Ever since the release of the Panama Papers in 2016 (as dramatized in the 2019 film, ‘the Laundromat’), Governments around the world have pursued increased transparency around corporate ownership.
There has been a concern that various business structures (including companies and trusts, and often a combination of the two), have been used to obscure who is really in control of a company. And this in turn means concerns about whether those structures are being used for money laundering.
As of March 2018, a new law came into force in Hong Kong, the Companies (Amendment) Ordinance 2018 ("the Amendment Ordinance"), creating new transparency rules for company ownership, including the creation of a ‘Significant Controllers Register’.
Here we explain what you need to do to comply with this law.
- Which businesses are required to comply with the new requirements?
The new legal requirements apply to all private limited companies incorporated in Hong Kong.
Note, these requirements do not apply to public limited companies (i.e., large companies that are listed on the stock exchange), nor do they apply to companies incorporated 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?
Under the Amendment Ordinance, private companies incorporated in Hong Kong must:
- Take reasonable steps to identify and ascertain persons and legal entities who have significant control over the company (known as the ‘Significant Controller’)
- Keep a ‘Significant Controllers Register’. This register must be be available for access at any time by law enforcement officers
- Maintain the Significant Controllers Register either at their registered corporate office, or in another prescribed location in Hong Kong. Where the register is not kept in the registered office, the company must inform the Hong Kong Companies Registry where it is kept within 15 days
- Keep the Significant Controllers Register up-to-date. Any changes to ownership structures which shift control mean will need to be recorded
- Make the Significant Controllers Register available for inspection where requested by law enforcement or other authorized bodies
- Appoint a ‘Designated Representative’ who is the person who has official responsibility for Significant Controllers Register matters.
2. Who is the ‘Designated Representative’?
Under the amendment ordinance, at least one person must be designated as the company's representative (‘Designated Representative’). This is the natural person who deals with authorities and law enforcement when it comes to the Significant Controller Register. This individual must be:
- A member (usually a registered shareholder), a director, or an employee of the company, and
- A natural person who is resident in Hong Kong, and
- A legal professional or, an accounting professional, or a Trust and Company Service Provider (TCSP) licensee.
3. Who counts as a Significant Controller?
Who controls the company for the purposes of the register?
- The significant controller may be a natural person, or a registrable legal entity, who is a member of the company. In the case of most private limited companies in Hong Kong, this means a shareholder.
- That person or entity must have ‘significant control’ over the company.
According to the amended ordinance, ‘significant control’ means that the person or entity, either
- Directly or indirectly, holds more than 25 percent of the shares issued for the company, or,
- In companies 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.
4. How do I identify the Significant Controller?
As mentioned earlier, the company must take reasonable steps to identify and ascertain who has significant control over the company. This includes, but is not limited to:
- Reviewing all the company’s official documents, such as the register of members/shareholders, the articles of association, any shareholder agreements and company constitutions, or memoranda
- Investigating the interests in the company. For example, if a holding company appears to be a corporate trustee, seeing if the trust deed is publicly available and who the beneficiaries are
- Investigating any evidence of joint arrangements or rights, which might ultimately mean ‘control’ of the company.
After this assessment, the company must take the following steps:
- Where a company has reason to believe that a person or entity is a significant controller of the company, they must give notice to that person within seven days of having that knowledge or belief;
- 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.
On receiving that notice, the person or entity who has received it has one month to comply.
5. Which particulars must be entered into the Significant Controllers Register?
Once the information on significant controllers has been gathered, it must be entered into the register.
The company must enter the following particulars into the Significant Controllers Register for a registrable person:
- The person's full legal name
- A correspondence address
- Their Hong Kong Identity card number, or in the case of someone from overseas, their passport number and name of the country that it pertains to
- The date when the person became a ‘registrable person’ with respect to the company
- The nature of the person's control over the company.
If the company is unable to identify or ascertain who the significant controllers are, or it doesn't have any significant controllers, these facts must also be recorded in the Significant Controllers Register.
6. Inspecting the Significant Controllers Register
The company can be required at any reasonable time to make the Significant Controllers Register available for inspection.
Law enforcement officers who can inspect the register can come from many different government authorities, including the Police, Inland Revenue, Customs and Excise, Immigration, the Securities and Futures Commission and the Hong Kong Monetary Authority.
As well as inspecting the register law enforcement are entitled to make copies.
It is not just a right of law enforcement to inspect the register. Anyone whose name is registered on it may request to inspect it and be provided with a copy of it.
Any failure to comply with the right of inspection is an offense and can result in penalties for either the company or its employees or directors.
In addition, any person who knowingly or recklessly makes a false, misleading or deceptive statement in relation to the Register may be liable to a very substantial fine and imprisonment of up to two years.
All businesses incorporating in Hong Kong need to be familiar with the Significant Controllers Register requirements. And when carrying out associated tasks, such as setting up a domain name, or opening a local bank account, businesses need to carefully consider whether that information needs to go on the register. A failure to comply can lead to significant penalties.