Distribution Of Dividends In France And Hong Kong: Similarities

Published date07 February 2023
Subject MatterCorporate/Commercial Law, M&A/Private Equity, Corporate and Company Law, Directors and Officers, Shareholders
Law FirmSlotine
AuthorMs Maeva Slotine

Sharing profits is an essential aim of most companies. This article explains how and when it can be achieved, and highlights the similarities between rules applicable to French and Hong Kong companies.

Excepting start-ups, for which the measure of success may be different, most companies strive for profit1. Directors, shareholders and auditors need to be aware of the laws governing dividend distribution, in order to make valid decisions where the practice is considered. In France and Hong Kong, similar rules govern the distribution of dividends by companies. This article presents them in a concise manner, illustrated by charts.

To avoid getting lost in the details of the different types of commercial companies that can be formed in France, for the purpose of this article, we'll use the example of a form of private company limited by shares, called a société par actions simplifiée (SAS), which is subject to French corporate tax (imp't sur les sociétés, or IS). In Hong Kong, which has only one form of legal entity for companies, we'll use the example of a private company limited by shares. In addition, let's assume that the financial year end for both companies is 31 December and the articles of association do not contain derogatory provisions.

Definitions

C com: the French Commercial Code

CO: the Companies Ordinance, Chapter 622 of the Laws of Hong Kong

Distributable profit:

  • In France, distributable profit is the profit for the financial year minus previous losses as well as the sums to be allocated to reserves, in accordance with the law or the articles of association, together with any retained earnings.
  • In Hong Kong, distributable profits are a company's accumulated realised profits (to the extent that they have not previously been utilised by distribution or capitalisation) less its accumulated realised losses (to the extent that they have not previously been written off in a reduction or reorganisation of capital) (as defined in section 297(2) CO). It should be noted that accumulated realised profits include the distributable reserves of the company.

Dividend: a payment made by a company to its shareholders when it makes a profit

Hong Kong: the Hong Kong Special Administrative Region of the People's Republic of China

PROCEDURES FOR THE DISTRIBUTION OF DIVIDENDS

The decision to distribute dividends after the end of a financial year

In Hong Kong

Governed by the CO and a company's articles of association, the distribution of dividends is generally decided at the annual general meeting (AGM): this is known as a final dividend.

According to the model articles of association for private...

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