The Significant Controllers Registers Regime for Hong Kong Companies
Coming into effect since 1 March 2018, the Companies (Amendment) Ordinance 2018 (the “Amendment Ordinance”) introduces new requirements on the keeping of significant controllers registers (“SCR”) by Hong Kong incorporated companies. The SCR should inter alia contain (1) the required particulars of a company’s significant controller(s) and (2) the name and contact details of a designated representative.
The changes have been introduced to enhance the transparency of corporate beneficial ownership in order to fulfill Hong Kong’s international obligations following recommendations by the Financial Action Task Force on combatting money laundering and terrorist financing, of which Hong Kong is a member. The new rules will not only clarify opaque corporate structures in Hong Kong, but also impact and require companies incorporated in Hong Kong to obtain and maintain up to date beneficial ownership information by keeping a SCR.
Which Companies Have to Keep a SCR?
The SCR regime applies to all companies formed and registered under the Companies Ordinance, including companies limited by shares, companies limited by guarantee and unlimited companies. Pursuant to section 653A of the Amendment Ordinance, “applicable company” means a company other than a listed company. By definitions, only companies which have their shares listed on the Hong Kong Stock Exchange are exempted from the SCR regime. However, there is no exemption for the subsidiaries of listed companies. Companies not incorporated in Hong Kong, including ‘registered non-Hong Kong companies’ (as defined under the Companies Ordinance (Cap 622) (“CO”)) are not required to maintain a SCR.
Unlike certain jurisdictions such as the UK where UK registers are open to public inspection and information from the UK registers are filed with the Companies House, in Hong Kong, the SC registers are only available for inspection by certain categories of persons. The following categories of persons have inspection rights :-
(1) An officer from relevant government and regulatory bodies seeking to discharge their duty under Hong Kong law to prevent money laundering and terrorist financing (e.g. Companies Registry, Customs and Excise Department, HKMA, the Police, Immigration Department, Inland Revenue, inland Authority, ICAC and SFC);
(2) An officer of the Companies Registry seeking to ascertain whether the SCR regime has been complied with; and
(3) Any person whose name is entered in the SC register as a significant controller.
Who Is a Significant Controller?
In general terms, significant controller (“SC”) means :-
(1) A natural person or government / local authority with significant control of the company (i.e. “registrable person” or “RP”); and
(2) Any legal entity who is a member of the company and has significant control thereof (“registrable legal entity” or “RLE”).
A SC is someone who meets one or more of the following five criteria :-
(1) The person holds, directly or indirectly, more than 25% of the issued shares in the company or if the company does not have a share capital, a right or rights to share in more than 25% of the capital or profits of the company;
(2) The person holds, directly or indirectly, more than 25% of the voting rights;
(3) The person holds, directly or indirectly, the right to appoint or remove a majority of the board of directors;
(4) The person has the right to exercise, or actually exercises, significant influence or control over the company;
(5) The person has the right to exercise, or actually exercises, significant influence or control over the activities of a trust or firm which is not a legal entity but whose trustees or members satisfy any of the above criteria (in their capacity as such).
What Information Must Be Recorded in the SC Register for a RP or RLE?
The following details must be included in the SCR :-
(1) Particulars of every SC of the company, including :-
- RP RLE
- Name Name
- Correspondence address (cannot be a PO box number)
- Legal entity’s registration number or the equivalent in its place of incorporation or formation
- Identity card number or if the person has no identity Address of its registered or principal office
card, the number and issuing country of passport
- Date on which the person became a RP of the company
- Legal form of entity / governing law
- Nature of person’s control over the company
- Effective date on which entity became RLE and nature of entity’s control over the company
(2) Particulars of any registrable change with respect to each SC of the company
(3) Name and contact details of one or more designated representative(s)
(4) All additional matters required to be included in the SCR
The company should appoint at least one designated representative (“DR”) to provide assistance to a law enforcement officer in respect of its SCR. A DR shall be :-
(1) A person resident in Hong Kong;
(2) A director, employee or member of the company; or
(3) An accounting professional, a legal professional or a licensed trust and company service provider under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap 615).
The company must ensure that the information on the SC register is kept up to date. The SC register must never be kept empty and if there are no RP or RLE, then a negative entry must be recorded and stated in the SCR. Once set up, the SCR must be kept in either the English or Chinese language at the company’s registered office or a prescribed place in Hong Kong. The required particulars of a RP or RLE must be entered into the company’s SCR within 7 days after the company has been provided with the required particulars. If the required particulars of a RP are provided by other person, those required particulars should be entered into the SCR within 7 days upon receipt if those particulars have been provided with that RP’s knowledge, or within 7 days after that RP has confirmed the particulars being correct. The company should also notify the Companies Registry of the location of the SCR (other than the registered address or location of register of members) within 15 days after its set up or any subsequent change in location.
Penalties for Failure to Comply with SCR
Failure to comply with the SCR regime is a criminal offence, with both the company and responsible person liable to a fine at level 4 (currently HK$25,000) and a daily fine of HK$700 (where applicable).
If any person knowingly or recklessly makes a statement which is misleading, false or deceptive in any material particular in the SCR, or if he knowingly or recklessly makes a statement or provides any information that is misleading, false or deceptive in a material particular in the reply to a company’s notice, he commits an offence and is liable on conviction on indictment to a fine of HK$300,000 and imprisonment for two years, or on summary conviction, to a fine at level 6 (i.e. HK$100,000) and imprisonment for six months.
AUTHOR: Angela Wang & Co
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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.