How To Keep Your Hong Kong Company’s Significant Controllers Register Updated

As a Hong Kong company owner, you should know that since 1 March 2018, all companies incorporated in Hong Kong (except those listed on the Hong Kong Stock Exchange) are required to maintain a Significant Controllers Register (“SCR”). The Companies Ordinance of Hong Kong has been amended to enhance transparency in corporate beneficial ownership and control. This change allows Hong Kong to fulfill its commitments at the international level

The Amendment Ordinance places stringent compliance requirements on Hong Kong companies, including taking prescribed reasonable steps to determine significant controllers, ensuring the ready access of the Significant Controllers Register (SCR) for inspection by law enforcement officers upon request, and keeping the SCR updated. It is therefore recommended that you study the requirements carefully so as not to break the law and which is constitutes as criminal offence.

The article below provides information on the different obligations imposed by the Significant Controllers Register (SCR) regime, the manner in which your Hong Kong company’s significant controllers should be identified and other practical steps to be taken to comply with the Amendment Ordinance.

What is Significant Controllers Register (SCR)?

Before the amendment in 2018, the original Companies Ordinance lacked sufficient transparency and enough room to determine the beneficial ownership of locally incorporated companies. Before, Hong Kong companies were only required to release the information about their direct shareholders, while the owners of their ultimate beneficiaries were free to stay concealed. The veil of opacity cast over corporate structures and the impediments in accessing such information facilitated the abuse of corporate vehicles for illegal purposes like money laundering, tax evasion, or terrorist financing.

In addition, the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance which was enacted in July 2011 did not provide the necessary answer to this issue. Even though the ordinance requires financial institutions to get information of ultimate ownership and control from their customers, court papers that are applicable must be served to get to this information. However, in order for a court order to be issued, it is necessary to know the identity of the addressee, which is often a problem.

Considering the many practical difficulties of lifting the veil of secrecy covering corporate structures, the Amendment Ordinance effectively makes the information more available both physically and legally. It provides that the Significant Controller Register (SCR) which contains details of the significant controllers be maintained at a physical location and inspections can be carried out at any reasonable time by officers of the Companies Registry and law enforcement authorities, including the Police, Immigration Department, Inland Revenue Department, Insurance Authority, Securities and Futures Commission, Independent Commission Against Corruption, and Customs and Excise Department. Nevertheless, the SCR is not open for public scrutiny.

What Are the Stipulations Outlined in the Amendment Ordinance?

Under the Amendment Ordinance, all unlisted companies incorporated in Hong Kong, including companies limited by shares, companies limited by guarantee, unlimited companies and dormant companies, have to:

1. Maintain the Significant Controllers Register (SCR) either at the registered office or at a specified location in Hong Kong.
2. Undertake reasonable measures to ascertain the identities of the company’s significant controllers, which includes sending written notifications to legal entities identified as significant controllers and collecting necessary information about them.
3. Enter the relevant details of the significant controllers into the SCR.
4. Ensure the SCR is regularly updated.
5. Permit law enforcement officials and significant controllers listed in the SCR to inspect and obtain copies of the register.

It is important to note that the requirements stated above do not apply to the foreign companies that have a branch registered in Hong Kong or the listed companies.

What Elements Are Required to Be Included in the Significant Controllers Register (SCR)?

Your Hong Kong company’s SCR must include:

1. The relevant details of all the significant controllers

• For a registrable individual, which could be a natural person or a specified entity such as local authorities, governments, or corporations sole, regardless of their residency, who holds significant control over your company, the required information includes their correspondence address, Hong Kong identity card number, or passport number along with the issuing country.
• For a registrable legal entity, such as a company regardless of its place of incorporation, that holds significant control over your company as a shareholder, the required details include its legal form, registration number, place of incorporation, and registered office address.
• Additionally, the date when the registrable person or legal entity attained the status of a significant controller, as well as the nature of control exerted over the company, must be provided.

2. The particulars of any registrable change in relation to each significant controller, namely, the cessation of a registrable person or legal entity’s status as a significant controller, or a change that makes the information kept in the SCR misleading or incomplete.
3. The personal information of a designated person who will liaise with law enforcement and Company Registry offices. This person must be either: 

• a Hong Kong resident natural person who is a member, director, or employee of the concerned company.
• as a certified accountant, an attorney an independent trustee, an auditor, or the company secretary.

4. Other things as provided by Schedule 5C of the Companies Ordinance, for instance, the company knows, or has reasonable cause to believe, that it has no significant controller where applicable.

Who is a Significant Controller?

A significant controller of the company is defined as follows: 

1. A registrable individual, whether a natural person or a specified entity, or a 
2. registrable legal entity functioning as a shareholder, must demonstrate significant control over the company.

Additionally, it should be understood that a natural person or specified entity with a major controlling interest will not be regarded as a registrable person if they hold stakes or raise rights through a company listed in the Stock Exchange of Hong Kong.

