Contract Notes are necessary documents used to effect the sale of shares in a Hong Kong company between a seller and a buyer. They must be used together with an Instrument of Transfer when shares are being sold by one party to another.
While the Instrument of Transfer transfers the legal title to the shares to the transferee, the Contract Notes transfer beneficial title to the shares to the buyer.
The Contract Notes contain the details of the buyer and the seller and the shares that are being transferred between the parties. Contract Notes attract stamp duty and must be stamped in accordance with the rules set out in the Stamp Duty Ordinance (Cap 117).
Contract Notes are essential documents required to effect the transfer of the beneficial interest in the shares from a seller to a buyer. However, Contract Notes are not required when shares are transferred by way of gift.
The Contract Notes must be taken to the Stamp Office of the Inland Revenue Department to be stamped within two days if they are executed locally and within 30 days if they are executed outside of the Hong Kong Special Administrative Region.
When drafting Contract Notes, it is important to focus on a number of key clauses, in particular: