Principles of Hong Kong Law and the Companies Ordinance
A short but examinable foundation: Hong Kong's common-law legal system preserved under the Basic Law, the everyday legal concepts of contract and agency that frame a licensee's dealings, and the company-law rules on separate legal personality, limited liability and raising money from the public through a prospectus.
A common-law system preserved under the Basic Law
Hong Kong operates a common-law legal system, distinct from the Mainland's civil-law system. Under Article 8 of the Basic Law the laws previously in force—the common law, rules of equity, ordinances, subordinate legislation and customary law—are maintained after 1997, except where they contravene the Basic Law or are amended by the legislature. The practical sources of Hong Kong law therefore include legislation (ordinances passed by the Legislative Council and subsidiary legislation) and case law (binding judicial precedent under the doctrine of stare decisis), alongside equity. This is why exam options such as 'legislation and case law' or 'common law' are the correct description of Hong Kong's legal foundations, rather than a codified civil-law code.
The essentials of a binding contract
Much of a licensee's work rests on contract law. For a legally binding contract to exist there must generally be an offer and a matching acceptance, consideration (something of value moving between the parties), an intention to create legal relations, and capacity to contract. A client agreement is itself a contract, which is why the Code's requirements about clear, fair and non-misleading terms matter legally as well as regulatorily. Understanding offer and acceptance also explains order handling: an instruction and its execution create mutual obligations that the firm must honour.
Misrepresentation and its consequences
A false statement of fact made by one party that induces another to enter into a contract may amount to a misrepresentation, giving the misled party remedies such as rescission of the contract and, depending on whether the misrepresentation was fraudulent, negligent or innocent, damages. This principle links directly to conduct rules: a licensee who misdescribes a product's features or risks to win business risks not only breaching the Code but also creating civil liability in misrepresentation. It also underpins prospectus liability—untrue statements in an offer document expose those responsible to liability.
Agency: acting for a principal
Agency is central because representatives act on behalf of their firm and firms act on behalf of clients. An agent who acts within their actual or apparent (ostensible) authority binds the principal to contracts made with third parties. An agent owes the principal fiduciary and other duties—to act within authority, to exercise care and skill, to avoid conflicts of interest, not to make a secret profit, and to account to the principal. These common-law duties reinforce the Code's conflict-of-interest and best-interests obligations: the regulatory rules largely codify long-standing agency principles.
Companies: separate legal personality and limited liability
Company law is set out principally in the Companies Ordinance (Cap. 622), with the prospectus and public-offer provisions in the Companies (Winding Up and Miscellaneous Provisions) Ordinance (CWUMPO). The foundational principle, from Salomon v Salomon, is that an incorporated company is a separate legal person distinct from its members and directors: it owns its own property, makes its own contracts, and sues and is sued in its own name. In a company limited by shares, a member's liability for the company's debts is limited to any amount unpaid on their shares—this limited liability is a key attraction of incorporation. A private company restricts the transfer of its shares, limits its members, and is prohibited from offering its shares to the public.
Raising money from the public: the prospectus
When a company offers its shares to the public it must generally do so by a prospectus that complies with the statutory content requirements and is registered before issue; a private company, by definition, may not offer shares to the public. The prospectus regime exists to give potential investors the information needed to make an informed decision, and those who authorise a prospectus containing untrue statements face civil and criminal liability. In the exam this topic is mostly recall: the common-law basis of Hong Kong law under Basic Law Article 8; the elements of a contract; misrepresentation as an inducing false statement of fact; the authority and duties of an agent; Salomon separate personality and limited liability; and the prospectus requirement for public offers. It is lightly weighted but easy to secure if the concepts are clear.
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