United States
Hong KongThe Companies Ordinance, in the slice HKSI Paper 1 examines
Paper 1 tests a narrow slice of the Companies Ordinance: the types of company, the three restrictions that make a company private, ordinary and special resolutions, directors' fiduciary and statutory duties, the two minority shareholder remedies, and the three winding-up routes. Nothing deeper is examinable.
The Companies Ordinance is long. The examinable part of it is not. Everything Paper 1 asks sits inside five clusters, and four of the five are lists you can learn in a sitting. Approach it as company law and you will drown. Approach it as five lists and you will be done before dinner.
Types of company
A company may be limited by shares, limited by guarantee, or unlimited. Separately, it is either public or private. Those are two different axes and items sometimes cross them deliberately.
| Type | Defining feature |
|---|---|
| Private company | Its articles must restrict the transfer of shares, limit members to 50 excluding employee members, and prohibit invitations to the public to subscribe for shares or debentures |
| Public company | Any company that is not private and not limited by guarantee. Only a public company may offer shares to the public |
| Company limited by shares | Members' liability limited to any amount unpaid on their shares |
| Company limited by guarantee | Members undertake to contribute a fixed amount on winding up. Used by non-profit bodies |
| Unlimited company | No limit on members' liability |
The three private company restrictions are examined as a set. Every one of them must be in the articles. Drop any single restriction and the company is no longer private, which is the point most items are built around.
One structural change is worth knowing. Hong Kong operates a no par value regime. Authorised share capital was abolished and shares no longer carry a nominal value. If a question offers you an answer that depends on par value or authorised capital, it is describing a system Hong Kong no longer has.
Resolutions
Three kinds, and the exam wants you to match the decision to the instrument.
- Ordinary resolution - a simple majority of the votes cast. The default for routine business.
- Special resolution - a supermajority of the votes cast. Required for constitutional changes, such as altering the articles or changing the company's name.
- Written resolution - passed without a meeting, and generally requiring unanimity among the members entitled to vote unless the Ordinance provides otherwise.
The threshold attaching to a special resolution is a fixed percentage stated in the Companies Ordinance. Confirm it from the current text rather than from a revision card, because it is precisely the sort of number that gets misremembered and then repeated. What you should carry into the exam is the mapping: constitutional change means special resolution.
Directors and shareholders
Directors owe fiduciary duties at common law. Act in good faith in the company's interests. Act for a proper purpose. Avoid unauthorised conflicts and unauthorised profits. Those are old, judge-made obligations and they were not created by the Ordinance.
What the Ordinance adds is a statutory duty of reasonable care, skill and diligence, and the test for it is mixed. It asks what could reasonably be expected of a person carrying out that director's functions, and then raises the bar if the particular director actually has greater knowledge, skill or experience. A qualified accountant sitting as a director is judged against what she knows, not against a hypothetical layperson.
Minority shareholders have two principal protections. The unfair prejudice petition, where the company's affairs are being conducted in a manner unfairly prejudicial to members. And the derivative action, brought with the court's leave on the company's behalf where the wrongdoers control the company. The Financial Secretary may also appoint inspectors to investigate a company's affairs.
Winding up
| Route | Who initiates | Key feature |
|---|---|---|
| Compulsory | The court, usually on a creditor's petition | Most commonly on the ground that the company cannot pay its debts |
| Members' voluntary | The members | The directors make a statutory declaration of solvency |
| Creditors' voluntary | The members | No declaration of solvency, so control passes to the creditors |
Read those three rows once more and notice that the members initiate both voluntary routes. The distinguishing feature is the declaration of solvency, nothing else. That is the discrimination the examiner is testing, and getting it wrong is the single most common Topic 2 error we see.
What is not examinable here
Plenty. Company formation procedure, the detail of share capital transactions, financial reporting requirements, schemes of arrangement, and the full mechanics of liquidation all sit outside the Paper 1 footprint. Some of it reappears in Topic 8 when the syllabus turns to listing and takeovers, and that topic belongs to a different part of the guide.
Here is the opinion. Candidates with an accounting or company secretarial background consistently over-read this section, because it is the one part of Paper 1 that touches material they already know well. Familiar material feels productive to study. It is not, when it is worth two questions.
The concession: our estimate of two questions is derived from heading counts, and Topic 2 is small enough that a single sitting could plausibly carry more. If you have a spare half hour before the exam, the list to revise is the private company restrictions and the winding-up table. Both are pure recall and both are cheap.
For the other half of the topic, see Hong Kong's common law system for HKSI candidates, and for how Topic 2 fits the paper as a whole, the Topic 2 overview.
Common questions
What makes a company private in Hong Kong?
Its articles must do three things: restrict the right to transfer its shares, limit its members to 50 excluding employee members, and prohibit invitations to the public to subscribe for its shares or debentures. All three restrictions must be present. If any one is absent the company is not a private company.
What is the difference between an ordinary and a special resolution?
An ordinary resolution passes on a simple majority of the votes cast and covers routine business. A special resolution requires a supermajority and is needed for constitutional changes, including altering the articles or changing the company name. Check the exact special resolution percentage in the current Companies Ordinance text.
Does Hong Kong still have par value shares?
No. Hong Kong operates a no par value regime. Authorised share capital was abolished and shares no longer carry a nominal value. Answers to exam questions that depend on par value or on an authorised capital figure are describing a regime Hong Kong has moved away from.
What duties do directors owe under Hong Kong law?
Fiduciary duties at common law, to act in good faith in the company's interests, for a proper purpose, and to avoid unauthorised conflicts and profits. The Companies Ordinance adds a statutory duty of reasonable care, skill and diligence on a mixed test that takes account of the individual director's actual knowledge and experience.
What remedies does a minority shareholder have?
Two principal routes. An unfair prejudice petition, where the company's affairs are conducted in a way unfairly prejudicial to members' interests. And a derivative action, brought with the court's leave on behalf of the company, typically where the alleged wrongdoers control it.