Principal Business Vehicles in Hong Kong

Hong Kong offers a diverse range of structures designed to accommodate different needs of multinational corporations, small and medium-sized enterprises and entrepreneurs, etc. Set out below are the common structures and their characteristics, together with brief commentary on the key factors driving the choice of structure.

Sole proprietorship

Sole proprietorship is an unincorporated business structure under the registration regime of the Business Registration Ordinance (Cap 310) where one individual owner does business on their own account.

Partnership

Similar to sole proprietorships, partnership is a type of business vehicle but is not a separate legal entity. At a high level, a partnership is formed pursuant to an agreement of the partners to carry on business in common with a view of profit. A partnership is usually referred to as a “firm”.

• General partnership – General partners are agents of the firm and can bind the firm and other partners for acts done for the business of the firm. Each general partner is jointly liable for third party contractual obligations and jointly and severally liable for torts of the firm.
• Limited partnership – Limited partnership is a statutory creation. Limited partners are only liable for amounts contributed to the partnership. At the same time, they are subject to certain restrictions: eg, they are not permitted to take part in the management of the firm and do not have power to bind other partners. There must be at least one general partner in a limited partnership.
• Limited liability partnership – Restricted exclusively to law firms in Hong Kong. 

Company

A Hong Kong “company” is a legal entity incorporated under the Companies Ordinance (Cap 622) (the “Companies Ordinance”) which can sue and can be sued. Companies are generally categorised as private or public and limited or unlimited. Note that public companies are not necessarily “listed companies”, which must be listed on a recognised stock exchange.

• Private companies limited by shares – A private company is a company which by its articles restricts the right to transfer its shares, limits the number of members to 50 (except for members who are employees of the company) and prohibits invitation to the public to subscribe for shares or debentures of the company. The liability of members is limited to the amount paid up (or if unpaid, payable) on the shares held by them. In practice, most commercial businesses use private companies limited by shares.
• Private unlimited companies with a share capital – A private company, but there is no limit on the liability of members.
• Public companies limited by shares – Public companies are defined under the Companies Ordinance to mean a company that is not a private company and not a company limited by guarantee. Public companies are larger companies and subject to stricter regulations compared to private companies. The liability of members is limited to the amount paid up (or if unpaid, payable) on the shares held by them.
• Public unlimited companies with a share capital – A public company, but there is no limit on the liability of members.
• Companies limited by guarantee – A company limited by guarantee does not have share capital or shareholders. Instead, its members act as guarantors and give an undertaking to contribute an amount in the event of winding up. This structure is primarily used by non-profit organisations.
• Registered non-Hong Kong company and representative offices – A non-Hong Kong company registered under Part 16 of the Companies Ordinance and representative offices are not Hong Kong established structures. They are useful for foreign corporations looking to maintain a direct legal connection to (or simply operate through) the foreign corporation and/or analyse the local market prior to formal market entry.

Choice of Business Vehicle

Key factors driving the choice of structure is as follows.

• Liability ring-fencing – A private company limited by shares can cap shareholder exposure to unpaid share capital and separate business risk from personal assets and is therefore ordinarily preferred for operating businesses, joint ventures and investment holding. Conversely, general partnerships and sole proprietorships leave owners exposed to business liabilities.
• Investment and exit objectives – A sole proprietorship can make it difficult to raise additional capital from outside sources to expand the business. It is also easier for an owner to sell their business where the business is structured as a company by effecting a transfer of shares (without interfering with the assets and liabilities of the business).
• Size of undertaking and control – Where only one person would be involved in the business, a sole proprietorship would offer full managerial control over the business.
• Regulatory limitations – Certain businesses are required to be established under statute in a specific form. For example, a company business structure is required to carry on regulated activities in Hong Kong under the Securities and Futures Ordinance (Cap 571) (SFO). Law firms in Hong Kong can only be established as sole proprietorship or partnership but not as a company.

Cost and tax considerations

Companies have higher set-up and maintenance costs compared to other unincorporated entities, along with record keeping, annual filing and accounting requirements. Companies are also generally subject to higher tax rates (ie, currently being 8.25% on the first HKD2 million, followed by 16.5% on remainder of assessable profits) on their profits compared to sole proprietorships and partnerships (ie, 7.5% on the first HKD2 million, followed by 15% on remainder of assessable profits).

Main Requirements for Incorporation

As alluded to in 1.1 Business Organisations, Hong Kong private companies limited by shares are incorporated under the Companies Ordinance, which provides the statutory framework for formation, corporate governance, filings and registers, etc. Below is a list of the basic components of a company and high-level overview of the requirements.

• Members – The minimum number of members is one and maximum number of members is 50 (see 1.1 Business Organisations). There are generally no foreign ownership or residency requirements/restrictions.
• Share capital – There is no statutory minimum or maximum share capital requirement under Hong Kong law. A company looking to keep its capital commitment as low as possible will typically be incorporated with a nominal issued share capital, often HKD1 or USD1.
• Director – Corporate directorships are allowed, but a company must have at least one director who is a natural person. See further 2.3 Board Composition and Independence on board composition.
• Company secretary – The company secretary of a Hong Kong company can be an individual or body corporate. A Hong Kong company must have a company secretary who is resident in Hong Kong (in the case of individuals) or a Hong Kong incorporated body corporate holding a valid Trust or Company Service Provider (TCSP) licence under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap 615) (AMLO) (in the case of body corporates). A sole director cannot also be the company secretary.
• Registered office – Every company must have a registered office in Hong Kong, which is used for service of process and other documents. Note that the registered office can be different from the place of business, which is the location where day-to-day business operations are conducted. It is rather common for a registered office to be provided by the professional corporate services provider.
• Articles – Schedule 2 to the Companies (Model Articles) Notice (Cap 622H) contains the Model Articles for a private company limited by shares. It is possible for companies to directly adopt the Model Articles, adopt the Model Articles with amendments or adopt own articles tailored to specific business needs (provided that the articles comply with requirements of the Companies Ordinance).
• Name – A Hong Kong company can register an English name, a Chinese name, or both. The name cannot be the same as an existing company or otherwise objectionable under the Companies Ordinance or public interest criteria.

Procedure for Incorporation

Incorporation is lodged with the Companies Registry and with the Inland Revenue Department for business registration via a one-stop registration arrangement. The submission pack should include:

• a copy of the articles signed by the founder member(s);
• Incorporation Form (Form NNC1 in the case of a company limited by shares);
• Notice to Business Registration Office (Form IRBR1); and
• requisite registration fees.

Paper incorporation would take approximately four working days, while electronic incorporation can be completed within 24 hours of filing.

Acquiring a Shelf Company

Alternatively, to bypass registration formalities and effect a prompt set-up, one may choose to acquire and activate a company from a secretarial agent which has already been incorporated. The incorporation particulars (eg, company name, shareholder, directors, articles) can be changed to suit business needs.

Ongoing Compliance

Ongoing compliance obligations are as follows.

