Hong Kong Securities Dealer (Securities Trading) No. 1 License Sales Information Introduction

• Restrictive clauses :

  • It is prohibited to add large debts, lay off key employees (such as 2 ROs), and change customer contracts.

• Daily monitoring :

  • The buyer sends personnel to the office to monitor financial and operational data (such as customer withdrawal records).

alternative plan :

• • Immediately replace the nominated director, or hire a qualified person (such as a licensed RO) to make the transition;

  • Common reasons for rejection: directors have bankruptcy records and lack relevant industry experience.

• Payment by stages :

  • 30% deposit → 40% after SFC approval → 30% upon completion of client/asset handover.

• Escrow Account :

  • The last payment must be made on Customer transfer completed Released later (if 80% of customers are confirmed to renew the agreement).

Legal process :

• • Customers need to sign one by one "Asset Transfer Consent", stock custodians (such as HSBC) need to update account controllers;

  • The cash portion must be transferred within the bank (handling fees may be incurred).

IT system compatibility :

• • Assess whether the trading systems used by the seller (e.g. Bloomberg, over-the-counter systems) need to be reauthorized;

  • Data migration risk (customer transaction records must be retained for 7 years).

Safeguard :

• • Request the seller to issue "Statement of No Pending Litigation", and reserve part of the amount (such as 5%) as compensation deposit.

Case reference :

• • If the stock market crashes before delivery, causing the client's assets to shrink, the buyer can Material Adverse Change (MAC) Clauses Renegotiate or back out.

Capital gains tax :

• • If the seller is a BVI company, it is necessary to confirm whether it is a Hong Kong tax resident, otherwise it may be taxed. Hong Kong Profits Tax (16.5%).

  • Solution: Require the seller to provide proof of tax residency, or specify tax sharing terms in the agreement.

Common risks :

• • Historical tax declaration errors (such as underreporting of commission income) and underpayment of stamp duty (related to stock trading).

  • Solution: Request the seller to provide Tax Health Check Report, and reserve part of the funds as tax deposit.

Hong Kong SFC license requires Annual renewal(usually ends on December 12st). If the transaction time is close to the renewal date, the buyer needs to confirm:

• • Which party will bear the renewal costs?

  • Whether renewal documents (such as financial statements, compliance reports) have been properly prepared.

Legal requirements :

• • The transfer of customer personal information (such as ID number, bank account) must comply with Personal Data (Privacy) Ordinance, otherwise you may face a fine.

  • Solution :

    • Add to the transaction agreement Data Compliance Terms, requiring the seller to ensure that the data transfer is legal;

    • Notify customers in batches and obtain their explicit consent.

Potential Problems :

• • Some banks (such as HSBC and Standard Chartered) may require a re-examination of the buyer's qualifications due to a change in control, resulting in delays.

  • Solution :

    • Communicate with the custodian bank in advance to confirm the transfer process and timetable;

    • Set in the protocol “Bank Cooperation” Clause, ask the seller to assist in handling it.

SFC Regulations :

• • A No. 1 company must have at least 2 Responsible Officers (RO)If the existing RO resigns, the buyer must nominate a new person within 1 month and obtain SFC approval.

  • Solution :

    • Request RO to sign Retention Agreement(such as at least 6 months of service after delivery);

    • Look for backup RO candidates in advance.

legal risks :

• • Hong Kong's Mandatory Provident Fund Ordinance requires employers to make contributions for their employees. If the seller fails to pay the full amount, the buyer may be required to bear joint and several liability.

  • Solution :

    • Verification during due diligence MPF contribution record, and it is clearly stated in the agreement that historical debts shall be borne by the seller.