As a small business/startup your priority is to grow your business and maximise profits – it is easy to neglect the legal aspects that are tedious, but equally as important. A lot of start-ups even rely merely on trust and verbal agreements when conducting business in their relationships with shareholders, partners, suppliers, and customers rather than taking time to draft contracts. You must understand that failure to document these agreements and understandings properly can prove fatal to business and brand image in the event of a dispute/litigation.
What are the Essential Business Documents for a Small Company/Startup in Hong Kong?
Most small business owners/ start-up founders are unaware of which contracts their businesses need to protect their relationships with other parties. This is understandable – don’t worry, we have a list of the 10 essential business documents for start-ups and small businesses while starting and conducting business operations in Hong Kong:
- Shareholders Agreement
- Investment Agreement
- Confidentiality Agreement
- Service Agreement
- Employment Contract and Offer Letter
- Contractor Agreement
- Memorandum of Understanding
- Joint Venture / Partnership Agreement
- Lease Agreement / Tenancy Agreement
- Privacy Policy
Where do I get these Essential Business Contract Templates?
It is crucial to have templates of common business contracts. However, most business owners do not know where to obtain templates.
The most obvious way is to instruct a law firm to prepare business contract templates for you. However, this costs upwards of tens of thousands of dollars and many start-ups do not have the financial resources for this. For businesses that would like to save on time and costs or without a legal budget, an alternative is to create business documents through DocPro. We will be providing you with links to all the relevant business contract templates you need. They are completely customizable, meaning you can tailor them to your needs and simply download them in Word format when you’re done.
10 Essential Business Contract Templates for Your Business
If you are running a small business/start-up and do not know how to draft business contracts, do not worry, here is a list of the 10 essential business contracts templates you need to kick-start and run your small business:
1. Shareholders Agreement
What is a Shareholders Agreement?
Shareholder agreement is a contract entered between the founders of a company to define the rights and obligations of the shareholders.
The agreement addresses the key issues such as the right to transfer shares, minority rights, confidentiality obligations, and dispute resolution mechanisms. Therefore, if a company has more than one shareholder then a shareholder agreement should be executed in writing to prevent disputes.
What to include in a Shareholder Agreement?
It is vital to draft a comprehensive Shareholder Agreement as it will be the go-to agreement in case of potential disagreement between the shareholders.
Here are some key provisions that your Shareholder Agreement must include:
- Shareholder funding/contributions i.e. how much the shareholders have to contribute initially and in the future.
- Whether the Shareholders own equal shares or unequal shares
- Duties and Responsibilities of each shareholder
- Procedure for issuing new shares/ rights to buy additional shares
- Protections for Minority Shareholders
- Dividend Policy
- Accounting Policy
- Exit strategy if a shareholder wants to exit or terminate its interest in the Company
- Dispute Resolution Mechanism
Why is it important?
When starting a business with a limited budget/resources, owners often make the mistake of running the business without setting up a proper business structure. As such, when the business grows and starts to generate revenue, issues arise amongst the co-founders and can lead to business failure. Without a Shareholder Agreement, you will expose the business to huge risks and litigation costs, howsoever unforeseeable it may seem right now.
Relevant Hong Kong Laws
As per the Hong Kong’s new Companies Ordinance (Cap 622 of the laws of Hong Kong) (hereafter CO) and the Schedule 2 which contains standard Articles of Association for private companies limited by shares, the Shareholders rights are:
1. To vote in shareholders meetings or written resolutions of members
2. To Dividends declared by the company
3. To receive portion of the assets if the company is liquidated
4. To receive Information of the company’s financial statements and audit reports
Shareholders’ agreements may set out the manner in which the shareholders will exercise their rights. It may also provide for additional rights and obligations such to issue/transfer of shares, right to appoint/remove a director etc.
Shareholders Agreement Templates:
DOWNLOAD IN WORD OR PDF: Shareholders Agreement – Equal Shareholdings
A Shareholders Agreement is suitable for the set up of a relatively simple joint venture – a company with equal shareholding. This agreement is drafted for 4 parties in Neutral Form.
