New Hong Kong company registry amendment means greater transparency
The latest Hong Kong Companies Ordinance (Cap 622) amendment requires business owners to declare parties that hold significant control through shares or other means.
The Hong Kong Companies Ordinance (Cap. 622) has been amended to promote greater transparency and accountability around those who hold significant control over a company through a detailed significant controllers register (SCR). As a member of Financial Action Task Force, Hong Kong has an obligation to fulfil its international obligations and the amendment will ensure that the laws are in line with international standards.
With the amendment, effective 1 March 2018, every company incorporated in Hong Kong, except for those listed in the Hong Kong Stock Exchange (HKSE), will be required to create and maintain a register of all persons who have significant control of the company.
All companies must also appoint a Designated Representative (DR) responsible for reporting in relation to the SCR to prescribed local authorities upon demand.
Business owners will now need to identify a registrable person who has a significant control over the Hong Kong company.
This will affect both new and existing business owners and we expect to see a juggling act between transparency and privacy. For example, there may be issues around identifying a registrable person having significant control over the Hong Kong company indirectly through shares.
What does significant control mean?
According to the Hong Kong Companies Registry, a person or legal entity has significant control over a company if one or more of these 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 relation to the company.
What should business owners do?
All companies, except the HKSE-listed ones, will now need to take these 3 steps, no later than 8 March:
Review the company structure and identify a significant controller (SC). The SC may either be a registrable person and/or registrable legal entity
Appoint a designated representative. This representative bust be either a shareholder, director or any employee of the company who is a natural person resident in Hong Kong or an accounting professional, a legal professional or a person licenced to carry on a business as a trust or company service provider.
Create the SCR containing the required particulars of every SC of the company, the particulars of any registrable change for each SC, the name and contact details of at least one designated representative to provide assistance relating to the company’s SCR to a law enforcement officer. The SCR may be kept at the registered office or a place in Hong Kong.
Failure to comply with the SCR obligations is a criminal offence. The Company, and every officer who is in default, will potentially be liable for a fine of HK$25,000 and possible additional daily fines of HK$700. If any person knowingly or recklessly makes a misleading, false or deceptive statement in the SCR or provides any information that is misleading, false or deceptive, the person commits an offence and is liable on conviction on indictment to a fine of HK$300,000 and imprisonment for 2 years; or on summary conviction, to a fine at level 6 (i.e. HK$100,000) and imprisonment for 6 months.
You can find more information on the SCR requirement at the Hong Kong Companies Registry too.