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Requirements for Companies' Significant Controllers Register  in Hong Kong

Overview

The Financial Action Task Force (“FATF”) is an inter-governmental body that sets international standards and recommendations for the tasks of Anti-Money Laundering and Counter-Terrorist Financing (“AML/CFT”). The recent recommendations from FATF responded to the increasing international concerns about the crime activities conducted by companies which hide the ultimate ownership with complex ownership and control structures. Hong Kong has been a member of FATF since 1991 in combating money laundering and terrorist financing. To align with the international standard, new regulatory regimes have been adopted which aim to enhance the transparency of ownership and control of Hong Kong companies.

The Companies (Amendment) Ordinance 2018 (Cap. 622) (“CO”) and the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) (Amendment) Ordinance 2018 (Cap. 615)(“AMLO”) have come into effect on 1 March 2018 for the said purpose.

The amended Companies Ordinance require every local company (i.e. company limited by shares or a company limited by guarantee or an unlimited company formed and registered) registered under the Hong Kong Companies Ordinance to identify the persons who have significant control over the company and to maintain a significant controllers register (“SCR”) which should be accessible by law enforcement officers upon demand. The SCR must include the up-to-date information about who are the significant controllers.

Hong Kong is not the only jurisdiction which registered companies are required to maintain an updated list of the beneficial owners. Most of the popular jurisdictions adopt the international standards and have the similar legal requirements for companies to record the significant controllers or the beneficial owners as well, like Singapore, Cayman Islands and British Virgin Islands. Company laws in these jurisdictions require companies to maintain their SCR in their registered office, to have it kept by their registered agent, even to file their SCR to Government Authority.

1. Company’s Duties Under the Amended Companies Ordinance

A company is required to take reasonable steps to identify its significant controllers, including:-

(a)   Reviewing the company’s register of members, articles of association, shareholders agreements;

(b) Considering interests in the company held by individuals, legal entities and trusts or firms;

(c)   Considering any evidence of joint arrangements or evidence of rights held through a variety of means that might implicate an ultimate control by the same person;

(d)  Any other actions that may have to be taken depending on circumstances of individual companies.

A company has reasonable grounds to believe that a person or entity is a significant controller, the company is required to issue a notice within 7 days to the significant controllers or to the person who knows the identity of the significant controller so as to confirm the particulars of the significant controller within 1 month. In case the significant controllers have informed the company of their status and have provided all the required information, the company will not be required to send the notice.

After all the particulars are confirmed by the significant controllers, the company is required to enter the required particulars of those significant controllers into its SCR within 7 days.

It is the duty of the company to investigate and obtain information about its significant controllers and to keep the information updated.

The SCR shall be prepared in English or Chinese and is required to be kept in either hard copy or soft at the registered office of the company or a specified place in Hong Kong. If the SCR is not kept at registered office, the company should file a designated form to the Companies Registry to disclose the address where SCR is kept.

SCR must contain the information of significant controllers and designated representative. There are two types of significant controller, registrable legal entity and registrable person.

• A registrable legal entity is a legal entity which is a member of the company and has significant control over the company;
• A registrable person is a natural person or a specified entity that has significant control over the company.

Even there is no significant controller, it is still required to prepare SCR and to appoint a designated representative of the company.

SCR is not open to the public, but only could be inspected by the Law Enforcement Officers, such as officers from Companies Registry, Hong Kong Police Force, Inland Revenue Department and so on.

2. Identification of Significant Controllers

There are 5 conditions for significant controllers. Anyone who meets one or more of the conditions, is defined as the significant controllers and needs to enter his/her name and information into the SCR.

• 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.

The followings are examples of Significant Controllers:

Direct ownership

If the Company’s shares are held as below, then Mr. Chan will be classified as a registrable person of the Company, because he holds more than 25% of the Company’s shares directly.

Indirect ownership

If the Company’s shares are held as below, then Mr. Chan will be classified as a registrable person of the Company, because Mr. Chan held more than 25% of the shares in Hong Kong Company A indirectly through Company C and Company B.

Company B will be classified as a registrable legal entity, because Company B held more than 25% of the shares directly in Hong Kong Company A.

Company C will not be classified as a registrable legal entity because it is not the direct shareholder of Company A.

3. Designated Representative

Under the CO, every Hong Kong Company must designate at least one person or company as its representative to provide assistance to law enforcement officers relating to the SCR.

Only the following can be appointed as Designated Representative:-

1. A member, director or an employee of its Company who is a natural person resident in Hong Kong; or

2. An accounting professional (a certified public accountant or a certified public accountant (practising), a corporate practice or a firm of certified public accountants (practising)), a legal professional (a solicitor or a foreign lawyer) or a TCSP licensee (a person licensed to carry on trust or company services business in Hong Kong) as defined in the AMLO.

4. Offences

If a company fails to comply with the new requirements, it would be a criminal offence. The company and every responsible person of the company are liable to a fine at level 4, which is HK$25,000 and a further daily fine of HK$700 per day where applicable.

If a company’s significant controllers fail to reply the notice mentioned above or to comply with the requirements in the notice received from the company, the notice addressee and every related person are liable to a fine at level 4, which is HK$25,000.

If any person knowingly or recklessly makes a statement or provides information which is misleading, false or deceptive in the SCR or in the reply to the company notice, the person is liable on conviction on indictment to a fine of HK$300,000 and imprisonment for two years; or he is liable on summary conviction, to a fine at level 6, which is HK$100,000 and imprisonment for six months.

5. Services Offered by Kaizen

Kaizen CPA Limited is a certified public accounting firm and its associated firms are licenced corporate agents registered with the Hong Kong Companies Registry (licensee of Trust and Company Service Providers). In response to this amendment of Companies Ordinance in 2018, Kaizen provides the following services accordingly:

• Acting as designated representative of your Hong Kong company;
• Assisting to identify the significant controller(s);
• Creating and maintaining the SCR;
• Keeping the SCR up-to-date;
• Preparing notices and confirming particulars of new significant controllers when needed.

By the above work, Kaizen is pleased to bring convenience and care to our clients and to maintain our one-stop services with high quality as well. The service fee for all the above is HKD1,200 per annum.

If you wish to obtain more information or assistance, please visit the official website of Kaizen CPA Limited at www.kaizencpa.com or contact us through the following and talk to our professionals:

Tel: +852 2341 1444

Mobile: +852 5616 4140, +86 152 1943 4614

WhatsApp/ Line/ Wechat: +852 5616 4140

Skype: kaizencpa

Email: info@kaizencpa.com