Buying a Hong Kong company — whether a shelf company for speed or an operating business with existing revenue — carries hidden risks. Undisclosed debts, pending litigation, tax penalties, and regulatory violations can transfer to the new owner. This checklist walks you through every verification step required under Hong Kong law.
Why Due Diligence Matters
Under Hong Kong's Companies Ordinance (Cap. 622), when you purchase shares in a company, you inherit all its obligations — including those you don't know about. The principle of caveat emptor (buyer beware) applies. A thorough due diligence process is your only protection.
1. Companies Registry Verification
- Current status: Confirm the company is "Live" (not deregistered or in winding-up) via the Companies Registry ICris system
- Company name: Verify registered Chinese and English names match the Certificate of Incorporation
- Registered office: Confirm the address is current and not a disqualified address
- Directors and secretary: Check director appointments, resignations, and disqualification orders
- Share capital: Verify issued shares, authorized capital, and any share class variations
- Charges and encumbrances: Search the Register of Charges for mortgages, debentures, or liens
- Annual returns: Confirm all Annual Returns (Form NAR1) are filed — gaps indicate compliance issues
2. Tax and IRD Compliance
- Tax clearance letter: Request the seller obtain a letter from the Inland Revenue Department (IRD) confirming no outstanding tax liabilities
- Profits tax returns: Review the last 3 years of profits tax returns and assessments
- Employer's returns: Confirm all IR56B/IR56E/IR56F filings are up to date
- Stamp duty: Verify all stamp duty on prior share transfers was properly paid
- Outstanding assessments: Check for any unsettled tax assessments or disputed amounts
3. Financial Records Audit
- Audited accounts: Review the last 3 years of audited financial statements
- Management accounts: Obtain current-year management accounts (up to the most recent month)
- Bank statements: Reconcile bank statements against accounting records for the last 12 months
- Accounts receivable: Assess the age and collectability of receivables
- Accounts payable: Identify all creditors and confirm no disputed invoices
- Related party transactions: Review and flag any unusual related-party dealings
4. Legal and Litigation Check
- Judiciary search: Check the Hong Kong Judiciary website for active or pending civil/criminal cases
- Winding-up petitions: Verify no winding-up petitions have been filed
- Employment claims: Search the Labour Tribunal for unresolved employee claims
- Material contracts: Review all material commercial contracts for change-of-control clauses
- Lease agreements: Confirm the company's right to assign or continue any property leases
- Intellectual property: Verify ownership of trademarks, patents, and domain names
5. Licenses and Regulatory Compliance
- Business Registration Certificate: Confirm current and valid
- Industry-specific licenses: For regulated businesses (money lender, SFC, insurance, employment agency, etc.), verify license validity and transferability
- Environmental permits: Check for any required environmental or waste disposal permits
- Import/export licenses: Confirm any trade-related licenses are current
6. Employment and HR
- MPF contributions: Confirm all Mandatory Provident Fund contributions are up to date
- Employment contracts: Review all staff contracts for termination liabilities
- Unresolved disputes: Check for pending Labour Tribunal claims
- Statutory holiday and leave liabilities: Calculate accrued leave and holiday pay obligations
7. Asset Verification
- Physical assets: Inventory and verify all equipment, stock, and property
- Bank accounts: Confirm all bank accounts and mandate changes required post-transfer
- Digital assets: Transfer domain registrations, social media accounts, and software licenses
Shelf Company Shortcut
If you're buying a shelf company (現成公司) that has never traded, due diligence is simplified — focus on: (1) Companies Registry clean status, (2) no prior bank account opened, (3) no charges registered, (4) all annual returns filed. This typically takes 1-2 business days.
Estimated Due Diligence Costs
| Item | Cost (HKD) | Time |
|---|
| Companies Registry searches | 50–200 | Instant |
| IRD tax clearance letter | Free (if requested by company) | 3–5 days |
| Credit report | 300–800 | 1–2 days |
| Professional due diligence (accounting firm) | 5,000–30,000 | 2–4 weeks |
| M&A due diligence (mid-market) | 50,000+ | 4–8 weeks |
Key Legal Framework
- Companies Ordinance (Cap. 622) — share transfers, director duties, register of members
- Stamp Duty Ordinance (Cap. 117) — 0.2% stamp duty on share transfers
- Inland Revenue Ordinance (Cap. 112) — tax obligations and clearance
- Employment Ordinance (Cap. 57) — employee liabilities and protections
- Mandatory Provident Fund Schemes Ordinance (Cap. 485) — MPF compliance
FAQ
What is due diligence when buying a Hong Kong company?
Due diligence is the process of investigating a Hong Kong company's financial, legal, and operational status before purchase. It includes checking Companies Registry records, tax filings, outstanding debts, litigation, employment obligations, and asset verification. Skipping due diligence can result in inheriting hidden liabilities worth millions.
How do I check if a Hong Kong company has debts or lawsuits?
Search the Companies Registry for charges and encumbrances, request a tax clearance letter from the IRD, check the Judiciary website for active litigation, and obtain a credit report. For a shelf company, confirm no prior trading activity.
How long does due diligence take?
For a simple shelf company: 1-3 business days. For an operating company: 2-4 weeks. Key bottleneck is usually the IRD tax position letter (3-5 business days).
Can I skip due diligence for a shelf company?
Due diligence for a never-traded shelf company is minimal but still necessary — confirm clean CR registration, no charges, no bank account, and filed annual returns. Always verify before signing the Instrument of Transfer.