4. Explain the differences between a private company and a public company under the new
Companies Ordinance, Cap 622 (5 marks

Question

4. Explain the differences between a private company and a public company under the new 
Companies Ordinance, Cap 622 (5 marks

Accepted Answer

⚹(Student Number: 2873571565) (Professor's Name) (Class Name) (Course Number) March 26, 2025 **Differences Between Private and Public Companies under the Companies Ordinance (Cap. 622)** The Companies Ordinance (Cap. 622) of Hong Kong establishes a clear distinction between private and public companies, outlining their respective characteristics and governing their operations. Understanding these differences is crucial for anyone involved in or studying corporate law in Hong Kong. This essay will explore the key distinctions between private and public companies under Cap. 622, focusing on five key areas. 1. **Restriction on Transfer of Shares:** A fundamental difference lies in the transferability of shares. Private companies, as per Section 40 of Cap. 622, restrict the right to transfer its shares. This restriction can manifest in various ways, such as requiring board approval or giving existing shareholders pre-emptive rights. This allows private companies to maintain control over ownership and prevent unwanted external influence. Public companies, on the other hand, do not have such restrictions. Their shares are freely transferable, often traded on a stock exchange, facilitating a more dynamic ownership structure. 2. **Number of Members:** While both private and public companies require a minimum of one member, there's a difference at the upper end. Private companies are limited to a maximum of 50 members, excluding current and former employees who hold shares. This limitation reinforces the closed nature of private companies. Public companies, however, face no such restriction on the number of members they can have, allowing for a potentially vast and diverse shareholder base. 3. **Invitation to the Public:** A core distinction lies in the ability to raise capital from the public. Section 38 of Cap. 622 explicitly prohibits private companies from inviting the public to subscribe for their shares or debentures. This restriction limits their access to broader capital markets. Public companies, conversely, are specifically formed for the purpose of raising capital from the public. They can issue prospectuses and offer shares on the stock exchange, allowing them to access significantly larger pools of capital. 4. **Use of the word "Limited" or "Unlimited":** The nomenclature of companies provides a clear signal of their public or private status. Private companies must use the word "Limited" or its abbreviation "Ltd" after their name, signifying their limited liability status. Public companies that offer shares to the public must use the word "Limited" or "Ltd." However, a public company that is not offering shares to the public may use the word "Unlimited" if it has no limit on the liability of its members. 5. **Financial Reporting and Disclosure Requirements:** Public companies face more stringent regulatory requirements regarding financial reporting and disclosure than private companies. They are obligated to prepare and file audited financial statements annually with the Companies Registry and make them available to the public. This transparency is essential for investor protection and market integrity. Private companies, while still subject to accounting and auditing requirements, have less onerous disclosure obligations, reflecting their smaller scale and closed ownership structure. They are not required to file their financial statements with the Companies Registry or make them publicly available. In conclusion, the Companies Ordinance (Cap. 622) establishes clear distinctions between private and public companies in Hong Kong. These differences relate to the transferability of shares, the number of members, access to public capital, naming conventions, and financial reporting requirements. These distinctions reflect the different purposes and structures of these two types of companies, ensuring appropriate regulation and facilitating their respective roles in the Hong Kong economy. ⚹◊ Write next page please ⍭ Rewrite everything please◊

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