• Statutory registers and books and records – Companies must keep statutory registers and records. These include:
1. register of members;
2. register of directors;
3. Significant Controllers Register;
4. register of company secretaries; and
5. minute books.
• Annual filing requirements – Companies must deliver an annual return (Form NAR1) each year. The business registration certificate must also be maintained on a one‑ or three‑year basis.
• Notifiable changes – Changes to registered details, notably articles, officers, registered office, share allotments/other capital changes, creation and discharge of registrable charges, etc are all subject to statutory notification timelines.
• Financial statements and accounting records – While private companies do not have to file audited accounts with the Companies Registry, they must maintain proper accounting records and prepare annual financial statements.
• AGMs – A company must hold an annual general meeting unless legally dispensed with. Most private companies dispense with AGMs by unanimous resolution of members.

Share Capital

Since the commencement of the new Companies Ordinance in March 2014, Hong Kong has adopted a no‑par value share regime.

Classes of Shares

It is possible to issue multiple classes of shares with different voting, dividend, conversion, redemption, liquidation and other rights. When designing multiple classes, one should ensure that the rights to each class are defined clearly in the articles (as well as any other relevant documents, eg, shareholders’ agreement), anticipate variation mechanics and consider whether bespoke procedures different from the statutory default are preferable.

Issuance of Shares

Share capital injected by founder members can act as the seed money of the company. Upon incorporation, founder members are deemed to have been issued the shares stated to be taken by them in the company’s articles. After incorporation, further shares can be issued to existing members or new investors in accordance with the provisions of the Companies Ordinance, the company’s articles and contract (eg, shareholders’ agreements with pre-emption rights).

Generally, the subscriber of the new shares will enter into a contract (eg, subscription agreement) with the company to subscribe for the shares. Where the issuance is to existing members in proportion to their existing shareholdings (ie, a pro-rata allotment), the board of directors are conferred power under the Companies Ordinance to approve the issuance. Members’ approval in a general meeting or by written resolution is generally required in situations where, for example, the issuance is a non-pro rata offer or to new third party investors. Once resolved, consideration for the shares should be settled (eg, for partly or fully paid shares) on or before allotment, and the new subscriber will be registered into the register of members of the company, upon which the legal title of the shares is conferred.

Alteration of Share Capital

A company can alter its share capital in accordance with the capital maintenance doctrine and the Companies Ordinance, subject to any additional restrictions in the company’s articles.

• Increase of capital – A company can increase its share capital by a fresh injection of capital with or without the issuance of shares or by capitalising its profits with (bonus shares) or without issuance of shares.
• Reduction of capital – The capital of a company may be reduced in accordance with the procedures set out in the Companies Ordinance, either through a court-free solvency statement procedure or through a court confirmation procedure in accordance with Part 5 of Division 3 of the Companies Ordinance. Reduction of capital in contravention of the Companies Ordinance may subject the company and its directors to criminal liability and may be void under common law. Examples of ways to reduce capital are:
1. extinguishing or reducing liability on unpaid shares;
2. cancelling paid-up share capital that is lost or unrepresented by available assets; and
3. repaying any paid-up share capital in excess of the company’s wants.
• Consolidation of shares – A company may convert its shares into a smaller number by ordinary resolution. This is usually done to increase the value of the shares or as part of a business reorganisation.
• Subdivision of shares – A company may divide its shares into a larger number by ordinary resolution. In contrast to consolidation, this is usually done to reduce the value of each share, improving their accessibility and marketability.

Buyback and Redemption

Subject to its articles, a company may buy back or redeem its own shares in accordance with statutory requirements, including restrictions concerning the source of funds, authorisation and procedure. In particular, the source of funds is limited to:

• distributable profits;
• proceeds out of a fresh issuance of shares; and
• subject to the requisite solvency procedure, capital.

Note also that a private company can only buy back its shares or redeem its redeemable shares if they are fully paid.

Distributions

Distributions, or dividends, are returns to shareholders for their investment in the company. Distributions can only be made if the company has sufficient profits available for distribution (or distributable profits), being its accumulated realised profits (so far as not previously utilised or capitalised) less its accumulated realised losses (so far as not previously written off in a reduction or reorganisation of capital), and must be on the basis of the company’s financial statements. Experience has shown that clients can sometimes make distributions beyond their distributable profits, ie, resulting in a distribution made out of capital, which may constitute an unlawful distribution and can potentially expose members, directors and auditors to liability to compensate and repay the company. It is therefore imperative that companies comply with the requirements under the Companies Ordinance to mitigate any such non-compliance risks.

Financial Assistance

Financial assistance can be given in the form of a gift, guarantee, security, indemnity, release or waiver, loan, etc. As a general rule, a company or its subsidiary is prohibited from giving financial assistance, whether directly or indirectly, to any person for the purpose of acquiring shares in the company.

The Companies Ordinance provides certain statutory exceptions through which a company may give financial assistance, namely, the board must pass the requisite resolutions and make a solvency statement on the same day and (i) where assistance does not exceed 5% of the paid-up capital and reserves of the company, can be approved by the board of directors, (ii) assistance is approved by written resolution of all members, or (iii) assistance is approved by ordinary resolution.

For private companies, the principal control person obligation is to identify significant controllers and keep a Significant Controllers Register. The register is not generally open to public inspection, but it must be kept in Hong Kong and made available for inspection by law enforcement officers on demand for AML/CFT transparency objectives.

A person (including natural persons and registrable legal entities, eg, companies) has “significant control” if the person:

• holds, directly or indirectly, more than 25% of the issued shares in the company or, if the company does not have any share capital, the person holds, directly or indirectly, a right to share in more than 25% of the capital or profits of the company;
• holds, directly or indirectly, more than 25% of the voting rights of the company;
• holds, directly or indirectly, the right to appoint or remove a majority of the board of directors of the company;
• has the right to exercise, or actually exercises, significant influence or control over the company; or
• has the right to exercise, or actually exercises, significant influence or control over the activities of a trust or a firm whose trustees or members satisfy any of the above conditions in relation to the company.

Corporate governance in Hong Kong is shaped by the Companies Ordinance and supplemented by the SFO and common law. In the case of listed companies, this is also supplemented by the Codes on Takeovers and Mergers and Share Buy-Backs (the “Takeovers Code”) and the Rules Governing the Listing of Securities on the Main Board of The Stock Exchange of Hong Kong Limited (the “Listing Rules”) for Main Board listed issuers (and the corresponding GEM Board Listing Rules).

Governance is board-led. The Companies Ordinance addresses:

• directors;
• accounts;
• audits;
• shareholders’ meetings;
• capital maintenance;
• company records; and
• statutory remedies.

Meanwhile, Listing Rules impose additional requirements on:

• listed company board committees (eg, audit, risk, nomination and remuneration committees);
• independent non-executive directors (INEDs);
• connected transactions;
• disclosure;
• risk management;
• internal controls;
• diversity; and
• corporate governance reporting.

Financial institutions, insurers, licensed corporations and other regulated entities are subject to additional governance standards issued by the Hong Kong Monetary Authority (HKMA), Insurance Authority, Securities and Futures Commission (SFC) or other relevant regulators.

