The New Companies Ordinance Series (2) - Written Resolutions, General Meetings, Record Keeping, Accounting Reference Period and Prohibition of Bearer Warrants
In this issue of the New Companies Ordinance Series, we will discuss major changes in relation to written resolutions of members, general meetings, record keeping, accounting reference period and prohibition of bearer warrants.
(1) New Rules for passing Written Resolutions
Under the existing law, any matter which may be done by a company by resolution in general meeting (save for removal of auditors or directors in certain circumstances) may be done by a written resolution signed by all members of a company who would be entitled to attend and vote at the meeting. The existing law however does not provide for statutory procedures for passing a written resolution.
In the New Companies Ordinance, the directors or any member of a company may propose a written resolution. The company has a duty to circulate such resolution proposed by the directors or upon request by members holding no less than 5% voting rights (or a lower percentage specified in the company's articles) to all members. The company is obliged to circulate such proposed written resolution within 21 days.
A member who requests the company to circulate a resolution may also request the company to circulate with the resolution a statement of not more than 1,000 words on the subject matter of the resolution.
A written resolution is passed when all eligible members have signified their agreement to it. A proposed written resolution lapses if it is not passed within 28 days or the period specified in the company's articles.
These procedural requirements regarding written resolutions may be contracted out in the company's articles provided that such written resolutions will be passed by the members who are entitled to vote on the resolutions unanimously.
(2) Dispensation with the holding of annual general meetings ("AGM")
Under the existing law, a company must hold AGMs unless written resolutions have been passed to deal with relevant matters and the documents required to be laid before the meeting have been provided to the members or the company is dormant.
The New Companies Ordinance provides for further grounds for dispensation with AGMs. These additional grounds are :-
where the company has only one member; or
where all members pass a resolution to dispense with the holding of the AGM and such resolution has not been revoked and no member has required the holding of the AGM.
Notwithstanding the aforesaid relaxation of requirements, companies are still required to prepare financial statements, directors' report and auditor's report for each financial year and circulate the same to every shareholder within the statutory prescribed period.
(3) Notice of General Meetings
Under the new law, the notice period for calling a general meeting of a limited company is generally 14 clear days (regardless of whether ordinary or special resolution will be passed at the meeting), save for the calling of AGM (where notice of at least 21 clear days should be given) and for the passing of resolutions requiring special notice under the New Companies Ordinance.
(4) Proceedings at general meetings
Under the New Companies Ordinance:-
general meetings may now be held at two or more places by using technology which enables members to listen, speak and vote at the meeting. This modernizes the law and facilitates the decision-making process of companies.
Five members with voting rights, or members with voting rights of no less than 5% (instead of 10% under the existing law) may demand a poll.
there are a number of provisions dealing with proxies and corporate representatives. The rights and obligations of proxies have been clarified. Under existing law, a proxy is not entitled to vote on a show of hands unless the articles specify otherwise. This restriction is removed in the New Companies Ordinance. Subject to any provision of the company's articles to the contrary, a proxy may vote on a show of hands except in the case of multiple proxies (i.e. a member appoints more than one proxy). In addition, a proxy may now be appointed as chairman of a meeting. A proxy may also demand a poll.
The new regime provides a higher degree of certainty in voting by proxy. This should incentivize voting by proxy in general.
(5) Company Record Keeping and Inspection
To enhance corporate governance, the new law provides a standardised regime for a company's record keeping (i.e keeping of any register, index, agreement, memorandum, minutes or other document required to be kept by a company, other than accounting records which are governed by other sections).
Under the new law, a company will only be required to keep records of resolutions and minutes of meetings of members, minutes of directors' meetings, written record of decision of sole director of private company and entries in the register of members for 10 years. At present, a company is required to keep entries relating to former members for 30 years. The existing law does not contain any express provision in relation to the time period for keeping records of resolutions and meetings.
The new law provides that a company may keep its company records at its registered office or a prescribed place which should be a place in Hong Kong in accordance with its subsidiary legislation (i.e. Company Records (Inspection and Provision of Copies) Regulation).
(6) Introduction of the concept "Accounting Reference Period"
Under the New Companies Ordinance, a company is required to prepare its financial statements for each financial year which will be determined by reference to its "Accounting Reference Period". The New Companies Ordinance contains detailed provisions which determine the "Accounting Reference Period" of existing companies and new companies formed under the New Companies Ordinance.
A company's first financial year after the commencement of the New Companies Ordinance begins on the first day of its first "Accounting Reference Period" and ends on the last day of that period. As certain new requirements shall apply to financial years of the company after the commencement of the New Companies Ordinance, it is important for all companies to identify their "Accounting Reference Period" to ensure compliance of the new law.
(7) Prohibition of bearer warrants
The existing Companies Ordinance allows a non-private company limited by shares to issue bearer warrants.
The New Companies Ordinance removes the power of all companies to issue bearer warrants.
Bearer warrants issued before the commencement of the new law would not be affected, but upon the surrender of such existing bearer warrants, the bearer's name will be registered in the register of members.