There are no specific reasons for the failure or closing down of a business. It depends on the time phase of the business. Sometimes the company fails at its initial stage due to lack of market research, and sometimes it fails due to unfavorable market conditions. Whatever the reason may be, one has to follow all the rules for deregistering the company. There are different rules for closing companies in different jurisdictions. In this article, you will read all about deregistering a business in Hong Kong.
Common reasons to close a Hong Kong company?
Various reasons might lead you to close your company. Lack of money and growth are the two main reasons that contribute to these factors. After all the struggle and grind, the lack of capital is one of the significant reasons why many entrepreneurs decide to quit. Low income might be due to poor decisions and research about the market. Here are a few of the most common reasons why a business in Hong Kong can be closed:
- The failure of the company to carry on any business activity.
- The company cannot make any recognizable profits.
- When the business is not able to pay off the debts.
- Shareholders of the corporation are falling out.
- Non-compliance with statutory responsibilities, which further includes the mismanagement of business affairs, etc.
- Corporate restructuring of the union to which the corporation belongs.
- The project ended (e.g. some of our clients are in the film industry and they incorporate special companies for this purpose).
Understanding Deregistration, ‘Winding up’ & ‘Striking off’ of a Hong Kong company.
To deregister a company means to dissolve that company. Deregistration is a typical procedure for dissolving defunct solvent companies. The closing of a company in Hong Kong via the deregistration process means to close the corporation that is no longer functioning entirely. Also, the company should not have any debts or liabilities, which would make the company declare as a solvent company. Apart from this process, there are two others that also eventually result in the dissolution of the business. The other two methods are striking off and winding up. Even though the three processes lead to the dissolution of the company, each follows a significantly distinct method.
Winding up is another method of dissolution, which is the process of settling the accounts and liquidating the assets of a company. While winding up means a company ceases to do business as usual, it is also the process of settling the account and liquidating the assets of a company to make distribution of the net assets to members and dissolve. Its sole purpose is to sell off stock, pay off creditors, and distribute any remaining assets to partners or shareholders.
The third method for dissolution is ‘striking off’ of the company. Striking off is a legal power bestowed on the Registrar of Companies, which a company itself cannot apply for. The processes effectively marks the company as non-existent for all intent and purposes. The company registry would strike the name of the company off when the business is not in operation or carrying on business. And as soon as the name of the firm gets struck off the Companies Register, it would be dissolved.
Conditions and Requirements for a company to apply for deregistration
There are various ways to register a Hong Kong company. Also, there are various ways to deregister a company in Hong Kong.
To prepare an application for deregistration, one has to keep in mind various aspects. Firstly, the company must be a defunct solvent company. Next, it must be located in Hong Kong. Before applying for deregistration, you need to check if your business meets the following obligations:
- All the members of the organization agree to the deregistration.
- The corporations must not conduct any operations during the three months immediately before the application.
- The application must be made at least three months after the cessation date.
- No outstanding liabilities of the company should be there.
- No legal proceedings or any such cases related to the company should be present.
- There must not be any immovable property of the company that is situated in Hong Kong.
Steps to deregister a company in Hong Kong
Step 1: Process with Inland Revenue Department (IRD)
The Inland Revenue Department of the Hong Kong Government is one which is responsible for the administration of specific ordinances on taxes, duties, and related rules and regulations. In this process, the company would need to get the notice that has been written by the Inland Revenue Department. For this, you would need to fill out the Form IR1263 and submit it along with the fee to the Inland Revenue’s Commissioner. This fee is non-refundable regardless of the outcome of the situation and application. A company has to request for a Notice of No Objection in respect of an application to deregister a company. This request can be made by:
- a director or member of the company with a copy of the authorization letter.
- Any person nominated by the company with a copy of a nomination letter.
The applicant is required to submit to the Commissioner of Inland Revenue. The application may be made by post or in person with the fees.
The company will have to renew before deregistration if the company starts the deregistration process within one and half months before the anniversary. Clearing all outstanding issues with the IRD is a faster way to get the “No Objection Letter” issued.
Step 2: Deregister process with Companies Registry (CR)
After the company has received the “Notice of No Objection” from the IRD, you would then need to fill in the form along with the application for the deregistration and send it to the Registrar of Companies. The fee structure of the processes are as follows :
- Company Deregistration (CR & IRD) fees: $95 + $45
- Company resolution of directors to dissolve the company: $55
- Appointment of proxy (deregistration – like appointing Startupr): $690
The overall procedure to deregister the Hong Kong company is quite simple with the Companies Registry. After the company has received the “Notice of No objection” letter from the IRD, in addition to this, the company has to submit the following to the Companies Registry:
- A properly completed form NDR1.
- The original copy of the “No Objection” Notice from the Commissioner of Inland Revenue.
- Any information that the Companies Registry of Hong Kong may request in connection with the application to deregister the company.
Step 3: Issuing final notice in the Gazette
After the above two steps, the Companies Registry will issue an Approval of Application and take the third step to issue a final notice in the Gazette. A notice of the proposed deregistration of the company will be published in the Gazette. If the Registrar receives no objection within three months after the date of publication of the said notice, another notice will be published in the Gazette declaring the company to be deregistered. Upon deregistration, the company will be dissolved. The deregistration process typically takes about five months, starting from the notice published in the Gazette.
Restoring a dissolved company in Hong Kong
Let’s say that the company is dissolved but now you want to reinstate it. A company dissolved by striking off may apply for restoration by court order or by administrative restoration. The simplest way is “Administrative restoration” a process to administratively restore a company to the Companies Register by the Registrar of Companies.
In order to be eligible for administrative restoration, the company’s name must have been struck off the Companies Register under section 746 or 747 of the CO or section 291 of the predecessor Ordinance, and the company must have been dissolved under the respective sections. Startupr can help you regain your company through administrative restoration. Unfortunately, a company which was dissolved by way of deregistration or winding up cannot apply for administrative restoration.
For a dissolved local company, an application must be made within 20 years after the date of the dissolution. The persons who can apply to the Registrar of Companies for administrative restoration are:
- for a dissolved local company, a person who was a director or member of the company; and
- for a non-Hong Kong company, a person who is a director or member of the company.
The Registrar will usually require the production of the written authorizations of the members of the company for making the application.
There are some conditions for administrative restoration:
- the company was in operation or carrying on business at the time its name was struck off the Companies Register;
- if the company has any immovable property situate in Hong Kong which has become vested in the Government as bona vacantia, the Government has no objection to the restoration;
- the applicant must bring up to date the records of the company kept by the Registrar of Companies; and
- the Government’s costs, expenses and liabilities in dealing with the property or right during the period of dissolution, or in connection with the proceedings on the application, have been paid or reimbursed by the applicant.
Want any assistance in deregistering your HK company? Startupr will help you!
Deregistering Hong Kong companies require the essential know-how and compliances with various statutory obligations. Hence you are strongly advised to engage the services of a professional firm like Startupr.
Startupr strives to provide excellent services to our customers and help them start and grow their businesses. Startupr can provide you with the appropriate guidance and timely assistance for the deregistration of your Hong Kong company. Also, If you need some additional services other than deregistration of a company in Hong Kong, Startupr can help you. We can also help you with the incorporation of a new company. Hire Startupr to assist you with today.