Directors owe fiduciary and statutory duties to the company. Principal duties include:

• acting in good faith in the interests of the company as a whole;
• exercising powers for proper purposes;
• avoiding conflicts and secret profits;
• not misusing corporate information or opportunities; and
• exercising independent judgement.

Directors must also comply with statutory duties concerning disclosure of interests, accounting records, financial statements, insolvent trading-related conduct (eg, wrongful trading, fraudulent trading, misfeasance, etc) and other statutory obligations.

The standard of care is reflected in the Companies Ordinance and common law and generally combines an objective standard with consideration of the director’s actual knowledge, experience and functions. Directors may be personally liable for the following:

• breach of duty;
• negligence;
• fraud;
• unlawful distributions;
• misuse of company assets;
• misleading filings;
• certain insolvency misconduct; and
• statutory offences.

Courts apply an objective and contextual approach to the company’s interests, while recognising that directors may consider long-term consequences, employees, creditors and other stakeholders where relevant to the company’s interests. The business judgement rule is not a complete statutory immunity. A director may be protected by indemnity or insurance to the extent permitted by law, but indemnities generally cannot protect fraud, dishonesty or other prohibited conduct.

Private Companies

Board composition is flexible, and there is no statutory independence requirement. The company must have at least one natural person director, although there is no general Hong Kong residence requirement for directors. Private companies are not generally required to appoint independent directors or board committees.

Listed Companies

Listed companies are subject to more stringent requirements. Based on Listing Rules requirements, a listed issuer must have at least three INEDs, and INEDs must comprise at least one third of the board. Audit, remuneration and nomination committees are required, with prescribed independent participation. At least one audit committee independent director must have appropriate professional qualifications or accounting or related financial management expertise. The Listing Rules contain independence tests, restrictions on long tenure and requirements relating to board diversity, including restrictions on single-gender boards and requirements for a diversity policy and measurable objectives. From the first AGM held on or after 1 July 2028, the majority of the board of listed issuers must be composed of INEDs who have served on the board for less than nine years. From 1 July 2031 onwards, listed issuers must not have any INED who has served on the board for nine years or more.

Hong Kong does not have a single corporate Environmental, Social and Governance (ESG) statute. Listed issuers follow the Stock Exchange of Hong Kong Limited (HKEX) Corporate Governance Code and ESG Reporting requirements under the corresponding HKEX listing rules, alongside environmental, employment, health and safety, anti-discrimination and data protection laws. The regime requires:

• board oversight;
• materiality assessment;
• KPIs; and
• narrative reporting on environmental and social matters.

The Hong Kong Exchanges and Clearing Limited has also introduced phased implementation of enhanced climate-related disclosure requirements in 2025 aligned substantially with the International Sustainability Standards Board framework (in full force for the financial year 2026 for ESG reports published in 2027). Best practice is for boards to:

• allocate ESG responsibility;
• identify material risks;
• establish controls and targets;
• monitor climate scenarios;
• verify data;
• manage greenwashing risk; and
• integrate ESG matters into strategy, remuneration and disclosure.

Climate-related financial disclosures increasingly require reporting on governance, strategy, risk management, metrics and targets. Financial institutions may additionally be subject to supervisory expectations and climate-risk management requirements issued by the HKMA. Refer to 9.3 Environmental, Health and Safety, and Industry-Specific Regulation for further discussion on climate policies and regulations.

Private Companies

Directors must disclose interests in contracts or proposed contracts with the company and must comply with fiduciary rules against conflicts and secret profits. The Companies Ordinance and the company’s articles determine when (or whether) an interested director may vote or be counted in the quorum. Transactions involving directors may also require shareholder approval or disclosure depending on their nature.

Listed Companies

Connected transactions are governed principally by Chapter 14A of the Main Board Listing Rules. Depending on the transaction, the listed issuer may need to announce the transaction, obtain independent shareholder approval, appoint an independent financial adviser and comply with annual reporting requirements. Related-party transactions may also raise disclosure obligations under accounting standards, the SFO and general prohibitions against false or misleading market disclosure.

Under Hong Kong law, shareholders’ rights are principally derived from the Companies Ordinance, the Articles of Association and, to the extent applicable, shareholders’ agreements.

Shareholders of Hong Kong private limited companies generally have the following rights:

• to receive notices and to attend and vote at general meetings/on resolutions;
• to receive declared dividends and distributions;
• to transfer their shares;
• to inspect company statutory records; and
• to receive financial statements of the company.

The approval of certain fundamental corporate matters of the company, such as the alteration to the articles of association of the company, capital reductions, amalgamations and winding-up matters, generally requires special resolutions to be passed. It may be possible to limit some of these shareholders’ rights under the articles of association and/or shareholders’ agreement (if applicable), but only to the extent permitted under Hong Kong law.

Shareholders of Hong Kong publicly listed companies would generally have similar rights, although they would have additional voting and disclosure protections for certain major or connected transactions.

Certain statutory remedies are available to shareholders under the Hong Kong statutory framework. Shareholders may:

• seek relief for unfair prejudice, whereby a member may petition to the court in the situation where the company’s affairs have been conducted in a manner unfairly prejudicial to the interests of certain or all members;
• bring a statutory derivative action on behalf of the company, where the company has suffered a wrong but has not itself brought proceedings;
• petition for winding up of the company on just and equitable grounds;
• seek injunctions or declarations for governance breaches; and/or
• pursue contractual remedies under the articles of association of the company or shareholders’ agreement (if applicable).

Hong Kong’s corporate law framework provides shareholders with substantial flexibility and a comprehensive range of statutory remedies. Ultimately, the statutory remedies available to shareholders will vary depending on the facts of each case.

In Hong Kong, shareholders’ agreements are commonly used to supplement the corporate law framework under the Companies Ordinance by regulating the relationship between shareholders and addressing matters that are not comprehensively dealt with under the Companies Ordinance or the articles of association.

Shareholders’ agreements will frequently contain provisions dealing with:

• board appointment rights;
• reserved matters and veto rights;
• funding obligations;
• dividend policy;
• share transfer restrictions and pre-emption rights;
• deadlock procedures;
• confidentiality; and
• exit arrangements.

These agreements can therefore be complicated and there is generally no “one-size-fits-all” approach. It is recommended that legal professionals be instructed to prepare and negotiate such documents.

While the Hong Kong corporate law framework provides shareholders with basic statutory protection and remedies, shareholders’ agreements set out contractual rights which provide additional certainty and protection to shareholders. Conversely, provisions in a shareholders’ agreement (in particular share transfer restrictions and governance arrangements) should be duplicated in the company’s articles of association to ensure that (i) there is no inconsistency between the shareholders’ agreement and articles of association and (ii) such rights are entrenched in the articles of association and provide broader enforceability desirable to shareholders.

Hong Kong’s corporate law framework provides for a number of statutory remedies in resolving shareholder disputes; these are principally set out in Part 14 of the Companies Ordinance (ie, such statutory remedies, which remain with the jurisdiction of the Hong Kong courts, include the unfair prejudice relief and statutory derivative action remedy as discussed in 3.1 Shareholder Rights).

