Common Seal
A common seal in Hong Kong is a special type of seal that was previously mandatory for all companies. It acts like the official signature of a business, making important business documents official and legally binding. Common seals are recognised in other Common Law Jurisdictions like Canada, United Kingdom and Australia.
However, since the Companies Ordinance changes of 2014, common seals are no longer mandatory in Hong Kong. Companies can now choose to use them or rely on director signatures instead.
Making a Contract in Writing and Under Seal
Even though Hong Kong companies don't require a common seal, there are still ways to form legally binding contracts that traditionally required a seal. Here's how a company can handle such situations without a common seal:
Director Signatures: The most common approach is through signatures from authorized directors.
For a company with one director, the sole director signs on the company's behalf.
For companies with two or more directors, either two directors or one director along with the company secretary can sign.
Board Resolution: For added security with simple contracts, a company can pass a board resolution. This resolution officially authorizes a specific director or person to execute the contract on the company's behalf without using a seal.
Treat as a Deed: In rare cases, if the law specifically requires a contract to be "under seal," the company can still proceed without a common seal. The contract would then need to follow stricter formalities to be considered a deed. This involves:
Clearly stating on the document that the company is executing it as a deed.
Following the signing procedures outlined in Section 127(3) of the Companies Ordinance (usually involving multiple directors or the company secretary).
Delivering the document with the intention of it being a deed.
Executing a Document as a Deed
Here's how a Hong Kong company without a common seal can execute a document as a deed:
1. Explicit Deed Wording:
Clearly state on the document that the company intends to execute it as a deed. This reinforces its legal weight despite the lack of a common seal.
2. Witness and Signatures:
Follow the signing procedures outlined in Section 127(3) of the Companies Ordinance. This typically involves:
At least two directors signing the document.
Alternatively, one director can sign along with the company secretary.
3. Delivery with Deed Intention:
Deliver the completed document with the clear intention of it being a deed. This establishes the company's commitment to the terms as outlined in the document.
Executing a Deed Without Using a Seal Under the Conveyancing and Property Ordinance (Cap. 219) (“the CPO”)
A deed executed in accordance with sections 127(3) and 128(1) of the Companies Ordinance (CO) without using a seal satisfies the relevant requirement for a deed under the Conveyancing and Property Ordinance (CPO) in Hong Kong.
Here's why:
Section 128(1) of the CO: This section specifically outlines how a company can execute a document as a deed without a common seal. It requires three things:
Following the signing procedures of Section 127(3) (which typically involves director signatures as explained earlier).
Having the document explicitly state it's executed as a deed by the company.
Delivering the document with the intention of it being a deed.
Presumption under the CPO: The Conveyancing and Property Ordinance presumes a document is delivered as a deed if it's executed following Section 127 of the CO (which includes the provisions of 127(3) used for deeds without a seal).
Official Confirmation: The Hong Kong government's official FAQ on the Companies Ordinance confirms this. They state a deed executed by a company without a seal using the procedures mentioned above satisfies the CPO's requirements for a deed.
Therefore, following the proper procedures outlined in the Companies Ordinance allows a company to execute a valid deed even without a common seal, fulfilling the CPO's requirements for transactions involving land ownership.
Amending the Article
A company likely doesn't need to amend its article if it adopted regulation 114 (relating to common seal) of Table A from the old Companies Ordinance and now wants to execute documents without a common seal. Here's the breakdown:
Changes in the Companies Ordinance: The 2014 amendments to the Companies Ordinance made common seals optional for Hong Kong companies. This means companies can now rely on director signatures or follow specific procedures (as outlined in Section 127(3)) to execute documents, even if they previously used a common seal.
Regulation 114 and Table A: Regulation 114 of Table A in the old Companies Ordinance dealt with the use of a common seal. Since the new ordinance allows alternative methods, this regulation likely wouldn't prevent a company from using director signatures or following Section 127(3) for deeds.
Presumption of Validity: Courts generally presume a company's articles are up-to-date with current legislation. So, if a company hasn't formally amended its article regarding the common seal, it likely wouldn't invalidate documents executed using director signatures or following Section 127(3) for deeds.
However, there are a few points to consider:
Clarity and Transparency: While legal challenges are unlikely, it's always cleaner and more transparent to formally update the company's articles to reflect the company's current practice of not using a common seal. This avoids any potential confusion in the future.
In conclusion, while amending the article isn't strictly necessary, it's generally advisable for clarity and to maintain up-to-date company records. Consulting a lawyer for specific situations is always a safe bet.
How Bestar can Help
Bestar can provide valuable assistance to companies in Hong Kong even though common seals are no longer mandatory. Here's how our expertise can be helpful:
Understanding the Implications:
Bestar can explain the legal implications of no longer using a common seal for your company. This includes understanding how contracts are signed and executed, and the procedures for creating deeds without a common seal.
Updating Company Articles:
If your company's articles still reference the use of a common seal, Bestar can assist with reviewing and updating them to reflect the current practice of not using one. This ensures your company documents are clear and transparent.
Following Proper Procedures:
Wey can guide you on the proper procedures for signing contracts and executing deeds without a common seal, ensuring compliance with the Companies Ordinance and the Conveyancing and Property Ordinance.
Record Keeping:
Bestar can advise on proper record-keeping practices to maintain a clear audit trail for contracts and deeds executed without a common seal.
While Bestar cannot provide legal advice on common seals, we can navigate the technical aspects and ensure your company adheres to best practices. We can also recommend a qualified Hong Kong business lawyer if you have complex situations requiring legal expertise.