DOWNLOAD IN WORD OR PDF: Shareholders Agreement (3 parties) and Shareholder Agreement (2 parties) – Unequal Shareholdings
A Shareholders Agreement to be entered into upon completion or establishment of the Joint Venture Company with standard clauses for minority protection. This agreement is drafted in Neutral Form
2. Investment Agreement
What is an Investment Agreement?
An Investment Agreement is a contract between a company and investors who want to purchase shares of the company. The investor can be a new shareholder, an external investor or even an existing shareholder.
What does it include:
The Investment Agreement covers the following key provisions:
- How much should the investor pay and how many shares is he/she entitled to?
- After a transfer of shares, would the rights and obligations of shareholders remain?
- How can the risk of investing in an unprofitable company be mitigated?
- How can the owners of a company gain trust from the investors?
Why is it important?
As your business grows, you will need funding to expand and grow in new areas. As such, you need to enter an Investment Agreement and outline the terms and conditions for the incoming investor such as restrictive covenants on selling/transferring of company shares, rights to purchase new shares, etc. Since the investors will have ownership rights in your business, it is important to have a well-drafted Investment Agreement to minimize the chance of disputes.
Relevant Hong Kong Laws
Section 144 of the Companies Ordinance (Cap 622 of the laws of Hong Kong) provides that a share certificate must be issued by the company within 2 months after an allotment of shares and failure to do so is an offence and liable to fine. However, this rule does not apply if the conditions of issue of the shares provide otherwise.
Investment Agreement Template:
DOWNLOAD IN WORD OR PDF: Investment Agreement – Single Investor
An investment agreement is a contract defining the terms of investment which a single investor invests in a company owned by managers/founders. The agreement is drafted in neutral form.
3. Non-Disclosure Agreement/ Confidentiality Agreement (“NDA”)
What is an NDA?
An NDA prevents unauthorized disclosure of confidential information to a third party and restricts the use of disclosed information to the purpose specified in the NDA. The obligations can be mutual or one-sided depending on whether the disclosure applies to just you or both parties.
What to include in the NDA?
A good NDA template must cover the following key provisions:
- Identification of the parties as disclosing party/receiving party
- What information is confidential?
- What information is not confidential?
- In what circumstances, can the confidential information be disclosed to a third party?
- What is the intended use of confidential information?
- How will the confidential information be handled? Whether it will be returned/destroyed?
- Confidentiality obligations of the parties
- Consequences of breach of the NDA and the remedies available to you
- Term of NDA
Why is it important?
At various stages of conducting business with other parties, you will have to share information on intellectual property, private equity investments, business proposals, marketing strategies, customer lists, trade secrets, etc. Since this information is sensitive and crucial for the growth of your business, it is strongly recommended that you must require the other party to sign the NDA before sharing any confidential information. A signed NDA will provide you with a protective framework to freely share confidential data and develop better business relationships with your clients.
NDA Templates:
This is a two-way Confidentiality/Non-Disclosure Agreement (NDA) for discussion of the business relationship with a mutual obligation of confidentiality. This is drafted in neutral form.
One-way Non Disclosure agreement for discussion of the business relationship. It imposes a unilateral obligation of confidentiality on the party who receives the information. This is drafted in favour of the Discloser.
4. Service Agreement
What is a Service Agreement?
A Service Agreement is an agreement under which one party agrees to provide services to the other party for remuneration.
What to include in the Service Agreement?
A Service Agreement must include:
- Scope of Services to set in stone the expectation of the parties
- Fees
- Payment Terms (including late payment fees)
- Refund Policy
- Responsibilities of both parties
- Limitation of Liability in case of the third party claim
- Term of the Agreement
- Rights of the parties to terminate the Agreement
- Dispute Resolution Mechanism
Why is it important?
If you are in the business of providing a service, you need to execute a service agreement to define the terms of your relationship with clients, so you are both on the same page and do not clash. It also helps you to define your responsibilities as a service provider and limits your liability in the event of a third-party claim.
Additionally, as the business expands, consistent use of the Service Agreement with the clients will make the contract management process more efficient.
Service Agreement Templates:
DOWNLOAD IN WORD OR PDF: Service Agreement – Consulting Work Neutral
A Consultant performing professional services with specific deliverables for Client in accordance with a professional charge out rate under a consulting agreement. This is drafted in Neutral Form.
