In March 1994 the Hong Kong government appointed Ermanno Pascutto, a former co-chair of the Securities and Futures Commission of Hong Kong and now a senior adviser of Troutman Sanders, to carry out a review of the Territory's company law. Pascutto's review culminated in a comprehensive report, recommending sweeping changes to Hong Kong law in the area of company formation and organization.
Many of these recommendations have at last become law through the Hong Kong Companies (Amendment) Ordinance 2003, which came into operation on February 13 2004.
The Amendment Ordinance allows the formation of companies in Hong Kong by a single member (shareholder), whereas previous legislation required at least two shareholders, often complicating and slowing the incorporation process.
The legislation gives each shareholder the personal right to enforce the terms of the company's memorandum and articles of association and clarifies their contractual position with the company.
The procedures for increasing, consolidating and reducing share capital have been substantially changed. Most significantly, the requirement to seek court approval for reduction of share capital has been removed.
The roles of directors have been changed by:
- including a new general definition of shadow director, essentially a person who can influence the majority of the directors;
- reducing the minimum number of directors required from two to one; and
- including rules allowing directors to be removed by ordinary resolution. Formerly, they could only be removed during their term by a special resolution backed by 75% of votes at a specially convened meeting.
The changes have worked to modernize the present legislation, expedite the incorporation and organization process, limit filing requirements and strengthen shareholders' rights.