OFFSHORE Series | A Quick Overview of Significant Controller Register (SCR) Compliance for Hong Kong Companies

2023-08-28

Amendments have been made to the Companies Ordinance (Chapter 622) (with Part 2A added to Division 2 of Part 12), stating that companies incorporated in Hong Kong must take reasonable steps to identify their significant controllers. The significant controller information should be maintained in a Significant Controller Register (SCR), in either Chinese or English, at the registered office or a designated place (in paper or electronic form) for inspection by enforcement authorities (including but not limited to the Companies Registry, Customs and Excise Department, Financial Services and the Inland Revenue Department) at any reasonable time.

A "significant controller" refers to a legal entity or individual that exercises significant control over a Hong Kong company. The SCR should contain the required particulars of each significant controller and must be kept updated as changes occur.

Scope of Application for SCR:

Companies Limited by Shares
Companies Limited by Guarantee
Unlimited Companies

Exemptions for SCR:

Companies listed on the Hong Kong Stock Exchange are exempt from SCR requirements.

Required Particulars for SCR:

Required particulars of each significant controller
Required particulars of any changes to be registered for each significant controller

Name or designation and contact details of the designated representative (the company must designate at least one of the following persons as the designated representative to provide assistance to enforcement officers for the SCR):

A member, director, or employee of the company residing in Hong Kong
A person defined under the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance as an accountant, legal professional, or a licensed person carrying on trust or company service business

If no significant controllers exist, a note stating "The company knows or has reasonable cause to believe that the company has no significant controller" should be entered in the SCR.

The term "significant controller" includes both the legal entities and individuals who are required to be registered as such for the company:

Required Legal Entities: An entity that holds more than 25% of the issued shares or capital/profits rights with significant control over the company

Required Individuals: A natural person or specified entity with significant control over the company; however, the following scenarios are not considered required individuals:

If the individual or entity holds shares or rights in the company via a required legal entity listed on the Hong Kong Stock Exchange
If the individual or entity holds shares or rights in the company via a chain of legal entities, and the last legal entity in the chain is the required legal entity of the company listed on the Hong Kong Stock Exchange

For required individuals, the term "specified entity" refers to:

A single corporation
The government of a country or territory, or a part thereof
An international organization comprising two or more countries or territories (or their governments)
A local authority or government of a country or territory

If a required individual is a natural person, the SCR should include:

Name
Correspondence address (excluding a postal box number)
Identity card number or passport number and issuing country
Date of becoming a required individual
Nature of control by the required individual over the company

If a required individual is a legal entity, the SCR should include:

Name
Registration number (or equivalent) in the jurisdiction where it became a legal entity or institution
Address of its registered or principal office
Legal form and its governing law
Date of becoming a required legal entity of the company
Nature of control by the required legal entity over the company

Sinobravo's Reminder: The required particulars should be entered into the SCR within 7 days after confirmation from required individuals (and required legal entities).

Definition of Significant Control (Nature of Control)

If any one or more of the following five conditions are met, significant control is exercised:

1.Directly or indirectly holding more than 25% of the issued shares of the company; for no par value companies, directly or indirectly holding more than 25% of the capital or rights to share more than 25% of profits:

For companies with share capital, all issued shares should be considered, regardless of class
For no par value companies without profit or capital distribution specified in articles, significant controllers under this condition do not apply

2.Directly or indirectly holding more than 25% of the voting rights of the company:

All or substantially all matters that can be decided by voting rights attached to the shares held by a shareholder
Different classes of shares carry different voting rights as stipulated in the articles

3.Directly or indirectly holding the right to appoint or remove a majority of the board of directors of the company:

Subject to the articles

4.Exercising or having the actual power to exercise significant influence or control over the company:

If a person fulfills the above three criteria, there is no need to determine if they meet this criterion or to specify it
If a person can ensure the company's general activities follow their requests, they have "significant influence"
If a person can direct the company's activities, they have "control"
If the exercise of a certain right would result in significant influence or control over the company, it is not necessary to exercise the right in practice
Arises from the articles, shareholders' agreement, or other agreements, and rights attached to the shares held
Absolute decision-making or veto power over adopting or amending the company's business plan, changing the nature of the business, extending additional loans to borrowers, and appointing or removing a CEO
Professionals such as lawyers, accountants, or tax advisors are generally not considered to have significant influence or control

5.Exercising or having the actual power to exercise significant influence or control over the activities of a trust or firm that is not a legal person, where such trust's trustee or firm's member (in the capacity of trustee or member) satisfies any one of the above four conditions for the company

Reasonable Measures to Be Taken by Companies

Examine all available records, including but not limited to the register of members, articles, share certificates, shareholders' agreements, or others
Review interests held by individuals, legal entities, and trusts or firms in the company
Investigate whether there is evidence of common arrangements or the same person controlling the rights in different ways
Case-by-case basis
Records of taken measures should be kept.

Obligation to Notify

If a person becomes a significant controller, the company must send a notice within 7 days of being aware
If one specific person knows that another person is a significant controller and knows their identity, a notice must be sent to that specific person within 7 days of knowing

Exemptions from the Obligation to Notify

A significant controller is a required individual, and the company knows that this person is a significant controller, and this person or the person aware of the particulars has provided the particulars to the company
A significant controller is a required legal entity, and the company knows that this entity is a significant controller, and the particulars of this entity have been provided to the company

Keeping the Significant Controller Register Updated

If a person is no longer a significant controller or if changes occur that require updated particulars, a "required change" must be made. The conditions for sending notifications and exemptions from sending notifications are the same as those for knowing that the person is a significant controller.

If new information cannot be recorded immediately, the register must still be updated, stating when the existing information ceased to be accurate and the investigation conducted.

For individuals who are no longer significant controllers, their particulars can be destroyed after a period of 6 years from the date they cease to be significant controllers.

Storage of Significant Controller Register (to be kept at the registered office or a place in Hong Kong

The company must notify the Companies Registry of the location where the register is kept by using the specified form NR2 within 15 days after the first storage. If the storage location changes, a new NR2 form must be submitted within 15 days. However, if the storage is at the registered office and a change in the office results in a change in the storage location, notification is not required.

Primary Responsibilities of the Company

Keep the Significant Controller Register at the registered office or designated place
Take reasonable measures to identify significant controllers, including sending notices and obtaining particulars
Enter the required particulars into the register
Maintain the register's updates
Provide the register for inspection, copying, or reproduction by enforcement officers

Failure to fulfill the above responsibilities constitutes a criminal offense. Companies and responsible individuals may face a level 4 fine (HKD 25,000) and a daily fine of HKD 700 for the period of non-compliance.

Responsibilities of Notified Individuals

Any person receiving a notice related to the register must comply with the notice within 1 month from the notice's date. Failure to comply is a criminal offense. The recipient or related persons may face a level 4 fine (HKD 25,000).

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