5. Employment Contract
What is an Employment Contract?
An employment contract is a legally binding agreement between an employer and employee that outlines the terms of employment.
What to include in the Employment Contract?
Generally, an employment contract includes the following key provisions:
- Particulars of the Job (Job Position, department of work)
- Remuneration and benefits
- Working Hours
- Probation Period
- Reporting Management
- Leave Structure
- Non-Compete Clause (restricting your employee to work for your competitors)
- Confidentiality Provisions
- Notice Period
- Dispute Resolution Mechanism
Why is it important?
The employment contract is beneficial to both the employer and employee as it ensures that both parties clearly understand the scope of employment. This minimizes the chance of future disputes. The employee will be aware of what is expected in terms of performance standards or unacceptable behaviours at work. If the roles involve handling sensitive information, the confidentiality clause in the contract will ensure the employee does not disclose any confidential information to others.
Relevant Hong Kong Laws
In Hong Kong, all contracts of employment are governed by the Employment Ordinance (Cap. 57 of the laws of Hong Kong). Other relevant regulations are the Minimum Wage Ordinance (Cap. 608 of the laws of Hong Kong), Employees’ Compensation Ordinance (Cap. 282 of the laws of Hong Kong) and the Mandatory Provident Fund Schemes Ordinance (Cap. 485 of the laws of Hong Kong).
As per the Employment Ordinance (EO), an employer must include the following in their employment contract:
- Wages (including rate of wages, overtime rate and any allowances)
- Wage period;
- Notice period to terminate the contract;
- End of year payment for employees under continuous contract (e.g. double pay, 13th month payment, end of year bonus). This does not include any payment which is of a gratuitous nature or which is payable at the discretion of the employer. The amount and time of payment should be specified in the contract; and;
- Any other employment conditions (e.g. working hours, holidays) should be clearly specified.
As per the Minimum Wage Ordinance the employers must pay employees at least a minimum wage (which is HK$37.5/ hour in 2021).
To understand the paperwork required to hire an employee in Hong Kong, read our article. What do I need to do to hire an employee in Hong Kong?
Employment Agreement Templates:
DOWNLOAD IN WORD OR PDF: Employment Agreement for Junior/Mid Level Staff (simple form)
Employment Agreement between the employer and junior/mid-level employee highlighting employment terms, benefits and restrictions. This is drafted in favour of the employer.
DOWNLOAD IN WORD OR PDF: Employment Agreement (Junior Employee without Share Options)
Employment Agreement between Company and Junior Employee without option for Junior Employee to purchase share options. This is drafted in favour of the Company.
6. Independent Contractor Agreement
What is an Independent Contractor Agreement?
An independent contractor agreement is a written agreement that establishes the business arrangement between the business owner and the contractor.
What does it include?
An Independent Contractor Agreement must include:
- Scope of work
- Project Timeline
- Payment Terms
- What will be the role and responsibilities of both the parties
- What will be your insurance obligations
- Expressly spell out the independent contractor status (i.e. the contractor will not be deemed to be an employee/agent of your company at any time)
Why is it important?
The main purpose behind hiring independent contractors is to avoid forming a legal relationship between employer and employee/agency/partnership with the other party.
Independent contractors can be hired on a whim to execute certain projects at various stages of business. They may be a more appropriate option for start-ups as it is easier to end the relationship/contract once the project is completed without being responsible for the benefits that employees are entitled to by law.
Relevant Hong Kong Laws
In Hong Kong, the employer must clearly state whether the worker is an employee or an independent contractor as employees are entitled to benefits and rights under the Employment Ordinance whilst an independent contractor is not.
Also, an employer should not change the employee status to a contractor without prior consent of the employee. Otherwise, such employee may file a claim against the employer under the Employment Ordinance (for unreasonable variation of the terms of employment contract) and common law (for termination compensation on the ground of constructive dismissal).
Independent Contractor Template:
DOWNLOAD IN WORD OR PDF: Freelance / Independent Contractor Agreement – Simple Job
A freelance Independent Contractor Contract performing a simple job for customers at an Agreed Price. This agreement is drafted in Neutral form.
