Company Law Subclass A
To: Jada and Jack (“JJ”)
We refer to our meeting on 17 October 2025 and your request for advice in respect of the
incorporation of ChatHKU AI Tech (“CAT”).
Based on your relevant circumstances we wish to draw your attention to the following legal
issues. Note that this advice is solely based on the governing laws of Hong Kong.
1) Shareholder Liability in a Private company limited by shares
A Private company limited by shares confers limited liability on its shareholders. This means
that your liability is limited to the amount that you have invested into CAT. As owners of
CAT, you would not be personally liable for any of CAT’s debts or obligations beyond the
nominal value of your respective shareholdings, which in this case is the price paid for 50%
of the total number of shares for Jada and Jack respectively.
Note that although your personal assets are protected from claims against CAT, you may
incur personal liability for using the company to commit fraud, wrongdoing, unfairness, or to
evade any legal obligations. It is useful to understand the case of Ebrahimi v Westbourne
Galleries Ltd [1973], where there were similarly two partners (A and B) who were the sole
shareholders of a private limited company. After appointing A’s son to the board of directors,
A and his son jointly passed a resolution to remove B as director. Despite the company’s
separate legal personality, the court ruled in favor of B as he had a legitimate expectation of
ownership and deeming the removal unjust. Similarly, CAT’s owners should jointly discuss in
advance any decisions involving the intent to transfer shares and purchases/leases to avoid
conflicts amongst owners and the potential personal liability for breaching any agreement
unfairly.
2) Restrictions under the Articles of Association regarding share transfers
The purpose of Clause 2.(1)(a) is to ensure all current shareholders have a say in who they
wish to do business with and permit as a co-owner of the company. The restrictions on share
transfer will include:
a) Board Approval - Transfer of shares require board/directors approval. If Jada
wishes to transfer shares to Jill, then Jack has a right to refuse (as reaffirmed in
Clause (2)), but any refusal should be made ‘bona fide’ ie. for the best interests of the
company as a whole. If Jack refuses, then Jada may ask for a statement of reasons
for refusal within 28 days and the court can review the reasons for refusal in case of
a dispute.
b) Pre-emptive rights - Existing shareholders, in this case Jack, would have the right to
buy shares first, before they are offered to an external party such as Jill. Only if Jack
refuses to buy these shares can the offer be presented to Jill. This right exists to
prevent Jack’s ownership stake from being diluted and protect the value of his
investment.
In addition to restrictions, the Articles or Shareholders’ Agreement will also specify the
additional procedural requirements for share transfers, such as submitting the company’s
Annual Returns and the Instrument of Transfers to the Inland Revenue Department.
To: Jada and Jack (“JJ”)
We refer to our meeting on 17 October 2025 and your request for advice in respect of the
incorporation of ChatHKU AI Tech (“CAT”).
Based on your relevant circumstances we wish to draw your attention to the following legal
issues. Note that this advice is solely based on the governing laws of Hong Kong.
1) Shareholder Liability in a Private company limited by shares
A Private company limited by shares confers limited liability on its shareholders. This means
that your liability is limited to the amount that you have invested into CAT. As owners of
CAT, you would not be personally liable for any of CAT’s debts or obligations beyond the
nominal value of your respective shareholdings, which in this case is the price paid for 50%
of the total number of shares for Jada and Jack respectively.
Note that although your personal assets are protected from claims against CAT, you may
incur personal liability for using the company to commit fraud, wrongdoing, unfairness, or to
evade any legal obligations. It is useful to understand the case of Ebrahimi v Westbourne
Galleries Ltd [1973], where there were similarly two partners (A and B) who were the sole
shareholders of a private limited company. After appointing A’s son to the board of directors,
A and his son jointly passed a resolution to remove B as director. Despite the company’s
separate legal personality, the court ruled in favor of B as he had a legitimate expectation of
ownership and deeming the removal unjust. Similarly, CAT’s owners should jointly discuss in
advance any decisions involving the intent to transfer shares and purchases/leases to avoid
conflicts amongst owners and the potential personal liability for breaching any agreement
unfairly.
2) Restrictions under the Articles of Association regarding share transfers
The purpose of Clause 2.(1)(a) is to ensure all current shareholders have a say in who they
wish to do business with and permit as a co-owner of the company. The restrictions on share
transfer will include:
a) Board Approval - Transfer of shares require board/directors approval. If Jada
wishes to transfer shares to Jill, then Jack has a right to refuse (as reaffirmed in
Clause (2)), but any refusal should be made ‘bona fide’ ie. for the best interests of the
company as a whole. If Jack refuses, then Jada may ask for a statement of reasons
for refusal within 28 days and the court can review the reasons for refusal in case of
a dispute.
b) Pre-emptive rights - Existing shareholders, in this case Jack, would have the right to
buy shares first, before they are offered to an external party such as Jill. Only if Jack
refuses to buy these shares can the offer be presented to Jill. This right exists to
prevent Jack’s ownership stake from being diluted and protect the value of his
investment.
In addition to restrictions, the Articles or Shareholders’ Agreement will also specify the
additional procedural requirements for share transfers, such as submitting the company’s
Annual Returns and the Instrument of Transfers to the Inland Revenue Department.
