8.7 In the case where the organisation is a company, the board of directors and the company secretary bear the major res ponsibility to e nsure that t he company has complied with all the applicable provisions of the Companies Ordinance. If a company fails to comply with the requirements of the Ordinance, the company as well as the officers m e n t i o n e d b e l o w may be liable to prosecution. Below are some of the main requirements.
(1) The duty to keep proper accounting records
Directors must t a k e a l l r e a s o n a b l e s t e p s t o s e c u r e t h a t t h e c o m p a n y keep and preserve proper a c c o u n t i n g r e c o r d s that show and explain the organisation's transactions, disclose its financial position and financial performance and enable the directors to ensure that the financial statements comply with the Companies Ordinance. The accounting records must be preserved by the company for at least seven years a f t e r the end of the financial year to which they relate. The a c c o u n t i n g r e c o r d s shall record correctly and on a timely basis:
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daily entries of all sums of money received and expended by the organisation and the matters in respect of which the receipt and expenditure takes place; and
the assets and liabilities of the organisation.
(2) The duty to prepare annual financial statements and directors’ report Directors must prepare and lay at an AGM the directors’ report, the organisation’s audited
financial statements made up to the end of the past financial year, and also the auditor’s report. The directors’ report (approved by the board and signed by a director or company secretary authorised by the board) must address cer tain matters, including among other things:
the principal activities of the organisation and of its subsidiaries in the course of the financial yea r;
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the particulars of any other matters so far as they are material for the appreciation of the state of the affairs of the company and its subsidiaries by its members, provided that such disclosure will not, in the opinion of the directors, be harmful to the business of the company and its subsidiaries;
and the particulars required to be contained in a business review. A company needs not prepare a business review if it belongs to one of the categories of company which are allowed to prepare “simplified”
financial statements under the Companies Ordinance (i.e. its financial statements can be prepared in accordance with The Small and Medium-sized Entity Financial Reporting Framework and Financial Reporting Standard). For example, a company limited by guarantee is so qualified if its annual revenue does not exceed $25 million.
What is a Business Review
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All companies (except those qualified for simplified reporting) are required to prepare, as part of the directors’ report, a business review which is more analytical and forward-looking than the information required under the “old”
Companies Ordinance.
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The business review will provide additional information for members and help assess how the directors have performed their duties. In particular, the requir ement to include information relating to environmental and employee matters that have a significant impact on the company is in line with international trends to promote corporate social responsibility. The business review consists of –
a fair review of the company’s business;
• a description of the principal risks and uncertainties facing the company;
• particulars of important events affecting the company that have occurred since the end of the financial year; and
• an indication of likely future development in the company’s business.
To the extent necessary for an understanding of the development, performance or position of the company’s business, a business review must include –
• an analysis using financial key performance indicators;
• a discussion on the company’s environmental policies and performance and the company’s compliance with the relevant laws and regulations t hat have a significant impact on the company; and
• an account of the company’s key relationships with its employees, customers and suppliers and others that have a significant impact on t he company on which the company’s success depends.
(3) The duty to appoint an auditor for an annual audit
A company must have its financial statements audited by practising certified public accountants annually. The auditor is required to prepare a report for the members of the organisation on the financial statements to be laid before the AGM. The auditor must state
whether the financial statements have been prepared in compliance with the Companies Ordinance, and whether they give a true and fair view of the financial position and financial performance of the organisation, unless the company falls within the reporting exemption i.e. it is allowed to prepare
“simplified” financial statements.
(4) The duty to maintain registers
The board of directors and the company secretary must make sure that the specified books are maintained and updated and are open to its members for inspection. At least the first three items below should be open to the public for inspection; and the minutes books of general meetings should be open to the members for inspection. The required books include:
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Register of members
Reg isters of d irectors a nd company secretaries;
Register of charges; and
Minutes books of bo ard meetings and general meetings.
(5) The duty to file documents with the Companies Registry
The board of direc tors and company secretary must make sure that specified documents ( e . g . a n n u a l r e t u r n , s p e c i a l r e s o l u t i o n s , e t c . ) are filed with the Registry on time.
(6) The duty to call an AGM and GM
The board of directors must ensure that the organisation has its AGM every financial year. A newly formed organisation which is a private company or company limited by guarantee is required to hold its first AGM within 9 months after the anniversary of its incorporation or 3 months after the end of the financial year, whichever is the later. A subsequent AGM of an organisation which is a private company or company limited by guarantee must be held within 9 months after the previous financial year. At least 21 days’ notice of the AGM must be given to every member, every director and the auditors of the company in the manner as specified under the Articles of Association,
Ordinance. A copy of the audited financial statements, which is to be laid before the company in AGM, together with a copy of the directors' report and a copy of the auditor's report must be sent to members of the company not less than 21 days before the date of the AGM. The board of directors must convene a general meeting (GM) on the requisition of members holding at least 5% of the total voting rights.
Within 21 days after the date of receipt of request by such members the company must send out a notice to all members to convene a GM within 28 days after the date of giving of the notice.