.

(d) Briefly describe the main features of each type of these business organisations, by reference to public/private/state ownership and management; accounting and auditing responsibilities (particularly the standards which apply to accounting and auditing practices); director and management responsibility (including, if relevant, possible liability for debts); and the role of regulatory authorities regarding these enterprises.

 

Companies incorporated under the Companies Ordinance are either public companies or private companies. This division does not depend upon the scale of economic activity conducted by the company, but rather upon the extent to which public involvement in the company is permitted under its constitution. A private company's constitution must limit the number of members to 50, prohibit any public invitation for shares or debentures and restrict the right to transfer shares. Section 29.

Every company is required to submit an annual return. The annual return contains certain basic information in relation to the company, its members and officers. The annual return must also, except where a company is a private company, include copies of the company's balance sheet, the directors' report, and the auditor's report. Pursuant to Section 121, every company is required to keep proper books of account (which is considered to mean such books and records as are necessary to give a true and fair view of the state of the company's affairs and explain its transactions).

Directors and managers owe duties to the company and not, other than in exceptional circumstances, to the shareholders or their fellow directors. Directors generally do not owe duties to the company's creditors or to its employees. Provided shares are issued fully paid (which will almost invariably be the case) shareholders are under no further liability for the company's debts in the event of insolvency. Directors and senior management are under no general liability in respect of an insolvent company's debts; and under the current law, it is only where they have been trading fraudulently (Section 275) that they will be under personal liability. (It is expected that this area will be strengthened in the near future with the introduction of 'insolvent trading'.) Parent companies are not normally liable for the debts of their insolvent subsidiaries (except, of course, to the extent that guarantees have been provided to specific creditors).

Companies operating in certain financial sectors (such as banks and insurance companies) are subject to stringent scrutiny by the appropriate regulatory agency (for example, the HKMA or the Insurance Authority). The HKSE and, to a lesser degree, the Securities and Futures Commission regulate and monitor the affairs of all listed companies in Hong Kong, China (whether incorporated in Hong Kong, China or elsewhere) - takeovers and mergers, as well as insider dealing, particularly spring to mind. Although there is power under the Companies Ordinance for an inspector to be appointed to investigate the affairs of any company, this power is rarely exercised and only then when there is a significant public interest involved (typically involving a listed company).

(a) Are there any relevant observations to make concerning political, social (powerful family), financier (bank equity or involvement) or cultural controls or influences in respect of these types of business organisation?

 

Despite the Government's recent spectacular intervention in the Hong Kong, China stock market, there is no suggestion the Hong Kong, China will move away from the type of laissez-faire approach that has hitherto been a feature of the economic growth of the territory. No general restrictions are imposed upon foreign ownership of companies and capital flows freely. As for social influences, it is not uncommon for listed companies in Hong Kong, China to be under (extended) family control and for there to be a lack of genuine independence even amongst non-executive members of the board of directors. As for political influences, the listing of 'Red Chips' on the Hong Kong Stock Exchange furthered the importance of developing connections within the People's Republic of China.

[Having identified the types of business organisation, they will now (for ease of reference) be referred to as 'corporates' and, thus, 'corporate borrower', 'corporate debtor' and so forth]