SME-FRF & SME-FRS
Qualifying criteria for the companies incorporated under the Hong Kong Companies Ordinance
A company incorporated under the Hong Kong Companies Ordinance qualifies for reporting under the SME-FRF & SME-FRS if it satisfies the 'reporting exemption' criteria as set out in section 359 of the new Companies Ordinance. Effective from financial year beginning on or after 1 February 2019, section 359 of the new Companies Ordinance extends the reporting exemption to the groups that may consist of Hong Kong and non-Hong Kong incorporated body corporates and mixed groups (i.e. groups comprising a mix of small private companies, eligible private companies and small guarantee companies). Such criteria are highlighted in paragraphs 22-43 of SME-FRF and the qualifying categories are summarised as follows:
| Eligible categories | Size test | Approval from shareholders | Section reference | |
|---|---|---|---|---|
| 1. | A private company which has no subsidiary and is not a subsidiary of another company (i.e. this is the type of private company which would have qualified for the reporting exemption under section 141D of the predecessor Companies Ordinance) |
No size test is required | 100% written approval from shareholders is required for each year
(Note: if the private company also qualifies under category 2 below, approval from shareholders would not be required) |
SME-FRF Para 43 |
| 2. | Small private company |
The small private company must not exceed any two of the following: (a) Total annual revenue of HK$100 million (b) Total assets of HK$100 million at the end of the reporting period (c) 100 employees |
Approval from shareholders is not required under the new Companies Ordinance | SME-FRF
Paras 36-37 |
| 3. | A group of small private companies which may include non-Hong Kong body corporates# |
(a) Each company in the group must qualify as a small private company; (b) Each non-Hong Kong body corporate in the group (if any) would have been qualified as a small private company for the financial year had it been incorporated under the new Companies Ordinance; and (c) The aggregate amounts for the group must not exceed 2 out of 3 of the size tests for small private companies |
Approval from shareholders is not required under the new Companies Ordinance | SME-FRF Paras 36-37 |
| 4. | Small company limited by guarantee | The total annual revenue of the small company limited by guarantee must not exceed HK$25 million. | Approval from members is not required under the new Companies Ordinance | SME-FRF
Paras 34-35 |
| 5. | A group of small companies each limited by guarantee which may include non-Hong Kong body corporates# |
(a) Each company in the group must qualify as a small company limited by guarantee; (b) Each non-Hong Kong body corporate in the group (if any) would have been qualified as a small company limited by guarantee for the financial year had it been incorporated under the new Companies Ordinance; and (c) The aggregate annual revenue of the group must not exceed HK$25 million |
Approval from members is not required under the new Companies Ordinance | SME-FRF
Paras 34-35 |
| 6. | Larger "eligible" private company |
The private company must not exceed any two of the following: (a) Total annual revenue of HK$200 million (b) Total assets of HK$200 million at the end of the reporting period (c) 100 employees |
At least 75% of all the members must pass a resolution at a general meeting that the company is to fall within the reporting exemption for the financial year; and none of the members holding the remaining voting rights in that company vote against the resolution* | SME-FRF Paras 38-39, 42 |
| 7. | A group of "eligible" companies which may include non-Hong Kong body corporates# |
(a) Each company in the group must meet either the size test of small private company or larger "eligible" private company; (b) Each non-Hong Kong body corporate in the group (if any) would have been qualified as either a small private company or a larger "eligible" private company for the financial year had it been incorporated under the new Companies Ordinance on the basis of its size; and (c) The aggregate amounts for the group in total must not exceed 2 out of 3 of the size tests for larger "eligible" private companies |
At least 75% of all the members of the holding company of the group must pass a resolution at a general meeting that the holding company is to fall within the reporting exemption for the financial year; and none of the members holding the remaining voting rights in the holding company vote against the resolution* | SME-FRF
Paras 38-39, 42 |
| 8. | Mixed group (being a group comprising a mix of (i) one or more small and/or eligible private companies and (ii) one or more small guarantee companies) which may include non-Hong Kong body corporates# |
(a) If the holding company in that mixed group is a small private company, the aggregate amounts for the mixed group in total must not exceed 2 out of 3 of the size tests for a group of small private companies (category 3). (b) If the holding company in that mixed group is an eligible private company, the aggregate amounts for the mixed group in total must not exceed 2 out of 3 of the size tests for a group of larger "eligible" companies (category 7) ##. (c) If the holding company in that mixed group is a small guarantee company, the aggregate annual revenue of the mixed group must not exceed HK$25 million. |
(a) For a mixed group which does not exceed the size limits of a group of small private companies (category 3) or small guarantee companies (category 5), approval from members is not required under the new Companies Ordinance
(b) For a mixed group with larger "eligible" private company within the group, at least 75% of all the members of the holding company of the group must pass a resolution at a general meeting that the holding company is to fall within the reporting exemption for the financial year; and none of the members holding the remaining voting rights in the holding company vote against the resolution* |
SME-FRF Paras 39A, 42 |
# # These size tests for larger "eligible" groups would also apply to mixed groups if the holding company of the mixed group is a private company and the mixed group in total exceeds the size tests for a group of small private companies as set out in category 3 above.