A situation qualifies as significant control applied if one or more of the following criteria are satisfied. The registerable person or entity possesses: 

1. Owning directly or indirectly more than 25% of the issued shares, capital, or profits, if share capital is not applicable.
2. Holding directly or indirectly more than 25% of the voting rights.
3. Possessing the authority to appoint or dismiss the majority of the board of directors.
4. Having the right to exercise, or actively exercising, significant influence or control over the company.**
5. Having the right to exercise, or actively exercising, significant influence or control over the activities of a trust or a firm, such as general partnerships and limited partnerships without separate legal personality, where the trustees or members fulfill any of the aforementioned four conditions.

**The fourth condition functions as a safety measure to prevent beneficial owners from intentionally avoiding the first three conditions by reordering their interests artificially.

If a person or entity does not satisfy the first three conditions, but they exercise significant influence or control over the company, then they will be considered a significant controller of the company.

“Significant influence” is the ability of a person or an entity to make sure that a company mainly does what they want it to do.

Control refers to who can tell the company what to do.

The titles or positions held by the person or entity in the company are irrelevant when determining whether they exercise significant influence or control.

What Reasonable Steps Should You Take to Identify Significant Controllers?

The Companies Registry provides you with a usual requirement that you must undertake to obtain information on significant controllers of your company in Hong Kong. These include:

1. A review of vital documents for the establishment of the structure should be conducted in this process. The company’s articles of association, register of members, statement of capital, shareholder agreements, covenants, and other agreements can be applied in this process.
2. Look into the shareholders that hold interests in your company and find out if they are a person, legal entity, trust, or company.
3. Considering any signs pointing to the fact that different types of rights are managed by a single person or organization, such as a joint venture.
4. Any other considerations are needed according to the specific scenario of your company.

You are advised to keep track and maintain records of the process to figure out the actual significant controllers.

What other practices can be done to achieve compliance?

Serve notices to significant controllers and other concerned entities

You must give written notice about any person or entity, who you know or have a reason to believe holds a significant controller position within seven days of having the knowledge or belief about it. Furthermore, you can request a notice be issued to a third party that you reasonably suspect has possession of information regarding a person or entity who is a significant controller.

Furthermore, if you have been already given information about the person or entity who plays a role as a significant controller, and the particulars are also disclosed, then you do not need to give notice.

Complete the SCR accurately

The SCR should be done accurately and completely containing all the mentioned matters as described in section three “What are the elements of the SCR?” in this article.

To avoid causing financial damages, it is recommended to remember that the SCR must never be left blank. Even if there is no substantial influence, this statement should be explicitly noted by using the prescribed language of the SCR. As follows are some of the different conditions in which you have to declare the related fact as instructed in Annex C of the Company Registry’s Guideline on the Keeping of Significant Controllers Registers by Companies.

1. Absence of significant controllers within the company’s structure.
2. Inability to identify a significant controller despite undertaking reasonable steps to do so.
3. Pending confirmation of the identified significant controller’s particulars.
4. Ongoing investigations to determine if the company has a significant controller.
5. Non-compliance with the requirements outlined in the written notice by the addressee within the stipulated timeframe.

Additionally, a registrable person’s particulars must be entered into the SCR within seven days after having been confirmed by a registrable person. In the case of a registrable legal entity, the information regarding the alteration must be entered into the SCR within 7 days after it has been brought to your knowledge.

Make sure to always update the SCR

Keeping the details of your SCR current and correct is imperative for maintaining compliance. Regarding a change associated with a registrable person, you are required to amend the SCR accordingly within seven days after it has been confirmed by the registrable person. So for the last part of the registrable entity change, the information must be submitted in the SCR up to 7 days after you get information to that effect.

Ensure the Significant Controllers Register (SCR) is maintained in the appropriate location

The SCR needs to be stored at your registered address in Hong Kong by hard copy, electronic file, or any designated location. If the SCR is not kept at your registered office, you must fill up and submit a Form NR2 to notify the Companies Registry of its location within 14 days after the SCR has been transferred to that place.

What are the Consequences of Non-compliance?

It is important to note that failure to comply with your obligations related to the SCR regime is classified as a criminal offense. A company that is an offending company and any person who is a responsible person of the company shall be liable to a fine of HKD 25,000 and a further daily fine of HKD 700 for every day on which the offence continues.

Further, a person who knowingly or recklessly makes a statement in the SCR that is misleading, false, or deceptive may be liable to a fine of HKD 300,000 and imprisonment for two years upon conviction.

To access details about the SCR regime, visit the Companies Registry’s designated page.

Why should you consider FastLane?

Having to stay updated on the constantly changing and more and more complex regulation regime just adds to the stress of the operational compliance regime. Although it is not always easy to determine the responsible parties, it must be done and the regulatory requirements must be met. 

Fastlane Group’s experienced Corporate Secretarial team will help you minimize the compliance burden by providing a detailed impact assessment report for your business regarding the Significant Controller Register legislation, drawing up a structured and accurate SCR, and complying with your statutory engagements on your behalf.

Talk to us now to arrange for your ready-made Hong Kong company’s SCR hassle-free.