Shareholders’ agreements would often contain dispute resolution clauses which would set the rules and steps parties must adhere to in the event of a contractual dispute. Such steps will usually include one (or more) of the following:

• negotiation;
• mediation;
• expert determination;
• arbitration; or
• litigation before Hong Kong courts.

Hong Kong’s legal and regulatory framework for mergers and acquisitions (M&A) comprises a number of statutes and regimes which apply under different circumstances depending on whether the target company is private or public.

• Private M&A – For private M&A deals, the principal legal framework comprises the Companies Ordinance (amongst other applicable Hong Kong laws), general contract and common law principles, sector-specific legislation (to the extent applicable) and competition law considerations (to the extent applicable). Such deals are typically structured as share purchases, subscription transactions, business transfers or asset acquisitions with tailored warranties, indemnities and increasingly, warranty and indemnity (W&I) insurance.
• Public M&A – Public M&A transactions are principally regulated by the Securities and Futures Commission under the Takeovers Code, the SFO, the Listing Rules and the Companies Ordinance. The Takeovers Code applies to Hong Kong public companies and, in appropriate cases, companies with a significant Hong Kong nexus. General offers and court-sanctioned schemes of arrangement are the key routes for acquiring control in a listed-company in Hong Kong (being subject to the Takeovers Code).
• Choice of deal structure – The choice of structure in an M&A transaction will be driven by various factors and considerations such as tax and stamp duty, regulatory approval and consent requirements (which may be sector-specific or related to foreign investment), financing, warranties and indemnities, employees, data protection and change-of-control considerations. Professional advice should be obtained to identify material issues and key risks and concerns as part of the due diligence process.

Recent Developments

Recent developments in this area include the following.

• Listing Rules and disclosure amendments – Ongoing public consultation relating to the Listing Rules focusing on tighter disclosure and reporting obligations and revamped notifiable and connected transaction tests.
• Introduction of a new inward redomiciliation regime – The introduction of a new statutory framework in Hong Kong in May 2025 allowing a direct path for qualified non-Hong Kong companies to transfer their domicile to Hong Kong without court procedures or winding up their existing business.
• Implementation of the treasury share scheme in Hong Kong (in April 2025) – The scheme permits companies publicly listed in Hong Kong (whether incorporated in Hong Kong or otherwise) to hold, sell, transfer or cancel shares bought back rather than automatically cancelling them.

The principal regulators overseeing capital markets in Hong Kong are the SFC, the HKEX and the Companies Registry. The main legislation includes the following (along with other applicable regimes):

• SFO;
• Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32);
• Companies Ordinance;
• Listing Rules;
• Takeovers Code; and
• Code on Real Estate Investment Trusts.

Hong Kong has a dual filing regime involving the filing of draft listing documents with the SFC and HKEX. The SFC regulates intermediaries, market conduct, prospectus-related matters and offers of securities, while the HKEX administers listings and continuing obligations.

A public offer of shares or debentures in Hong Kong generally requires a prospectus complying with the Companies (Winding Up and Miscellaneous Provisions) Ordinance, unless an exemption applies. A Main Board IPO ordinarily requires sponsor engagement, due diligence, prospectus preparation, SFC prospectus clearance and HKEX listing approval. Follow-on offerings remain subject to the Listing Rules, shareholder approvals, prospectus requirements or exemptions, underwriting and disclosure obligations.

Common prospectus exemptions include:

• offers to professional investors;
• offers to not more than 50 persons in Hong Kong;
• offers with a minimum consideration or denomination of at least HKD500,000 (or its foreign currency equivalent) per investor; and
• offers where the total consideration does not exceed the statutory small-offer threshold, subject to detailed conditions.

Hong Kong does not generally impose a universal statutory resale holding period for securities issued under an exemption, but contractual, Listing Rules, prospectus, market conduct and private-placement restrictions may apply. Non-compliance can result in civil liability, criminal offences, regulatory sanctions and rescission or compensation claims.

Listed issuers in Hong Kong must disclose inside information as soon as reasonably practicable under Part XIVA of the SFO, subject to limited statutory safe harbour exceptions. They must also comply with the Listing Rules concerning:

• financial results;
• material transactions;
• connected transactions;
• changes in directors or substantial shareholders;
• profit warnings;
• debt defaults;
• corporate actions; and
• other information likely to impact on the company’s share price.

Material events are ordinarily disclosed through an announcement published by the listed issuer on the HKEX’s website and its own website. Depending on the materiality of the event (eg, a transaction of significant size), this may also result in the need to publish a circular and arrange for shareholders’ approval, amongst other things. Where a material event has occurred and there is misalignment of information in the market, listed issuers may be required to publish a clarification announcement and, in exceptional circumstances, apply for a trading halt.

Market misconduct under the SFO includes insider dealing, false trading, price rigging, stock market manipulation, disclosure of false or misleading information and related misconduct. Insider dealing may arise where a person possesses inside information and deals, counsels or procures another to deal, or communicates the information improperly. The regime applies to listed securities and certain related instruments and transactions.

The SFC may do the following:

• investigate;
• compel production of information;
• search premises under warrant;
• commence market misconduct proceedings before the Market Misconduct Tribunal;
• impose disciplinary sanctions on licensed persons; and
• refer criminal matters for prosecution.

Criminal penalties can include imprisonment and substantial fines, while civil or tribunal consequences may include disgorgement, disqualification and cold shoulder orders. The HKEX may also impose Listing Rules sanctions.

Part XV of the SFO requires disclosure of substantial interests in listed issuers and interests of directors and chief executives. The regime applies to prescribed interests, including relevant derivatives and short positions.

A person generally becomes a substantial shareholder and triggers filing obligations when they first become interested in 5% or more of the shares of a listed issuer and must report subsequent changes resulting in the interest crossing over a whole percentage number which is above 5% (eg, from 5.5% to 6.1%, or from 8.2% to 7.9%), as well as when the person’s interests drop below 5%. There are also other circumstances which may be applicable, such as when the nature of the person’s interest in the shares changes (eg, when a person grants or exercises rights under equity derivatives) or similar requirements in relation to short positions.

The listed issuer, its directors, chief executive officer and their connected interests carry separate obligations. Notices must be filed within statutory time limits (generally three or ten business days depending on the circumstance giving rise to the notification obligation) and in the prescribed form.

Late or inaccurate filings may prompt SFC or HKEX action, public sanctions, prosecution and, in serious cases, disqualification orders. It is therefore important for listed issuers to have in place established monitoring, responsibility matrices and procedure for relevant parties (eg, directors) to promptly notify it of any changes in shareholding or short positions in order to make timely notice filings.

Listed Companies

Listed issuers must maintain effective risk management and internal control systems and disclose their governance arrangements. The HKEX Corporate Governance Code expects sound risk management and internal control systems, annual effectiveness review and an internal audit function, whether in-house or outsourced. Listed issuers should maintain compliance policies, delegation controls, financial reporting controls and incident escalation. Regulated firms are subject to detailed internal control and risk management guidance imposed by the SFC, HKMA, Insurance Authority and other regulators. They should maintain surveillance, compliance testing, training, record-keeping and escalation for breaches, suspicious activity and conflicts. Boards should receive timely reporting and test remediation.