7. Memorandum of Understanding/Letter of Intent (“MoU”)
What is an MoU?
A Memorandum of Understanding/Letter of Intent (“MoU”) is a non-binding agreement that records the intent of parties to enter a business transaction. It is followed by a formal binding agreement between the parties.
What does it include:
MoU is a common document used among small businesses and start-ups for business transactions such as joint ventures/sale of a business. It must include:
- Description of the business transaction;
- Any contingencies that must be met by either party
- Restrictive Covenants (e.g. non-disclosure of confidential information);
- Due Diligence
- Explicitly states that the MoU is non-binding for both parties;
- End date for the MoU
Why is it important?
An MoU is important because it outlines the proposed business arrangement in clear terms, which will provide you with clarity on what to expect from the business relationship. It will enable you to make an informed decision before you decide to enter a formal binding agreement with the other party. Also, it expedites the transaction that would otherwise turn out to be a lengthy process involving negotiation and drafting of a complex agreement between the parties.
Memorandum of Understanding/Letter of Intent Template:
DOWNLOAD IN WORD OR PDF: Memorandum of Understanding (MOU)
This is a standard template for Memorandum of Understanding
8. Joint Venture / Partnership Agreement
What is a Joint Venture?
A joint venture is a business arrangement whereby two or more businesses collaborate to pool their resources on new business activity.
What does it include?
- Nature of the joint venture, i.e. describe each party’s contribution to the joint venture and what goals it plans to achieve
- Revenue Percentage allocated to each party
- Management Structure
- Any Restrictive covenants (e.g. using brand name, trademarks, etc.
- Dispute Resolution
- Parties individual rights after the end of the agreement (e.g. any continuing liabilities, future income, IP rights)
- Exit Strategy
Why do you need it?
As a small business/start-up, you aren’t equipped with all resources and expertise (such as funding, distribution services, technology, marketing expertise, etc.) you need to fuel your innovative business idea. As such, by creating a joint venture through collaboration with other companies and combining their resources with yours, you will be able to meet your goals more easily.
There are two ways of creating a Joint venture in Hong Kong:
- Incorporated Joint Venture: An incorporated joint venture is often formed as a limited liability company. This created venture must be registered with the Companies Registry in compliance with the Companies Ordinance and it dissolves once the goals are met; or
- Contractual Joint Venture: the parties enter a contract to cooperate to achieve a business goal. Unlike the incorporated joint venture, no new corporate body is formed.
- A contractual joint venture is where you enter a contract with another business and agree to cooperate to achieve a business goal i.e. both the parties become the co-owners of the joint venture. Unlike incorporate joint venture, no new entity is formed
Relevant Hong Kong laws
Joint ventures are subject to the Competition Ordinance (Cap 619 of the laws of Hong Kong), which contains two conduct rules:
- The First Conduct Rule which prohibits agreements that harm competition in Hong Kong. However, it does not apply if the joint venture amounts to a merger as defined in the Competition Ordinance or enhances the overall economic efficiency.
- The Second Conduct Rule prohibits abuse of market power i.e. undertakings with market power are prohibited from engaging in any acts that has the object or effect of preventing, restricting or distorting competition in Hong Kong.
The Hong Kong Competition Commission is responsible for investigating any alleged infringement of the First and Second Conduct Rule of the Competition Ordinance.
Joint Venture Template:
DOWNLOAD IN WORD OR PDF: Joint Venture Agreement to Supply Products
An unincorporated joint venture / consortium agreement with a Joint Venture leader and participants to contribute to the manufacturing of products in a particular jurisdiction. The association is for products required for a specific local project, rather than for a more permanent type of arrangement. This agreement is drafted for 3 parties and in Neutral Form.
DOWNLOAD IN WORD OR PDF: Joint Venture Agreement to Provide Service
An unincorporated joint venture / consortium agreement with a Joint Venture leader and participants to provide service to a client in a particular jurisdiction. The association is for services required for a specific project, rather than for a more permanent type of arrangement. This agreement is drafted for 2 parties in Neutral Form.
9. Lease Agreement / Tenancy Agreement
In the early stages, small businesses/start-ups usually do work from a home office. However, as the business expands, they will have to lease commercial property or rent coworking/shared office space.
