Significant Controllers Register in Hong Kong

Hong Kong changed its Companies Ordinance (Cap. 622) in March 2018.

The amendment is done to improve transparency of corporate beneficial ownership, or who really owns companies, and meet international obligations.

Now, all companies in Hong Kong must keep current information about their beneficial owners in a Significant Controllers Register (SCR).

So what in the world is it?

What is the Significant Controllers Register?

In a nutshell, the Significant Controllers Register in Hong Kong is a list that shows who has significant control over a company.

It keeps track of the people and groups who make the important decisions, even if they don't directly own the company.

A registrable legal entity is usually a company or other legal structure that significantly controls the company, often through owning shares.

Who is a Significant Controller?

A person has significant control over the company if any of these five conditions are met:

1. A natural person who owns (directly or indirectly) over 25% of the company's shares or capital/profits (if no shares).
2. Controls over 25% of the voting rights (directly or indirectly).
3. Has the power to appoint or remove a majority of the company’s board of directors (directly or indirectly).
4. Has the right to, or actually, exert significant influence over the company.
5. Has the right to, or exerts, significant influence or control over a trust or firm (not a legal person) whose trustees/members meet any of the first four conditions for the company.

Why is the SCR Different from the Register of Members?

When we first informed our clients of the necessity to put in place this SCR, many did not understand and responded that they already had a Register of Members or Register of Shareholders serving the same purpose.

But the Significant Controllers Registers and Register of Members or Shareholders are different things.

Why?

Well, the Significant Controllers Registers focuses on direct but also indirect control of the company, irrespectively of who are its direct shareholders.

Let's take the example of Company A.

Company A is owned by Company B.

Company B is owned by Mr. Y.

The shareholder of Company A is Company B, but Mr. Y is a significant controller.

So, Mr. Y will not appear in the Register of Members but will be included as a significant controller in the SCR.

Who Manages the SCR?

The SCR isn't open to the public, but companies must choose a designated representative to handle it.

A company's designated representative must be one of the following:

• A director, employee, or member of the company who lives in Hong Kong, or
• An accounting professional, a legal professional, or a person with a Trust or Company Service Provider (TCSP) license.

Note: If you are an employee of the holding company, you can be its designated representative. However, for other companies in the same group, you need to meet the second condition (being an accounting professional, legal professional, or TCSP licensee) to be their designated representative.

The duties of a designated representative include:

• Helping law enforcement with questions about the SCR and making sure it follows the rules.
• Allowing authorized personnel to inspect the SCR when asked.

Why a Significant Controllers Register

The Significant Controllers Register serves a noble cause: mainly combating money laundering and, terrorist financing by making sure that authorities can easily know who are the significant controllers of a company.

The creation of the SCR is not proper for Hong Kong. Many jurisdictions now impose the creation and maintenance of similar registers.

Who Can Access the Significant Controllers Register?

The information in the SCR is not publicly available. Only authorized authorities, such as law enforcement agencies, have access to it.

This discretion means that your competitors or the public cannot generally access the SCR information. It also ensures that legitimate business operations are not hindered by unnecessary disclosure.

Companies don't have to worry about their competitive strategies or confidential ownership structures being exposed to the public.

Significant Controller Register Inspection

A company must make its SCR available for inspection by any law enforcement officer at any reasonable time at the location where the SCR is kept.

Law Enforcement Officers

• Companies Registry
• Customs and Excise Department
• Hong Kong Immigration Department
• Hong Kong Independent Commission Against Corruption
• Hong Kong Monetary Authority
• Hong Kong Police Force
• Inland Revenue Department
• Insurance Authority
• Securities and Futures Commission

These officers are permitted to inspect the SCR and make copies of it. Additionally, any person listed in the SCR has the right to inspect and obtain copies of the register upon request.

What Is the Risk of Not Having a Significant Controllers Register?

Let's first look at the specific obligations of any Hong Kong company:

• Create and maintain an HK SCR
• Make sure that the HK SCR is located in Hong Kong at the registered address of your company, together with the other constitutive documents and statutory records of your company. The SCR cannot be located outside of Hong Kong.

Now, what are the risks faced by your company if it does not have a Significant Controllers Register?

While fixing the problem, the company and every responsible person could face a potential fine of HKD 25,000 plus a daily fine of HKD 700.

So what should you do if your Hong Kong company has not yet created a Hong Kong SCR?

• If you already have a professional company secretary in HK, simply check with them whether your company has a Significant Controllers Register. If it is the case, you should make sure that it is up to date. Check out this article if you want to learn more about the role of company secretaries.
• If you do not have a professional company secretary because yourself or a friend is acting as company secretary for your company, then you should make sure to create your SCR as soon as possible and keep it carefully with the rest of your company documents.

If you need assistance to create your HK SCR, please feel free to contact us. We will send you a Significant Controllers Register template free of charge.

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