Connected Transactions: What Pre-IPO Founders Should Disclose

Chapter 14A of the Listing Rules governs connected transactions — dealings between the listed issuer and its connected persons (directors, substantial shareholders, and their associates). For Pre-IPO companies, the most common connected transaction pitfalls involve related-party loans, shared services agreements, and property leases between the company and its founders or their family entities. The Listing Rules require annual caps on continuing connected transactions. HKEX will scrutinise whether the proposed caps are genuinely required (not inflated to enable value extraction), whether the transactions are conducted on normal commercial terms, and whether independent shareholders will have the right to vote on them post-listing. Founders who have historically used the company as a personal treasury — paying family expenses through company accounts, guaranteeing personal loans with company assets, or leasing property from themselves at above-market rates — must unwind these arrangements before the A1 filing and disclose them fully. Failure to do so is one of the most frequent causes of HKEX comment letters requesting additional information and delaying the listing timetable.