* For categories 6 to 8 above, the 75% vote is calculated as a percentage of the entire shareholding of the company seeking to use the reporting exemption, not simply as a percentage of the shareholders of that company who attend the general meeting. The resolution is defeated if any member of that company objects either at the meeting or at any time by giving notice in writing to the company, provided that written notice is given at least 6 months before the end of the financial year to which the objection relates.
The following types of company are not eligible for the reporting exemption under the new Companies Ordinance and so are not permitted to prepare their financial statements in accordance with SME-FRF & SME-FRS:
-
the entity carries on any banking business and holds a valid banking licence granted under the Banking Ordinance (Cap. 155);
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the entity accepts, by way of trade or business (other than banking business) loans of money at interest or repayable at a premium, other than on terms involving the issue of debentures or other securities;
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the entity is a corporation licensed under Part V of the Securities and Futures Ordinance (Cap. 571) to carry on a business in any regulated activity within the meaning of that Ordinance; or
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the entity carries on any insurance business, otherwise than solely as an agent.
The holding company is not eligible for the reporting exemption under the new Companies Ordinance and so are not permitted to prepare their financial statements in accordance with SME-FRF & SME-FRS when the group of which it is the holding company includes one type of companies set out in aforementioned paragraph or includes a non-Hong Kong body corporate that:
- carries on any business that, had it been carried on in Hong Kong, would be required to be carried on under a valid banking licence granted under the Banking Ordinance (Cap. 155); accepts, by way of trade or business (other than banking business) loans of money at interest or repayable at a premium, other than on terms involving the issue of debentures or other securities;
-
carries on any business that, had it been carried on in Hong Kong, would be required to be carried on under a licence under Part V of the Securities and Futures Ordinance (Cap. 571) to carry on a business in any regulated activity within the meaning of that Ordinance;
-
carries on any insurance business, otherwise than solely as an agent; or
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would have fallen within the meaning of public company in section 12 of the new CO had it been incorporated under the new CO.
The new Companies Ordinance sets out specific requirements relating to determining which years are relevant for passing the size tests. In general, a company will have to pass the size tests for two consecutive years in order to become eligible in the 3rd year. Similarly a company would generally have to fail the tests for two consecutive years in order to become ineligible in the 3rd year. However, there are specific transitional rules in this regard which apply in the first year that this part of the new Companies Ordinance comes into operation and also in any year in which a group acquires a new subsidiary. It is therefore important to take care to refer to the relevant sections of the new Companies Ordinance when determining whether a company is eligible.
Qualifying criteria for the companies NOT incorporated under the Hong Kong Companies Ordinance
Subject to any specific requirements imposed by the law of the company's place of incorporation and subject to its constitution, these companies qualify for reporting under the SME-FRF & SME-FRS when they meet the same requirements that a Hong Kong incorporated company is required to meet under section 359 of the new Companies Ordinance.
