Posted on 0 comments

New Companies Ordinance (Cap. 622) has run for nearly two years

There are two areas that people are not familiar with. One is about “reporting exemption” – which means simplified reporting; the other is about the connection between the accounting reference date and Annual General Meeting.

Some of the fellow members have expressed their concerns about the lack of clarity in some grey areas in the New Companies Ordinance.  One of them is whether or not the holding company with a PRC subsidiary can apply for reporting exemption.  By or large, reporting exemption is available to smaller entities or groups.

The HKICPA had been in a position to “support” the view of covering the reporting exemption to that kind of group. However, Companies Registry has once been asked about it and the reply is strictly, “no”, even if the size of the PRC subsidiary is small, too.  It is because the PRC subsidiary is not the “company” as defined in the Ordinance for the purposes of undergoing a size test.  Such answer had once appeared as one of the FAQs; but this was removed then.

Companies Registry is the only official department telling the public what and how the Companies Ordinance is interpreted and administered.  If you are interested, you may download a pdf version at http://www.cr.gov.hk/en/companies_ordinance/docs/NewCO_C622_HL_FullVersion-e.pdf

At the time of writing, there are proposals for amendments and seeking a lot of comments.  I am worried that it is not easy for accountants to cope with frequent changes and sway in positions of HKICPA.

Another area is about financial year-end.  Quite a new concept, new company has to determine its accounting reference date (i.e. the year-end) in the very first place; otherwise, it may be presumed that the anniversary date of incorporation will be the annual year-end.  It is important, on the one hand, it affects the tax deadline and the year of assessment in which the first year of operations should fall.  On the other hand, it also affects the annual general meeting of members.

By or large, a company must hold an Annual General Meeting within 9 months after the accounting reference date. For example, if the company has a year-end of 31 March 2016.  The annual general meeting should be convened before 31 December 2016.

The first financial statements may be prepared for more than 12 months to cope with its determined year-end, for example,  a company whose incorporation date was 15 February 2015 may want to use 31 March 2016 as its first year-end and the financial statements will be prepared for more than 12 months.  In this regard, when should the first annual general meeting be held?  The answer is the anniversary date of incorporation plus nine months (i.e. 15 November 2016) or within three months after the accounting year-ended (i.e. 30 June 2016), whichever is later. The Annual General Meeting should be held before  15 November 2016 and not 31 December 2016, and if the company holds such meeting after that date, it will contravene the requirement under section 610 of the Companies Ordinance and every responsible person may run a  risk of level 5 penalty at maximum (i.e. HK$50,000)