Private Companies

Hong Kong has no universal private-sector whistle-blowing statute. The Personal Data (Privacy) Ordinance (Cap 486) (PDPO), Prevention of Bribery Ordinance (Cap 201) (POBO), AMLO, Competition Ordinance (Cap 619) and sector-specific laws create operational compliance obligations. The Employment Ordinance (Cap 57) (EO) provides certain protections for employees who make statutory complaints. Best practice is to establish the following:

• confidential reporting channels;
• investigation protocols;
• non-retaliation protections;
• compliance ownership;
• training;
• risk assessments;
• audit testing; and
• board-level reporting.

Hong Kong does not have a single comprehensive statute governing secured transactions. Instead, security interests are governed through a combination of common law, equitable principles and asset-specific legislation.

The main sources of legislation include:

• the Companies Ordinance, which deals with the registration of charges;
• the Conveyancing and Property Ordinance (Cap 219), which deals with real property;
• the Land Registration Ordinance (Cap 128), which provides for registration of interests in land; and
• insolvency-related legislation such as the Companies (Winding-Up and Miscellaneous Provisions) Ordinance, which deals with enforcement and priority, and sector-specific rules.

Hong Kong law recognises security in the following forms:

• liens;
• pledges;
• fixed and floating charges;
• legal and equitable mortgages; and
• assignments by way of security over shares, receivables, bank accounts and other assets (including intellectual property and real property).

Registrable charges created by a Hong Kong company must be filed with the Hong Kong Companies Registry within the statutory timeline (one month). Absence of proper filing will generally render a charge void against a liquidator and creditors. Additional steps may need to be taken depending on specific assets in question: for example, registration at the relevant government registries or notice to debtors may be required.

A Hong Kong company must also keep a register of charges. Priority generally depends on the nature of the security, timing of creation and registration, notice, contractual subordination and insolvency principles.

Creditors or lenders generally exercise rights upon the default in the following ways:

• appointing receivers;
• enforcing the security;
• selling the secured assets;
• foreclosure (in limited circumstances); and
• raising court proceedings.

Acquisition financings are usually structured in various forms, including bilateral bank facilities, syndicated loans, private credit financings, shareholders loans and hybrid debt structure.

In syndicated or multi-creditor situations, intercreditor agreements would typically be executed to detail how payment waterfalls and application of enforcement proceeds will occur, amongst other matters.

Hong Kong contract law is based principally on common law and equity, supplemented by statute. A commercial contract generally requires:

• offer and acceptance;
• consideration;
• intention to create legal relations;
• certainty; and
• capacity.

Written form is required for some transactions, but many contracts may be oral. The Electronic Transactions Ordinance (Cap 553) recognises electronic records and signatures, although land transactions, guarantees and other arrangements may require certain formalities.

Invalidity risks include:

• lack of capacity;
• mistake;
• misrepresentation;
• duress;
• undue influence;
• illegality;
• uncertainty; and
• absence of consideration where no recognised exception applies.

Corporate authority and execution formalities should be checked.

Courts take an objective approach, reading the contract in context and giving effect to its commercial purpose without rewriting the bargain. Exclusion and limitation clauses are subject to the Control of Exemption Clauses Ordinance (Cap 71) reasonableness rules where applicable. The Unconscionable Contracts Ordinance (Cap 458) protects consumers in limited cases.

The Limitation Ordinance (Cap 347) generally provides a six-year period for claims on simple contracts, subject to exceptions and different rules for specialty contracts, fraud and latent damage. Parties should preserve records and address notice, governing law, dispute forum and force majeure wording expressly.

Termination is available for the following:

• breach of an express termination clause;
• repudiatory breach;
• breach of a condition; or
• sufficiently serious breach of an innominate term.

Wrongful termination is itself a repudiatory breach and may entitle the innocent party to damages, acceptance of the repudiation or, where appropriate, specific performance or other relief.

Force majeure is principally contractual; there is no general implied force majeure doctrine. Frustration may discharge a contract where a supervening event makes performance impossible, illegal or radically different, but hardship or increased expense alone ordinarily does not suffice.

Remedies for a breach of contract include:

• damages;
• debt claims;
• injunctions;
• specific performance;
• declarations;
• rescission; and
• restitution.

Damages aim principally to compensate loss caused by breach, subject to causation, remoteness, mitigation and proof. Liquidated damages may be enforceable if they protect a legitimate interest, but an extravagant or unconscionable sum that is in substance a penalty may not be.

The assignment and licensing of patents, trade marks, designs and copyright must generally be in writing (eg, non-exclusive licence of copyright does not need to be in writing) and, where relevant, recorded with the Intellectual Property Department of Hong Kong to protect priority and opposability. Trade secrets are protected principally through contract and equitable obligations of confidence. The principal statutes are as follows:

• Patents Ordinance (Cap 514);
• Trade Marks Ordinance (Cap 559);
• Copyright Ordinance (Cap 528);
• Registered Designs Ordinance (Cap 522); and
• Trade Descriptions Ordinance (Cap 362).

Employee-created IP is generally allocated by statute and contract, with ownership depending on the type of right, terms of employment contract and the circumstances of creation. Commissioned works do not automatically belong to the commissioning party in every case, so express contractual provisions are important. Joint-development arrangements should specify ownership, prosecution, licensing and exploitation rights.

AI-generated content raises unresolved questions concerning the following:

• human authorship;
• originality;
• data training;
• infringement; and
• contractual allocation.

As a result, businesses should not assume that AI output is protectable or free from third-party rights.

Courts may grant injunctions, damages or an account of profits, delivery-up or destruction and other relief available under the relevant IP statute. Early evidence preservation and confidentiality protections are important in disputes.

Principal consumer protection laws in Hong Kong include:

• Trade Descriptions Ordinance;
• Control of Exemption Clauses Ordinance (Cap 71);
• Sale of Goods Ordinance (Cap 26);
• Supply of Services (Implied Terms) Ordinance (Cap 457);
• Unconscionable Contracts Ordinance (Cap 458); and
• PDPO.

Sector-specific regimes apply to financial services, telecommunications, residential property, travel, insurance and other industries. Hong Kong does not have a universal statutory cooling-off period for ordinary commercial purchases, although cooling-off rights exist in particular sectors and contracts.

The Hong Kong Customs and Excise Department enforces the Trade Descriptions Ordinance and may investigate, prosecute, search and seize goods. Consumers may bring civil claims, seek rescission or damages and use sectoral complaint and mediation mechanisms. The Consumer Council provides advice and mediation but is not generally a coercive regulator.

The following may be challenged under statute or common law:

• misleading advertising;
• false trade descriptions;
• bait advertising;
• aggressive sales practices; and
• unfair exemption clauses.

E-commerce businesses must comply with the same consumer, privacy, contract and advertising rules as offline businesses, with additional practical issues concerning disclosure of terms, electronic consent, payment security and cross-border enforcement.

