Verbatim Global Compliance - Quarterly Newsletter: Spring 2014

by Orrick, Herrington & Sutcliffe LLP

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We've highlighted a few notable developments in corporate governance law taking place this spring that may be of interest to you. For more information on any of the topics listed below, please contact us at

Canada - The Ontario Securities Commission ("OSC") recently published for comment four proposed prospectus exemptions intended to facilitate capital formation for small companies and start-ups.  The four exemptions include: an offering memorandum exception, a family and friends exemption, an existing security holder exemption, and a crowd-funding exemption.  Similar exemptions are already available in other Canadian provinces.  The comment period ends June 18, 2014.

China - Amendments to the PRC Company Law that reduce the burden of capital registration for limited liability companies and single-shareholder companies came into effect on March 1, 2014.  Under the previous law, newly formed companies had minimum capital requirements of CN¥0,000 and CN¥100,000 respectively, 20% of which generally had to be contributed with three months of issuing the business license. The remainder was to be paid in within 2 years, and  each contribution required a capital verification report.  The amendments remove these minimum amounts and allow the companies' shareholders to designate the contribution schedule.  Furthermore, the capital verification report is no longer required by the Administration of Industry & Commerce (AIC), though banks and some other government agencies may still demand it.

European Union - On March 11, 2014, a recommendation requiring public disclosure of the beneficial owners of the companies was approved by two committees of the European Parliament (Economic Affairs and Justice & Home Affairs).  The vote succeeded 643-30.  The legislation is primarily aimed at reducing money-laundering and would require a centralized database of the beneficial owners of legal entities, including companies and trusts.  The next phase will involve co-operation with the EU Commission and the Council of Ministers to draft the final form of the legislation to be implemented.

Hong Kong - Hong Kong's new Companies Ordinance (the "Ordinance"), which affects several areas of corporate governance, came into force on March 3, 2014.  The Ordinance removes the requirement of a Memorandum of Association for new companies going forward, as well as abolishing the concepts of authorized capital and par value shares.  In addition, every private company must now have a at least one director who is a natural person.  Companies have a grace period of up to 6 months to comply with this regulation, after which the company is liable for HK$100,000 and HK$2,000 per day thereafter. 

India - Last year India passed the Companies Act, 2013 (the "New Act") intended to replace the Companies Act, 1956.  Several provisions of the New Act came into force on April 1, 2014.  Most notably, companies are now required to adopt a financial year end of March 31st to coincide with the tax year end unless specifically granted an exception. 

In addition, the New Act creates legal recognition of company forms that were previously unavailable, such as "small" or "dormant" companies, and expands the list of activities that must be approved by physical meeting rather than written resolution.  Furthermore, certain classes of companies will be required to have at least one woman on the Board of Directors, and more extensive disclosures about the Board will be required as part of the Annual Report.

United States - On March 31, 2014 the United States Securities and Exchange Commission ("SEC") brought insider trading charges against Ching Hwa Chen, who is accused of using information overheard on his wife's business phone calls to net US$138,000 by betting against the stock of her employer company.  The SEC claims that Chen violated Section 101(b) and Rule 10-b-5 of the Securities and Exchange Act of 1934 by misappropriating insider information for his own profit.  Several other cases involving spouses of insiders have been brought by the SEC since 2011.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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