All About Significant Controllers Register in Hong Kong

Learn why you need to pay attention to this particular registry when it comes to your newly registered Hong Kong company.

Governments throughout the world have been pursuing enhanced openness regarding corporate ownership following the emergence of the Panama Papers in 2016 (as depicted in the 2019 film “the Laundromat”).

There has been concern that various business structures (including companies and trusts, and usually a combination of the two) have been used to conceal who controls a company. This raises questions about whether those structures are being utilized to launder money.

The Companies (Amendment) Ordinance 2018 (“the Amendment Ordinance”), which came into effect in March 2018, created new transparency regulations for company ownership, including the development of a “Significant Controllers Register.”

We’ll explain you how to comply with the legislation in this section.

Which businesses are required to comply with the new requirements?

The new legislative requirements apply to all Hong Kong-based private limited companies.

Note that these restrictions do not apply to public limited corporations (i.e., large companies that are listed on a stock exchange) or companies formed in other jurisdictions (even if that company is registered as a business in Hong Kong).

What are the new legal requirements relating to the Significant Controllers Register? 

Private companies incorporated in Hong Kong must comply with the following requirements under the Amendment Ordinance:

• Take reasonable steps to identify and verify persons and legal bodies with significant control over the company (referred to as the “Significant Controller”).
• Keep a register of “Significant Controllers.” Law enforcement officers must be able to access this register at any time.
• Keep a copy of the Significant Controllers Register at their registered corporate office or another location in Hong Kong. The company must notify the Hong Kong Companies Registry where the register is kept within 15 days if it is not kept at the registered office.
• Maintain an up-to-date Significant Controllers Register. Any changes in ownership structures that result in a transfer of control must be documented.
• If law enforcement or other authorized entities request access, make the Significant Controllers Register available for inspection.
• Name a ‘Designated Representative,’ who will be in charge of the Significant Controllers Register in an official responsibility.

Who is the ‘Designated Representative’?

At least one person must be designated as the company’s representative (‘Designated Representative’) under the amendment ordinance. When it comes to the Significant Controller Register, this is the natural person who interacts with authorities and law enforcement. This person must be able to:

• A company member (typically a registered shareholder), director, or employee, and
• A Hong Kong resident who is a natural person, and
• A legal professional or, an accounting professional, or a Trust and Company Service Provider (TCSP) licensee. 

Who counts as a Significant Controller?

For the purposes of the register, who controls the company?

• The significant controller can be a company member who is a natural person or a registrable legal entity. This refers to a shareholder in most Hong Kong private limited companies.
• That person or entity must have ‘significant control’ over the company. 

‘Significant control,’ according to the amended ordinance, means that a person or entity either:

• Directly or indirectly, holds more than 25 percent of the shares issued for the company, or, 
• In companies registered without share capital, has the direct or indirect right to share in more than 25 percent of the capital or profits of the company
• Holds directly or indirectly more than 25% of the voting rights in the company
• Holds directly or indirectly the right to appoint or remove the majority of the directors of the company
• Has the right to exercise, or actually does exercise, significant influence or control over the company
• Has the right to exercise, or actually exercises, significant influence or control over the activities of a trust or entity that is not a legal person, but whose trustees or members satisfy one of the other conditions listed above. 

How do I identify the Significant Controller?

As stated previously, the company must take reasonable steps to identify and determine who has considerable control over it. This covers, but is not limited to, the following items:

• Reviewing all official documents of the company, such as the register of members/shareholders, the articles of association, any shareholder agreements and company constitutions or memoranda.
• Investigating into the company’s interests. If a holding company appears to be a corporate trustee, for example, check to determine if the trust deed is publicly available and who the beneficiaries are.
• Examining into any evidence of joint agreements or rights that could lead to ‘ownership’ of the company.

Following this assessment, the company must take the following actions:

• If a company has cause to believe that a person or entity is a significant controller of the company, it must notify that person or entity within seven days after knowing or believing;
• Where a company has reason to believe that a person knows the identity of another person who has significant control over the company, give notice to that person within seven days. 

The individual or entity who receives the notice has one month to comply after receiving it.

Which particulars must be entered into the Significant Controllers Register?

The information regarding significant controllers must be entered into the register after it has been obtained.

For a registrable person, the company must enter the following information into the Significant Controllers Register:

• The person’s full legal name
• A correspondence address
• Their Hong Kong Identity card number, or in the event of someone from another country, their passport number and the nation to which it relates
• The date when the person became a ‘registrable person’ with respect to the company
• The nature of the person’s control over the company. 

It is important to document the facts in the Significant Controllers Register if the company is unable to identify or determine who the significant controllers are, or if the company does not have any significant controllers.

Inspecting the Significant Controllers Register

The company may be required to make the Significant Controllers Register available for inspection at any reasonable time.

The Police, Inland Revenue, Customs and Excise, Immigration, the Securities and Futures Commission, and the Hong Kong Monetary Authority are a few of the governmental bodies that have the authority to review the register.

Law enforcement has the right to make copies of the register in addition to inspecting it.

The right to inspect the register is not limited to law enforcement. Anyone whose name appears on it has the right to inspect it and receive a copy of it.

Failure to comply with the right of inspection is an offence that can result in penalties for the company, its employees, or its directors.

Furthermore, anyone who intentionally or recklessly makes a false, misleading, or deceptive statement in regard to the Register may face a substantial fine and up to two years in prison.

Conclusion

The Significant Controllers Register regulations must be understood by all companies incorporating in Hong Kong. Failure to comply with legal requirements can result in serious consequences.