What is the difference between Lease Agreement and Tenancy Agreement in Hong Kong?
A commercial property can be leased via:
- Lease Agreement
- Tenancy Agreement
The terms ‘Lease Agreement’ and ‘Tenancy Agreement’ are often used interchangeably but there are certain technical differences as set out below:
(a) Period of Lease or Tenancy Agreement:
Lease Agreement is generally for a period of more than 3 years while tenancy Agreement is generally less than 3 years
(b) Oral/Written Contract
A Lease Agreement must be in writing while a Tenancy Agreement can be written or agreed orally between the parties. Although, it is advisable for the agreement to be in writing to avoid disputes.
(c) Capacity of the Parties The capacity of the parties to the Lease or Tenancy Agreement affect the formalities of execution.
In case of Lease Agreement, if the party is an individual / sole proprietorship / partnership then such party must affix a red seal next to the signature of each signing person. Similarly a limited company must affix the company’s common seal next to the signature of the person authorised to sign the Lease.
In case of a Tenancy Agreement, if the party is a sole proprietorship, a partnership or a limited company, then the signing party must affix the chop or the rubber stamp (whichever is applicable) onto the agreement together with the signature of the signatory.
What do you need to consider in the lease / tenancy agreement for commercial property?
If you decide to rent a commercial property, you need to sign a lease /tenancy agreement with the landlord. A lease agreement governs the use of the rented property for commercial purposes.
The important things to watch out for in a lease agreement are:
- How much is the base rent, and are there any additional charges for parking fees, utility, and insurance.
- How much is the Security Deposit?
- How long is the lease for?
- What is your responsibility for major structural expenditures?
- The types of improvements and upgrades you can make
- How much notice do you need to give before terminating a lease?
What do you need to consider before renting a Coworking Space?
A coworking space is rented through a license to occupy, i.e., it only permits you to use the property. It does not need a traditional lease agreement, which renting a commercial property would require. Coworking spaces are therefore more popular amongst small businesses and start-ups for their lower rental prices and flexibility.
The important things to consider before renting a Coworking Space?
- How much is the rent?
- How long is the rental period?
- What are the resources and services that will be provided (such as WiFi, printer, locker, power backup, conference rooms, etc.)
- Terms and conditions (strict/flexible, free trial)
- Networking opportunities, i.e. who are the other tenants of the coworking space.
Relevant Hong Kong Laws
In Hong Kong, the lease of premises for business or residential purposes are governed by the Landlord and Tenant (Consolidation) Ordinance (Cap.7 of the Laws of Hong Kong), the Conveyancing and Property Ordinance (Cap. 219 of the Laws of Hong Kong), the Land Registration Ordinance (Cap.128 of the Laws of Hong Kong) and the Occupiers’ Liability Ordinance (Cap.314 of the Laws of Hong Kong).
Stamp Duty
As per the Schedule 1 of the Stamp Duty Ordinance (Cap. 117 of the Laws of Hong kong), parties to a tenancy agreement must pay stamp duty on the document. There are no laws as to whether the landlord or tenant should pay the stamp duty. In Hong Kong, typically the stamp duty is shared equally between the landlord and tenant. The stamp duty amount depends on the rent and the term of the lease. The current rates are as follows.
| Term | Rate of stamp duty |
| If the Term is undefined or uncertain | 0.25% of the yearly or average yearly rent |
| If the Term does not exceed 1 year | 0.25% of the total rent payable |
| If the Term exceeds 1 years but not more than 3 years | 0.5% of the yearly or average yearly rent |
| If the Term exceeds 3 years | 1% of the yearly or average yearly rent |
In addition to the above, HK$5 is also be payable for the stamping of each duplicate / counterpart of the tenancy/ lease agreement
It is important to stamp a tenancy document because the courts may not accept an unstamped document as evidence in civil proceedings. Therefore, incase of dispute / breach, a party may not be able to enforce the tenancy agreement against in the Court. Also, if the parties fail to stamp a tenancy agreement then the parties will be liable to civil proceedings by the Collector of Stamp Duty of the Inland Revenue Department.
