Significant Controllers Registers in Hong Kong

Under the Companies Ordinance (Cap. 622), one of the newest weapons has been introduced to combat the misuse of company structure. This weapon is popularly known as the Significant Controller Register (“SCR”) regime which is primarily used to lengthen the arm of the Hong Kong law. 

Thus, all the incorporated companies are required to satisfy all new requirements to keep the significant controllers register (“SCR”). In this way, there will be transparency of ownership and control over the company to avoid problems. The Hong Kong company is required to identify and ascertain the persons who will be having significant control over the company, to make it available for inspection by the law enforcement officers upon request.

Significant Controllers Registers Regime for Hong Kong Companies has been in existence since 1st March 2018

To enhance the transparency of ultimate beneficial ownership, the Companies Ordinance (Cap. 622) is amended to keep a Significant Controllers Register (“SCR” or Register of Significant Controllers).This new legislation came into effect on 1st March 2018 to prevent the illicit purposes facilitated by the misuse of company structures, such as hiding criminal proceeds, tax evasion, or terrorist financing.

Earlier, as per the old rules of the Companies Ordinance,  unlisted companies had to disclose only the information of their direct shareholders, instead of their ultimate beneficial owners (“UBOs”). There are other regulations, the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance (“AMLO”) which require companies to adopt measures to verify the identity of customers’ UBOs. 

The SCR regime aims to kill two birds with one stone. All locally registered unlisted companies will now have to keep a physical SCR, which contains the required particulars of all its significant controllers. And if you fail to oblige with the requirements of the regime, it will be considered a criminal offence. According to the rules, the company, along with its responsible persons, will be liable to a level 4 fine (i.e. $25,000). They may be subjected to a further penalty of HK$700 each day the offense persists. 

Moreover, If any person knowingly or recklessly makes a statement or provide any information which is misleading, false or deceptive in any material particular in the SCR or in the reply to a company’s notice, the person commits an offence and is liable.

• on conviction on indictment to a fine of $300,000 and imprisonment for two years; or
• on summary conviction, to a fine at level 6 (i.e. $100,000) and imprisonment for six months. 

Who is a Significant Controller in Hong Kong?

In general terms, significant controller means :-

• A Registrable  Person- A natural person  that has significant control over the company.
• A Registrable Legal Entity– e.g. a company, which is a shareholder of the company that has significant control over the company. 

All Hong Kong companies are required to follow all reasonable steps in order to identify and ascertain the significant controllers. The steps consist of reviewing the structure of ownership, the company’s register of members, and shareholder agreements (if applicable). 

The following are the five conditions that you need to know before establishing the image of the significant controllers over the company. A person has significant control over a company if one or more of the following 5 conditions are met:

• 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, the person holds, directly or indirectly, a right to share in more than 25% of the capital or profits of the company.
• The person holds, directly or indirectly, more than 25% of the voting rights of the company.
• The person holds, directly or indirectly, the right to appoint or remove a majority of the board of directors of the company.
• The person has the right to exercise, or actually exercises significant influence or control over the company.
• The person has the right to exercise, or actually exercises significant influence or control over the activities of a trust or a firm that is not a legal person, but whose trustees or members satisfy any of the first four conditions (in their capacity as such) in relation to the company.

What Kind of Information must be recorded in the Significant Controllers Register?

In order to prepare the significant controllers register, the applicable company is required to add the following details as per the amended Ordinance:

Registrable person

• Name
• Correspondence address (P. O. Box is not acceptable)
• Identity document Number – i.e. Hong Kong identity card number, passport number
• The date of becoming a registrable person
• The nature of control over the company

Registrable legal entity

• Name
• Legal Form
• Registration number or the equivalent
• Place of incorporation or formation
• The address of its registered office
• The date of becoming a registrable legal entity
• The nature of control over the company

Designated Representative

One more thing is that an applicable company is obliged to appoint at least one person as their designated representative. The role of this representative will be offering assistance to the law enforcement officer regarding the company’s SCR. The designated representative can be:

• A director, member, or an employee of the company who is a natural person resident in Hong Kong; or
• A legal professional, Trust or Company Services Provider Licensee registered in Hong Kong, or an accounting professional.

Which companies have to keep an SCR?

Well, the requirement to keep a significant controllers register is applicable to every company incorporated in Hong Kong. These business entities include – companies limited by guarantee and private or public companies limited by shares. But the companies whose shares are listed on the Stock Exchange of Hong Kong and the companies which are not incorporated in Hong Kong are not liable to maintain an SCR. 

Where to keep an SCR?

A company that falls within the scope to maintain a significant controllers register is known as an applicable company and is required to maintain a  significant control register at the registered office address of the company or a prescribed place in Hong Kong. If the prescribed place is different from the registered address, additional filing to the Companies Registry within 15 days will be needed. Moreover, business operators can keep the SCR either in hard copy or electronic form.

Preparation and maintenance of an SCR

So, what are the preparation and maintenance of the significant controllers register in Hong Kong? Below are the obligations that you need to fulfill in order to prepare the SCR. 

• Entering the necessary particulars of significant controllers.
• Keeping all the required particulars of the significant controller in the SCR up to date.
• Preparing the SCR for inspection by a law enforcement officer.
• Incorporating reasonable steps to identify the significant controllers, including the giving of notices and obtaining their required particulars:

All Hong Kong companies need to ensure that the information prepared on the SCR is kept up to date, yet,the SCR cannot be empty. The SCR should be kept either in the English or Chinese at the company’s registered office or at a prescribed place in Hong Kong.  

A company must keep an SCR even if it does not have a registrable person or a registrable legal entity. If the company knows that it has no registrable person or registrable legal entity, it must state this fact in the SCR. Please contact Startupr for more information regarding additional matters to be noted in the SCR. 

What about the period of adding the information regarding Registrable Person or Registrable Legal Entity? Well, the business operators should add required particulars into the SCR within 7 days as soon as the company receives the required particulars. 

And who should provide the records of the Registrable person or Registrable Legal Entity? It can be provided by the other person or the company owner, but the particulars should be entered into the SCR within 7 days upon receipt and also with the acknowledgment of the Registrable Person. 

Who is authorized to access SCR?

The significant control register is not open for public inspection. Only the person whose name is registered as a significant controller is authorized to access the SCR. It can also be accessed by law enforcement officers to ensure the performance of the functions regarding the detection, investigation of money laundering, detection, or terrorist financing. The following government departments or statutory bodies can access the SCR:

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

If you want to get some help regarding the SCR, feel free to contact Startupr.