Companies Ordinance of Hong Kong will include a Treasury Share Regime for Listed Companies

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Companies Ordinance of Hong Kong will include a Treasury Share Regime for Listed Companies 

Treasury share regime in Hong Kong

The treasury share regime in Hong Kong only applies to listed companies. The major elements are as follows:

• The listed company may, upon buy-back of its own shares, hold those shares as “treasury shares” in its own name or through a nominee.

• A listed company holding the treasury shares in its own name or through a nominee must enter its name or the nominee’s name in its Register of Members.

• But the holder of the treasury shares shall not be regarded as a member, a shareholder or a contributory of the company.

• When a listed company holds treasury shares of 5% or more in any class of its shares, it should still report such holding in its annual return (Form NAR1) to be filed with the Companies Registry of Hong Kong even though the holder is not regarded as a member of the company.

• All rights attached to the treasury shares have to be suspended, including the right to attend or vote at the company’s meetings, and the right to receive dividends or any distribution of the company’s assets.

• However, the right to the allotment of shares as fully paid bonus shares in respect of the treasury shares is not affected. Such fully paid bonus shares are to be regarded as being bought back on their allotment. The company must deliver a return of allotment (Form NSC1) to the Companies Registry within a month after such allotment, as well as a return (Form NSC2) to specify the number of bonus shares that are held as treasury shares.

• Treasury shares must be excluded from the number of the issued shares and the total voting rights when calculating the relevant threshold in corporate matters such as passing of resolutions, exercising rights in a takeover offer, and making applications to court.

• The treasury shares may be cancelled. The cancellation does not affect the amount of issued share capital while the number of issued shares is reduced by the number of treasury shares so cancelled.

• When a listed company is delisted, all its treasury shares are to be regarded as cancelled.

• Treasury shares may be transferred or sold, whether for a consideration or not. Nevertheless, such transfer or sale is subject to same approval requirements applicable to allotment of new shares in a listed company. When the treasury shares are sold or transferred for a consideration, the amount of issued share capital will increase but the number of issued shares will not change.

A listed company is not required to report its treasury shares to the Companies Registry on a periodic basis, but it is required to submit:

• a return stating the number of shares bought back and held as treasury shares, within 15 days after the date which the bought back shares are delivered to the company (revised existing Form NSC2);

• a return regarding the sale or transfer of treasury shares, within 15 days after the date of sale or transfer (new Form NSC22); and



• a return regarding cancellation of treasury shares, within 15 days after the date which the shares are regarded as cancelled (new Form NSC23). 

Utilization of treasury shares

The introduction of the treasury share regime to the Companies Ordinance brings Hong Kong on a par with Cayman Islands and Bermuda. Accordingly, a Hong Kong incorporated listed company will no longer be required to cancel bought-back shares. If those shares are held as treasury shares, they may be used in different situations, including (a) to be sold to investors in a fund-raising exercise, (b) to be transferred to vendors as consideration shares in the company’s acquisition of businesses from the vendors, and (c) to satisfy share grants in the company’s share scheme.

However, all the corporate actions are subject to the relevant legal and listing rules requirements. A sale or transfer of treasury shares is subject to ad valorem stamp duty under the Stamp Duty Ordinance (Chapter 117 of the Laws of Hong Kong).

YYC Legal LLP is in Association with East & Concord Partners (Hong Kong) Law Firm.