Registration of lease / tenancy agreement
The registration of tenancy documents at the Land Registry is regulated by the Land Registration Ordinance (Cap.128 of the Laws of Hong Kong). It provides that a Lease Agreement should be registered with the Land Registry within 30 days of date of execution otherwise it will lose its priority against other registered documents that affect the same property.
The requirement for registration differs for tenancy agreement based on the term of tenancy i.e.:
- if the tenancy agreement is for more than 3 years then it should be registered with the Land Registry;
- If the tenancy agreement is for less than 3 years then the requirement for registration is optional.
- If the tenancy agreement is for less than 3 years with an option to renew the existing tenancy then it should be registered with the Land Registry
Tenancy Agreement Template:
DOWNLOAD IN WORD OR PDF:Tenancy Agreement – Commercial
Tenancy Agreement for the lease of commercial property with options on rent free period and early termination. The term is generally less than 3 years. This is drafted in neutral form.
DOWNLOAD IN WORD OR PDF:Tenancy Agreement – Domestic / Residential Property
Tenancy Agreement for the lease of residential property with options on rent-free period and early termination. The term is generally less than 3 years. This is drafted in neutral form.
10. Privacy Policy
What is a Privacy Policy?
A privacy policy is a guide on the collection and processing of personally identifiable information of a customer by the business. Personally, identifiable information refers to information that can be used to identify a particular person (such as name, e-mail address, phone number, address, etc.) (“Personal Data”).
In Hong Kong, personal data and privacy are governed by the Personal Data (Privacy) Ordinance (Cap. 486 of the laws of Hong Kong) (“PDPO”). Section 2 defines “personal data” as any data “(a) relating directly or indirectly to a living individual; (b) from which it is practicable for the identity of the individual to be directly or indirectly ascertained; and (c) in a form in which access to or processing of the data is practicable”
If your business requires a customer to provide personally identifiable information, you need to make Privacy Policy a part of your customer/client agreements and publish it on your website. The policy will outline how your business uses the personal information collected from the visitors to your website
Why do you need a Privacy Policy?
In Hong Kong. a privacy policy is essential to ensure compliance with the PDPO with specific reference to the following 6 data protection principles (contained in Schedule 1):
- Purpose and manner of collection of personal data
- Accuracy and duration of retention of personal data
- Use of personal data
- Security of personal data
- Information to be generally available about personal data policies and practices
- Access to personal data
These six data protection principles to regulate the ways that personal data is collected, retained, used, secured, accessed and corrected.
Apart from it being a legal requirement, a Privacy Policy is also important for building trust with website visitors and potential customers. It is a way to communicate the procedures you have for handling their personal information with care.
What does a Privacy Policy Include?
A well-drafted Privacy Policy will equip your business with the best practices for protecting/handling Personal Data to limit any disputes on data privacy violations.
A Privacy Policy must include the following key provisions:
- Type of Personal Data collected;
- Purpose of collecting Personal Data;
- Procedure for data storage and security
- Policies for deleting Personal Data
- Customer’s right to its Personal Data (including the right to access and request update)
- Terms of disclosure of Personal Data to third parties and cross-border data transfer, if applicable
- Consent to collect information about customer’s IP addresses and Cookies.
What is GDPR, and does it apply to your business in Hong Kong?
General Data Protection Regulation (“GDPR”) is a complex and strict privacy law drafted and passed by the European Union. As a business, you are responsible for complying with the GDPR if you are collecting or processing data concerning people living in the European Union even if your business does not have a physical store in the EU.
This implies if your website has EU visitors then they have enhanced rights i.e. the right to have detailed, up-to-date information on what data is recorded about them, the purpose for doing so, where their personal data is sent.
Also, the Privacy Commissioner of Hong Kong has issued a comprehensive booklet about GDPR and its relevance for Hong Kong organizations and businesses. Here’s a link to An Update on European Union General Data Protection Regulation 2016. Any non-compliance may lead to heavy penalties.
Privacy Policy Templates:
DOWNLOAD IN WORD OR PDF: Privacy Policy (With GDPR) for Website
Privacy Policy for Website or App. Special wording has been inserted for European users under GDPR. A user is deemed to have accepted them by using the service.
Please note that this is a general summary of the position under the Laws of Hong Kong SAR and does not constitute legal advice.