1. What Is the “334” Strategy?

The so-called “334” strategy involves using a holding company to allocate shares roughly at 33%, 34%, and 33% among three or more investors, thereby preventing any single party from holding over 35% of the shares. This arrangement aims not only to avoid the need for a substantial shareholder approval process but also to provide greater flexibility and collaborative potential for the overall investment and operations. Of course, you still have to make transparent disclosures to the Securities and Futures Commission (SFC) regarding the Ultimate Beneficial Owner (UBO).

2. More Reasons and Benefits of Using “334”

(1) Broaden Capital Sources & Flexibly Distribute Investment

• Attract Multiple Investors:
  When the transaction amount is large, it may be difficult for one individual or entity to shoulder the entire cost. By employing “334,” you can bring in several investors simultaneously to gather the required funds in one go.
• Reduce Individual Financial Pressure:
  With three investors sharing the capital contribution, compared to one major shareholder who has to inject a huge sum alone, it’s easier to arrange funding and lower the risk of a strained capital chain.

(2) Promote Talent, Expertise, and Resource Integration

• Complementary Specialties:
  Suppose Investor A has a financial background, Investor B excels in marketing, and Investor C is well-versed in regulatory matters or client relationships. Under the “334” framework, each party holds a relatively similar share proportion, making it easier to work collectively and bring various industry experiences into the licensed corporation.
• Shared Networks and Client Resources:
  Each investor has their own circle and client base. As major shareholders, they are more likely to channel resources into the company, ultimately benefiting the licensed entity.

(3) Prevent a Single Major Shareholder from Dominating; Foster Balanced Governance

• Distribute Power:
  If anyone holds over 50%—or even 35%—of the shares, they might not have absolute control, but could still wield major influence in the boardroom or strategic decisions. “334” means all three parties have comparable stake percentages, preventing any single party from dominating and allowing for more transparent, equitable governance.
• Reduce Internal Conflicts:
  By having multiple major shareholders share decision-making, you can avoid a “one-man rule” scenario and limit disputes stemming from uneven profit allocation or management conflicts.

(4) Suited for Certain Family Succession or Partnership Structures

• Family Members with Different Strengths:
  In some family businesses, multiple children may receive shares. “334” ensures each member gets a fair proportion without upsetting the balance, avoiding scenarios where someone feels sidelined.
• Partnership Collaboration Model:
  Among friends, business partners, or stakeholders, they might not want any one person to completely dominate. “334” allows everyone to maintain a comparable standing, sharing both responsibilities and benefits.

(5) Cut Down on Approval Costs and Time

• Avoid Tedious Substantial Shareholder Approval:
  If a single investor reaches the 35% or above threshold, the approval process is more complex and time-consuming. Even if it’s ultimately granted, it usually entails higher costs for legal, accounting, and compliance services. “334” can partially streamline the deal process, enabling quicker share transfer completion.
• Greater Sensitivity to Market Timing:
  Time is money in the financial market. If you see an opportunity you don’t want to miss, finalizing the acquisition first through “334” may help you lock in the deal faster.

(6) Meets Certain Investors’ Need for Privacy

• Maintaining a Certain Degree of Discreetness:
  Even though the UBO must still be disclosed to the SFC, if you do not become a substantial shareholder (over 35%), the public may pay relatively less attention to your personal background (though you must remain fully transparent with the regulator).
• Less Public Spotlight:
  Once someone holds a very high share percentage, the public, media, and competitors tend to focus on them. If shares are more evenly split among three parties, the spotlight gets diffused.

3. Remember: Compliance and Independence Are Still Key

Even though “334” offers numerous positive aspects, it does not mean you can use it to bypass regulatory oversight. Pay attention to:

• Disclose the UBO Truthfully:
  Every ultimate beneficial owner must be disclosed at the licensed corporation level to the SFC. Whether you hold 33%, 34%, or even 10%, it has to be declared according to the rules.
• Prove Independence, Not Acting in Concert:
  If the three investors are actually part of the same group, funded by the same account, or have a hidden agreement giving one party real control, the SFC may still categorize them as a single group.
• Ensure Transaction Transparency:
  Keep sufficient documents such as bank transfer records, board meeting minutes, investment agreements, and shareholder agreements to show regulators or compliance advisers that each party truly invests independently.

4. Conclusion

“334” does not necessarily equate to “dodging” or “exploiting loopholes.” On the contrary, if used wisely, it can create a more flexible and efficient shareholding structure—encouraging multi-party collaboration, distributing capital burdens, speeding up deal timelines, and even aiding in scenarios like family business succession or partnership ventures.

Ultimately, the principle is: Compliance First, Honest Disclosure. As long as you are not trying to conceal the ultimate beneficial owner and can demonstrate that each investor is independently funded, with no overlapping decisions or arrangements, “334” can be a lawful and viable strategy in Hong Kong’s financial market—one that benefits all parties involved.