HKSI Paper 1 Hong Kong law and the Companies Ordinance question: own shares out of distributable profits in October

HKSI Paper 1Hong Kong law and the Companies Ordinance

Wing On Trading Ltd, a Hong Kong private company with no shares listed anywhere, buys back 50,000 of its own shares out of distributable profits in October 2026. Under Cap. 622, what happens to those shares?

A They are held by a nominee on trust for the other members until the board resolves to resell them
B It may hold them as treasury shares for up to three years, after which it must cancel or resell them
C They are regarded as cancelled on buy-back, because only listed companies may hold treasury shares
D It may hold them as treasury shares if its articles allow it, provided their voting rights are suspended

Show the answer and explanation

Answer: C. They are regarded as cancelled on buy-back, because only listed companies may hold treasury shares

Section 269(1) of Cap. 622 says shares bought back are regarded as cancelled on buy-back, subject only to the treasury share rules in ss.272A-272I. Those rules, added by the Companies (Amendment) Ordinance 2025 with effect from 17 April 2025, let only a listed company (one with shares listed on a recognized stock market, which means SEHK) hold bought-back shares in treasury (s.272B(1)). Wing On is unlisted, so the shares are cancelled and it must reduce its profits by the price paid (s.269(2)). There is no three-year holding period, an article cannot give an unlisted company a power the statute withholds, and the statute has no nominee-on-trust arrangement for unlisted companies. Source: Companies Ordinance (Cap. 622) ss.2(1) (listed company), 269, 272B (Companies (Amendment) Ordinance 2025, in force 17 April 2025) (as at October 2026).

Common mistake

Candidates assume the 2025 treasury share reform covers every Hong Kong company; it covers only companies with shares listed on SEHK.

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