The Competition Ordinance (Cap 619), governing merger control in Hong Kong, prohibits the first conduct rule, which addresses anti-competitive agreements and concerted practices, and the second conduct rule, which addresses abuse of market power. The merger rule applies principally to mergers involving carrier licence holders in the telecommunications sector.

Hong Kong therefore does not have a general economy-wide mandatory merger notification regime or system. Additionally, given the narrow nature of Hong Kong’s merger control regime, most M&A transactions in Hong Kong do not fall within the scope of the regime.

Notification under the merger rule is voluntary, although the Competition Commission or Communications Authority may investigate and take enforcement action. The substantive test is whether a merger has, or is likely to have, the effect of substantially lessening competition. There are no general monetary notification thresholds comparable to those in many other jurisdictions that would automatically trigger a filing obligation, although turnover and sectoral factors may be relevant under the statutory regime. Given the voluntary nature of the notification, there is no particular statutory deadline on the notification and no mandatory waiting period, therefore transactions may generally complete without any prior clearance being obtained.

If a merger falls within the scope of the regime, the Competition Commission and Communications Authority may investigate, require information, apply for enforcement orders and seek penalties. The Competition Tribunal may impose fines of up to 10% of Hong Kong turnover for each year of infringement, subject to the statutory maximum period, and may make disqualification, damages and other orders. Individuals and businesses may also face civil liability and reputational harm.

Hong Kong does not have an overarching regime to regulate foreign investments into Hong Kong. As such, foreign companies and individuals are generally free to acquire shares, businesses, assets and real property in Hong Kong without prior governmental approval, with the exception of certain regulated industries such as financial services, telecommunications and airlines where specific approvals would be required. These are often enforced through the following:

• specific conditions attached to the licences;
• change-of-control approval requirements;
• regulator consent requirements; and
• potential suspension or revocation of licences for misconduct or breach of licensing conditions.

Unlike the US, UK, Australia and Canada, amongst others, Hong Kong does not currently have a national security screening regime with respect to foreign investment. However, national security considerations have become more prominent following (i) the implementation of the Law of the People’s Republic of China on Safeguarding National Security in the Hong Kong Special Administrative Region in 2020, and (ii) the enactment of the Instrument A305 Safeguarding National Security Ordinance in 2024. Notwithstanding this, these regimes do not establish a conventional merger-clearance or foreign investment approval mechanism in Hong Kong.

Hong Kong offers a low-tax, business-friendly environment which applies equally to foreign and domestic investors. Certain initiatives through government agencies such as Invest Hong Kong provide support to foreign businesses looking to set up and expand into Hong Kong. Additionally, certain sector-specific incentives have been introduced by the Hong Kong government in recent years to target investments into Hong Kong. These sectors include asset and wealth management, family offices and fintech, amongst others.

Some additional recent developments or policy changes that have affected foreign investment in Hong Kong include the introduction of an inward redomiciliation regime, allowing eligible overseas companies to migrate their place of incorporation to Hong Kong without undertaking a full corporate restructuring and ongoing initiatives to integrate the Guangdong–Hong Kong–Macao Greater Bay Area and create opportunities for foreign investors to access Mainland Chinese markets through Hong Kong.

Data Privacy: Protection of Personal Data

Hong Kong’s data privacy regime is anchored in the PDPO, which covers both the private and public sectors. The PDPO intends to protect the privacy of individuals in relation to personal data, defined to mean data relating directly or indirectly to a living individual from which it is practicable for the identity of the individual to be directly or indirectly ascertained and in a form in which access to or processing of the data is practicable.

Data Protection Principles

The PDPO sets out six generally worded Data Protection Principles (DPPs) in Schedule 1. Serving as a broad base framework, the DPPs cover collection, accuracy, purpose and use, security, openness, access and correction of personal data. The DPPs are supplemented by guidance notes issued by Office of the Privacy Commissioner for Personal Data (PCPD) as to how the DPPs should be implemented.

Breach of DPPs will not automatically lead to criminal liability, but an issuance of an enforcement notice by the PCPD as against the data user. Contravention of the enforcement notice is an offence punishable by a fine and/or imprisonment.

Cross-border transfer

While the PDPO has a section (Section 33) addressing cross-border transfer of personal data, that section has not yet been brought into effect. Nonetheless, in cross-border transfers, data users must at least comply with the other provisions of the PDPO and the DPPs. Data users are recommended to implement contractual safeguards with overseas data users and data processors to ensure continued compliance with the requirements of the PDPO following the transfer of personal data to the overseas recipient. In particular, the PCPD has issued guidance materials, model clauses and standard contracts for data users’ reference, adoption and/or incorporation.

Direct marketing

Where a business intends to use (self-use) or provide (third-party use) personal data collected for direct marketing, it must be mindful of the requirements under Part 6A of the PDPO. Hong Kong adopts an “opt-in” scheme. Compliance generally requires the provision of prescribed notices and the obtaining of the data subject’s consent before such use or provision occurs, as well as further obligations upon receiving an opt-out request from the data subject.

Cybersecurity: Critical Infrastructure Cybersecurity Regime

On 1 January 2026, the Protection of Critical Infrastructures (Computer Systems) Ordinance (Cap 653) (PCI(CS)O) came into force. Under the PCI(CS)O, authorities can identify critical infrastructures and designate critical infrastructure operators (the “CI Operator”) and critical computer systems by written notice. The designated CI Operator will be subject to obligations relating to organisation, prevention of threats and incidents, as well as incident reporting and response.

Codes of Practice, including both generic and sector-specific codes, have been published to provide practical guidance on compliance obligations for designated CI Operators. Most recently, in October 2026, the HKMA published a code of practice (pursuant to the PCI(CS)O) for Retail Payment System Infrastructure Operators designated by the Monetary Authority as Critical Infrastructure Operators.

Anti-Money Laundering and Counter‑Terrorist Financing

Hong Kong’s core anti-money laundering (AML) and counter‑terrorist financing (CTF) framework comprises the AMLO, alongside case law and other criminal and industry-specific statutes. The AMLO applies principally to financial institutions and designated non-financial businesses and professions, including authorised institutions, SFC licensed corporations, insurers, financial service providers (including money service operators and stored value facility licensees), accountants, lawyers, trust and company service providers, and certain precious-metals businesses. Obligations include:

• customer identification and verification;
• ongoing monitoring;
• record keeping;
• suspicious-transaction reporting; and
• risk-based internal controls.

Anti-Bribery and Corruption

Hong Kong’s private and public sector bribery offences sit primarily under the POBO and ancillary legislations. In the business context, Section 9 of the POBO renders it an offence for a person to offer an agent (including an employee) or for an agent to solicit or accept an advantage in return for them doing or forbearing to do an act in relation to their principal’s affairs or business without permission, lawful authority or reasonable excuse. To prevent bribery and corruption, businesses should implement and maintain policies covering:

• gifts and hospitality;
• approval procedures;
• conflict of interests;
• reporting;
• whistle-blowing and investigations; and
• robust internal controls, eg, regular employee training and periodic compliance reviews.

