There are mainly 3 methods of closing down a business in Hong Kong. Whichever method you choose, it is important for your business to follow the proper procedures required. If you fail to do this, it may result in legal consequences. You can:
- Deregister your business
- Wind up your business
- Put your company in a “dormant” state*
*A dormant company is not exactly “dissolved”. It is temporarily not engaging in accounting transactions, but the dormant status is reversible. A non-trading company can register for an inactive status with legal implications i.e., dormancy.
Deregistering your business
In Hong Kong, it is most common to close a business by company deregistration as it has the main advantage of being inexpensive.
- Notice of No Objection
A private company or a company limited by guarantee that has ceased its operations and is solvent can apply for de registration to the Company Registrar. A request for the “Notice of No Objection” can be made by the director of a company or the director may authorize a member or nominate another person of the company to make the said request. Generally, the evidence of authorisation for a nominated person may not be required if such person is a practising professional (e.g. accountant/solicitor).
- Conditions for Deregistering:
- All members of the company agree to the deregistration;
- The company has never commenced business or operation, or has ceased business for more than three months immediately before the deregistration application;
- The company has no outstanding liabilities;
- The company will not start/resume business in the future;
- The company is not a party to any legal proceedings;
- The company has disposed of all trading stock, landed property and securities, if any;
- If the company is a holding company, none of its subsidiary’s assets consist of any immovable property situate in Hong Kong;
- The company has no outstanding obligations under the Inland Revenue Ordinance.
- Procedure
The applicant is required to submit to the Commissioner of Inland Revenue a completed Application Form IR1263. Once the application is submitted and there are no outstanding matters on the application, the Commission of IRD will issue the notice of no objection to a company.
Thereafter, you have to deliver to the Companies Registry Form NDR1 with the Notice of No Objection within 3 months from the date of issue of Notice of No Objection. Note that you have to pay the fees prescribed when applying with these departments.
Voluntary Liquidation
If the company is solvent and the shareholders wish to close the business then they may choose to do so by voluntarily winding up the company.
- Procedure
The general procedures of members’ voluntary winding up are as follow:
- The directors have to sign a certificate of solvency stating that they have conducted inquiries and form the opinion that the company will be able to pay its debts in full within 12 months of commencement of winding up.
- The company has to call a meeting of shareholders. The notice for the meeting has to be advertised in the Government Gazette and in Chinese and English newspapers.
- The shareholders have to pass a special resolution for voluntary winding-up. See the template of a special resolution to put the company into voluntary liquidation by clicking on the link.
- A notice of the resolution has to be posted in the Government Gazette within 14 days of the passing of the resolution.
- During the meeting, a liquidator may be nominated and appointed. The liquidator might be supervised by an inspection committee. The liquidator will deal with the affairs of the company. To see the template of a special resolution to appoint a liquidator, click on the link.
- The liquidator can call further meetings regularly to update the company and its creditor(s) for the winding-up.
- When the affairs of the company have been fully wound up, the liquidator will produce an account of the winding-up and call a final meeting of the company and of the company’s creditors.
Acquiring a dormant status
The key to put a company into a dormant position is having “no relevant accounting transaction”. Therefore, there must not be any sums received or expended, sales or purchases made, or assets or liabilities acquired, but the amount the company pays for its initial shares and the costs to keep the company registered are excluded from the ambit of “accounting transaction”.
- Procedure
A special resolution needs to be passed and delivered to the Registrar of Companies to declare the company dormant. Once the special resolution is passed, the company becomes dormant as from the date of delivery of the special resolution to the Registrar of Companies or any later date specified in the special resolution. Click on the link for the template of a special resolution declaring dormancy.
- Can a company cease to be dormant?
Yes, a company may cease to be dormant if (a) it passes a special resolution declaring that the company intends to enter into an accounting transaction, and the resolution is delivered to the Registrar for registration; or (b)there is an accounting transaction in relation to the company.
Key takeaway
- You can close down a business by deregistration, winding it up or putting it into dormancy.
- Deregistration is a cost-efficient way to close down your business in Hong Kong. Unless challenged by certain parties, deregistration implies dissolution.
- Winding up is absolute and it allows shareholders to get their share capital back. However, it can be costly and lengthy.
- Putting your company in dormancy is reversible. You can resume trading on a later date, though the company is still responsible for certain compliance requirements and fees.
Bibliography
- Companies Registry, FAQ on dormant companies: https://www.cr.gov.hk/en/faq/local-company/dormant-companies.htm
- Companies Registry, FAQ on deregistering a defunct solvent company: https://www.cr.gov.hk/en/services/deregister-company.htm
- Inland Revenue Department, How to Apply for a Notice of No Objection to a Company / Limited Partnership Fund (LPF) Being Deregistered: https://www.ird.gov.hk/eng/tax/bus_han.htm
- Companies Registry, FAQ on Deregistration, Striking Off and Winding Up: https://www.cr.gov.hk/en/faq/local-company/dereg-striking-off-winding-up.htm