Are there any restrictions on what a company can or cannot do? Is the company still bound by its objects under the memorandum of association?
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In short, a company incorporated in Hong Kong is governed by the Articles of Association (the “Articles”). The Articles specify rules and regulations on how the company will carry out its operation. Therefore, if the Articles sets out any restrictions on what the company can/cannot do then any powers exercised to the contrary will be prohibited. Acts done in breach of the Articles are generally considered void, unless ratified by the company.
Importantly, The new Companies Ordinance (“the new CO”) has abolished the requirement to have a Memorandum of Association (the “Memorandum”) as a constitutional document for a company in Hong Kong.
The corporate constitution
Every company has its own set of internal laws and regulations, which form the corporate constitution. Historically, the constitution consisted of two documents – the memorandum of association and the articles of association.
The Articles sets out rules of internal governance, liability of the members, initial capital and initial shareholding, allocation of risk and profit as well as control within the company.
The Memorandum contains the name clause, the registered office clause, the capital clause, and the Objects clause. The Objects clause is often regarded as the most important clause in the Memorandum. It defines and limits the scope of activity and operation of a company. For example, suppose the objects clause of a company limits its scope of business to the production of garments. The company could not subsequently open a boutique, since it is out of the company’s power to conduct any businesses beyond the production of garments.
Is the memorandum of association mandatory?
No, after the enactment of the Companies Ordinance (Cap. 622) in Hong Kong in 2014, has abolished the Memorandum as a component of the company’s constitution. Currently, the Articles is the only document that defines a company’s scope of powers. The information contained in the Memorandum and the Articles is mostly the same, spare the objects clause contained in the Memorandum.
The abolition of the Memorandum resulted from the abolition of the ultra vires doctrine in Hong Kong. The doctrine stipulates that a company does not enjoy full legal capacity. Hence, any acts which do not fall within the objects of a company stated in its constitution will be considered ultra vires. The objects clause was, therefore, an important guideline that the Memorandum contained. However, the limitation on the business scope by the objects was found too harsh to be practical in commercial reality. Thus, the ultra vires doctrine was abolished in Hong Kong in 1997. Henceforth, the Memorandum was considered redundant, resulting in its eventual abolition.
However, if your company is incorporated pre-2014, the Memorandum would be deemed a part of the Articles after the abolition, so the object clause would remain effective. One way to get rid of the restrictions imposed by the objects is to alter the Articles altogether. The Company Registry has set out the steps required for making such an alteration.
Key takeaway
- The articles of association specify the regulations for the operations of a company in Hong Kong
- The memorandum of association was abolished in Hong Kong in 2014.
- For companies incorporated pre-2014, object clauses remain in force unless taken out by alteration of the Articles.
Bibliography
- Companies Registry, “Abolition of Memorandum of Association and Matters relating to Company Articles”: https://www.cr.gov.hk/en/faq/companies-ordinance/co-abolition-ma.htm
- Companies Registry, “New Companies Ordinance Outline of Major Changes in Filing Requirements”: https://www.cr.gov.hk/en/companies_ordinance/docs/NewCO_Outline_MC_Filling-e.pdf