Sanctions

UN sanctions (except sanctions against the PRC) are implemented in Hong Kong under the United Nations Sanctions Ordinance (Cap 537), with subsidiary regulations targeting specific jurisdictions. Businesses can ensure compliance in transactions and supply chains through proportionate due diligence, eg, screening customers, counterparties, beneficial owners, payments and shipments, and contractual safeguards.

Environmental Regulations

While Hong Kong has a number of environmental laws and regulations (eg, Air Pollution Control Ordinance (Cap 311), Waste Disposal Ordinance (Cap 354), Hazardous Chemicals Control Ordinance (Cap 595), etc), there is no universal economy-wide carbon tax or mandatory emissions-trading scheme and carbon offsetting remains largely voluntary, although sectoral schemes, energy-efficiency requirements and government climate policies may apply. As a result, private businesses operating in Hong Kong generally have less to consider when it comes to environmental and climate considerations, particularly where the business does not operate in a sector with significant environmental impacts or regulatory exposure.

Health and Safety Regulations

Hong Kong’s health and safety regime is principally governed by common law (duty of reasonable care to provide competent co-workers, a safe workplace, safe plant, tools and appliances, and safe system of work), the Occupational Safety and Health Ordinance (Cap 509), Factories and Industrial Undertakings Ordinance (Cap 59) and subsidiary regulations.

Hong Kong does not currently have a statute dedicated specifically to the regulation of artificial intelligence (AI). Similarly, there is no single designated authority providing regulatory oversight on AI. Use of AI is governed by existing laws and regulations. Relevant regimes include the PDPO, intellectual property laws, cybersecurity laws, contract and sectoral guidance.

While a dedicated comprehensive AI law remains absent in Hong Kong, sectoral guidance continues to grow. Below is a sample list of sectoral guidance (non-exhaustive):

• HKMA – Circular on Consumer Protection in respect of Use of Generative Artificial Intelligence, containing guiding principles for authorised institutions in respect of use of generative AI (GenAI) in customer-facing applications from a consumer protection perspective;
• SFC – Circular to Licensed Corporations – Use of Generative AI Language Models, setting out mandatory guidance for licensed corporations engaging in regulated activities to critically review their existing policies, procedures and internal controls to ensure proper implementation of, and full compliance with, the requirements of the circular;
• Insurance Authority – the Insurance Authority published a white paper on AI and the insurance sector in November 2025, and is expected to publish dedicated AI governance guidelines later in 2026; and
• Department of Health Medical Device Division – Artificial Intelligence Medical Devices (AI-MD) Technical Reference: TR-008 establishes regulatory, technical, risk management and labelling standards for medical devices integrated with artificial intelligence.

For more generalised best practices, businesses can refer to the following developed by the Digital Policy Office (being the key body leading AI strategy and AI integration into government services in Hong Kong):

• Ethical Artificial Intelligence Framework for developing, maintaining or using AI applications; and
• Generative Artificial Intelligence Technical and Application Guideline for developing, providing or using GenAI.

Where such development or use involves personal data, businesses can also refer to the various guidance published by the PCPD. Businesses should also verify whether any industry-specific guidance, recommendations or regulatory requirements concerning the use of AI have been issued by their relevant supervisory authority and consider the implications of such guidance on their operations.

Businesses engaging or looking to engage in specific regulated sectors in Hong Kong – eg, financial services, virtual assets, insurance, real estate, healthcare, telecommunications, education – should identify and assess whether additional sector-specific laws and regulatory requirements apply, and obtain appropriate legal advice to ensure compliance with requirements applicable at the time.

Principal Employment and Labour Laws

Sources of employment law in Hong Kong are derived from a number of different legal and regulatory frameworks. These include constitutional law (Basic Law), common law (case law), statute and, as more of an “informal” source, contract (including collective agreements), codes of practice and employee handbooks.

• Constitutional law – Basic Law guarantees Hong Kong residents their fundamental rights, such as freedom of association and freedom to join trade unions (Article 27) and freedom of choice of occupation (Article 33).
• Common law – Common law principles of contract and tort (eg, negligence, vicarious liability) form a key part of the legal framework governing employment relationships and impose duties beyond statutory protections, such as employer’s duty to provide safe conditions at work and employee’s duty of fidelity, loyalty and confidence.
• Statute/subsidiary legislation – The most important enactment dealing with employment and labour relations is the EO. Other major labour ordinances include the Factories and Industrial Undertakings Ordinance, the Occupational Safety and Health Ordinance, the Employees’ Compensation Ordinance (Cap 282), and the Minimum Wage Ordinance (Cap 608). Beyond the major labour legislation referred to above, the items of legislation particularly relevant to most employers and employees are the Mandatory Provident Fund Schemes Ordinance (Cap 485), the PDPO and the four anti-discrimination ordinances. A comprehensive list of labour-related legislation can be found on the website of the Labour Department.
• Contracts, codes of practice, employee handbooks – While there is no collective bargaining legislation in Hong Kong (and collective bargaining is not a prevalent practice either), in the rare instance that a trade union enters into a collective bargaining agreement with an employer, terms of that agreement can be expressly incorporated into the employment contract, becoming legally enforceable. Codes of practice and guidelines are industry standards issued by industry watchdogs such as the Labour Department with ‘special status’. While failure to observe the codes is not an offence per se, such failures may be taken into account by Hong Kong courts in determining whether any of the provisions of the relevant laws and regulations has been breached.

The Employment Ordinance

The EO sets minimum standards for an employment relationship and applies to all Hong Kong employees and their employers.

• All employees, whether full-time, part-time or temporary, with employment of sufficient nexus to Hong Kong are entitled to basic protections under the EO. These protections are mostly in respect of:
1. contract;
2. payment and restriction on deduction of wages;
3. granting of statutory holidays; and
4. unreasonable and unlawful dismissal.
• Employees employed under a “continuous contract” (the definition of which has been relaxed in January 2026 to cover where the employee has been employed continuously by the same employer for four weeks or more and either (i) the employee has worked for at least 17 hours in each week or (ii) the employee has worked for 68 hours or more in a consecutive four-week period) are entitled to the following additional benefits:
1. rest days;
2. paid statutory holidays;
3. annual leave;
4. sickness allowance; and
5. severance and long service payments.

Note that employees employed under employment specifically excluded from the EO pursuant to Section 4(2) and (2A) and independent contractors or self-employed persons are not entitled to the benefits and protections under the EO.

The Employment Contract

The mandatory terms in an employment contract as prescribed by the EO are:

• wages and wage period;
• where applicable, end-of-year payment and payment period; and
• notice period for termination.

Other common terms in an employment contract include:

• location and hours of work;
• duties;
• annual leave;
• bonus;
• probationary period;
• confidential information;
• restrictive covenants; and
• garden leave, etc.

Termination of Employment

Termination of the employment relationship is often done through one of the following means:

• notice or payment in lieu of notice by either party;
• mutual agreement;
• expiration of fixed term; or
• summary dismissal.

Notice or payment in lieu of notice

Section 6 of the EO prescribes the minimum length of notice required to terminate an employment contract. Under Section 6, the notice period can be agreed by the parties in the employment contract (which should be not less than seven days). Absent such agreement, the minimum length is one month. Special rules apply when an employee is on probation, being that either party can terminate the employment contract without notice in the first month, and, following that, on seven days’ notice or such longer period as agreed by the parties in the employment contract. It is also possible for parties to make a payment in lieu of notice equivalent to the wages for the notice period under Section 7 of the EO.

Mutual agreement

Employer and employee can agree to terminate the employment and release each other from further obligations. Even when parties have reached an agreement to settle, employers may wish to err on the side of caution and include the statutory entitlements (eg, severance payments) that an employee would be entitled to as if the employee is being dismissed by the employer.

Expiration of fixed term

Where an employment contract contains a term specifying the date on which the contract will come to an end, the contract terminates automatically on that date. No further notice is required to be given.

Summary dismissal

Where an employee’s employment contract is terminated by the employer without notice (or payment in lieu of such notice) and with immediate effect, this amounts to summary dismissal. Section 9 of the EO specifies five grounds on which an employer may summarily dismiss an employee, namely, if an employee, in relation to their employment:

• wilfully disobeys a lawful and unreasonable order;
• misconducts themself, such conduct being inconsistent with the due and faithful discharge of their duties;
• is guilty of fraud or dishonesty;
• is habitually neglectful in his duties; or
• behaves in a manner covered by grounds under common law, eg, gross misconduct, serious dishonesty, fundamental breach of contract, etc.

The act(s) complained of must be of sufficient gravity to justify summary dismissal, or else the termination would be wrongful, entitling the employee to common law damages and/or statutory right to compensation. Employers should be careful to document the factual basis and ensure proportionality before invoking summary dismissal.

Unlawful Dismissal

There are also circumstances under the EO in which an employer cannot terminate the employment, including, for example, where the employee:

• is pregnant or on statutory maternity leave or on statutory sick leave (other than where summary dismissal is justified);
• is entitled to compensation under the Employees’ Compensation Ordinance (Cap 282); or
• is participating in trade union activities.

To terminate a protected employee may subject the employer to civil and/or criminal liability. Employers considering doing so should seek legal advice beforehand to reduce any such related risks.

Post-Termination Restraints

Upon cessation of the employment relationship, contractual obligations will generally come to an end unless the parties have expressly agreed in writing that certain obligations will survive termination, or such obligations continue to apply as a matter of law, including under the common law duty of confidentiality.

Common law duty of confidentiality

Following termination, trade secrets (or highly confidential information) of an employer are protected by common law’s implied continuing duty of confidentiality.

Express restrictive covenants

Two of the most common forms of post-termination restrictive covenants found in Hong Kong employment contracts are non-competition (employee not to compete with employer) and non-solicitation (employee not to solicit customers and suppliers as well as co-workers) clauses.

In Hong Kong, a restrictive covenant is unenforceable unless the employer can prove that it is reasonable and in the public interest. The restrictive covenant must seek to protect legitimate business interests (eg, trade secrets and confidential information, workforce stability and trade connections) of the employer and only to the extent that it is reasonable in scope, duration and geography at the time made.

Hong Kong courts generally will not rewrite an unreasonable restrictive covenant (although they can pencil out offending parts of a clause). Factors affecting reasonableness include the following:

• duration and geographical extent of the restraint;
• nature of the employer’s business;
• the market; and
• seniority and relationship of the relevant employee with clients.

Therefore, when negotiating restrictive covenants, employers should tailor the ambit of the restriction and distinguish between senior and junior employees.

Retaining Talent: Employee Incentive Schemes

Employee share incentive schemes (eg, options and awards) are common tools for employers to align employees’ interests with the long-term growth and performance of the company. For Hong Kong private companies, the rules around employee incentive schemes are generally flexible – offers may be made to current or former directors, employees, officers and consultants of the company, as well as their dependants (together, the “qualifying persons”), provided that the terms of the scheme restrict the acquisition of the shares or debentures to such qualifying persons and contain the prescribed warning statement under Part 3 of the Eighteenth Schedule to the Companies (Winding Up and Miscellaneous Provisions) Ordinance. For Hong Kong listed companies, Chapter 17 of the Listing Rules imposes strict structural limitations and disclosure requirements.

Almost all land in Hong Kong is held under government leases rather than freehold title. Land holding may be categorised as sole ownership, joint tenancy or tenancy in common. The Land Registry records interests under Hong Kong’s deeds registration system. Registration does not itself confer title but can establish priority as between competing registered interests.

There are generally no restrictions on real property ownership based on nationality, residency or place of incorporation that prevent foreign individuals or corporations from acquiring, holding or disposing of Hong Kong real property. Accordingly, foreign individuals and corporations may generally acquire, hold and dispose of Hong Kong real property without governmental approval, licensing or residency requirements.

Transactions involving the transfer of Hong Kong real property are in general subject to ad valorem stamp duty. For over a decade, Hong Kong implemented demand-side management measures for residential properties involving additional stamp duty obligations. The Hong Kong government abolished all residential property demand-side management measures with effect from 28 February 2024, including special stamp duty, buyer’s stamp duty and the enhanced residential stamp duty regime applicable to residential property acquiring an interest. Standard ad valorem rates still apply.

Purchasers should engage legal professionals to review the following before acquisition:

• applicable government lease conditions;
• planning restrictions;
• user restrictions;
• deed of mutual covenants; and
• any encumbrances affecting the relevant property.

The principal legal framework governing commercial real estate transactions in Hong Kong includes the following (and related legislation):

• the Conveyancing and Property Ordinance (Cap 219);
• the Land Registration Ordinance (Cap 128);
• the Stamp Duty Ordinance (Cap 117);
• relevant government leases and conditions of grant;
• the Buildings Ordinance (Cap 123); and
• the Town Planning Ordinance (Cap 131).

Commercial Sale and Purchase

Acquisition and disposal of commercial real property will typically involve due diligence covering the following key areas:

• title;
• government lease conditions;
• encumbrances;
• occupation permits;
• existing tenancies;
• rates; and
• government rent.

Sale and purchase agreements allocate risk through warranties, conditions precedent, completion mechanics and indemnities.

Commercial financing may be secured by legal mortgages, equitable mortgages or fixed charges over real property, with the relevant security interests registered in the Land Registry and, where applicable, corporate charges at the Companies Registry. Priority depends mainly on registration. Enforcement may involve possession, sale, appointment of a receiver or foreclosure, subject to court procedure and mortgage terms.

Commercial Leases

Commercial leases are principally contractual. Key issues include:

• rent and review mechanisms;
• term and renewal rights;
• options;
• repair and reinstatement;
• use;
• alterations;
• compliance with laws;
• insurance;
• assignment;
• subletting;
• change of control;
• redevelopment;
• casualty;
• rent suspension;
• default; and
• forfeiture.

Landlords may seek possession, forfeiture, arrears, damages or injunctions, while tenants may seek relief from forfeiture or damages for breach. Security deposits, guarantees and other credit support arrangements may also be incorporated into commercial leasing arrangements on a case-by-case basis.