Introduction

While Hong Kong offers exceptional corporate privacy compared to jurisdictions with public beneficial ownership databases, maintaining an accurate Significant Controllers Register (SCR) is a non-negotiable statutory requirement for companies incorporated in Hong Kong.

The purpose of the Significant Controllers Register is to identify the ultimate controllers behind the company structures and reach the ultimate individual with control over the company. The SCR requirements were introduced in the Companies Ordinance of 2018 to satisfy the global Financial Action Task Force (FATF) standards for the prevention of money laundering and terrorist financing, ensuring law enforcement can identify ultimate human controllers behind corporate structures.

The Misconception: The Significant Controllers Register is not public. It is a private statutory register accessible strictly by authorized Hong Kong law enforcement agencies.

The 5 Conditions a Company Must Follow to Identify a Significant Controller

Hong Kong-incorporated companies must identify all controllers of the operation and maintain a Significant Controllers Register. To determine with ease who is a Significant Controller, there are five conditions to determine who can be one:

1. Shareholding: Holds more than 25 percent directly or indirectly of the company's issued shares.
2. Voting Rights: Holds, directly or indirectly, more than 25 percent of the voting rights in the company.
3. Board Control: Holds the direct or indirect right to appoint or remove a majority of the board of directors.
4. Significant Influence: Has the right to exercise, or exercises, considerable influence, or control over the company.
5. Trust/Firm Control: Exercises significant influence or control over a trust or firm that meets any of conditions 1–4.

There are exemptions to the rule. Listed companies on the Hong Kong Stock Exchange and foreign companies with branches in Hong Kong are not required to maintain the SCR.

Registrable Persons vs. Registrable Legal Entities

The register may include information on both individuals or entities with significant control.

• Registrable Person: A natural person (human being) holding significant control over a Hong Kong company.
• Registrable Legal Entity (RLE): Entities with significant control; can be a direct shareholder of the Hong Kong company that holds significant control.

Significant Controller Register Requirements

The register in practice is extremely easy and simple to complete; however, it must always include specific information about the controllers, so that the authority can easily identify in one document all Significant Controllers.

• Required Particulars for Individuals: The SCR must include the full name, correspondence address, HKID card number, or passport number and issuing country, and the date control was acquired.
• Required Particulars for Legal Entities: If the controller is an entity, the SCR must include legal name, place of incorporation, registration number, registered office address, and nature of control.
• Designated Representative Particulars: The Designated Representative is the individual the company will name, who will be responsible for providing the SCR to the authority when requested. The SCR must include the name and contact details of the designated representative appointed by the company. The designated representative must be a natural person resident in Hong Kong. The position can be filled by an employee, a director or shareholder of the company.
• Status Statements: The SCR must state if the company is in the process of investigating controllers or if no significant controller exists. 

Do not confuse the SCR with the register of members. A register of members includes information on the shareholders of the company, including names, shares, and dates of appointment and dates they were removed.

A person who controls the company is not necessarily a shareholder or a member of the company. For example, a family business in which the owner transfers the ownership to their children. On paper, this person is no longer a member, but a bank or financial institution may have reasonable cause to believe he or she might still have control over the operation.

The Mandatory "Designated Representative" (DR)

At this point, it is important to clarify the role of the Designated Representative, so you can coordinate on who to appoint. Here are the characteristics and requirements for this figure:

What is a Designated Representative? 

A designated contact person who will be responsible for producing the SCR to authorized officers upon demand. The company must appoint at least one designated representative and ensure he or she has access to the register. 

Who Qualifies as a Designated Representative?

The Designated Representative can be an individual who is a Hong Kong resident and can be a director, shareholder, or employee of the company.

A local TCSP licensee (Trust or Company Service Provider) who is a company secretary, an accounting professional, or a legal professional. When you hire company secretary services when you do your company incorporation, it is quite common for the TCSP licensee to help you produce the SCR.

What is the Difference Between a Designated Representative and a Company Secretary:

It is important to clarify the difference between the role of the Company Secretary and the Designated Representative. Your Company Secretary will oversee assisting you with company compliance, while the Designated Representative has the role of providing the SCR to authorities when required. For example, the authority can visit your registered address and request the SCR, which is when the Designated Representative is needed.

Where to Store the Hong Kong SCR & Filing Form NR2

These are the layout of the physical rules for storing the register:

1.  Location to Keep the Register in Hong Kong: Default Location.

The most recommended practice is to store the physical or electronic SCR at the company’s registered office address in Hong Kong or an approved location in Hong Kong. It is important to make it accessible to the Designated Representative in case the authority requires it.

2. File Form NR2 if Kept Off-Site: Within 15 Days.

If storing the SCR anywhere other than the primary registered office (e.g., at a business branch), submit Form NR2 to the Companies Registry within 15 days of storing the SCR in that location.

3. Update Changes to Controller Information: Within 7 Days.

If there are any changes regarding the controlling parties of the company, whenever a share transfer or board change occurs, the company must issue a written notice and update the SCR particulars within 7 days of confirmation. 

4. Produce Register to Law Enforcement: Upon Request.

Hong Kong law enforcement officers might require you to provide access to the SCR. The authorities requiring the SCR can include the Hong Kong Police Force, the Companies Registry, Customs, and the Inland Revenue Department.

Fines and Non-Compliance Penalties

We must reinforce the importance of maintaining the Significant Controllers Register; otherwise, the company is liable to different penalties, including significant penalties for failing to maintain, appoint the Designated Representative, or update the SCR and the authority.

Conclusion 

The Significant Controllers Register ensures transparency while maintaining business confidentiality. While simple to set up, failing to maintain it creates heavy daily default fines for directors. 

Consult directly with your service provider to maintain your company's compliance and avoid penalties. 

Frequently Asked Questions

Who qualifies as a 'Significant Controller' of a Hong Kong company?

A significant controller is either an individual or a legal entity that has significant control over the company, either by ultimate ownership or operational control. There are five conditions to determine who can be one:

1. Shareholding: Holds more than 25 percent directly or indirectly of the company's issued shares.
2. Voting Rights: Holds, directly or indirectly, more than 25 percent of the voting rights in the company.
3. Board Control: Holds the direct or indirect right to appoint or remove a majority of the board of directors.
4. Significant Influence: Has the right to exercise, or exercises, significant influence, or control over the company.
5. Trust/Firm Control: Exercises significant influence or control over a trust or firm that meets any of conditions 1–4.

Who can serve as the company's Designated Representative (DR) for the SCR?

The company must appoint a Designated Representative for the purpose of making the SCR available to Hong Kong's law enforcement when requested. The Designated Representative can be: 

1. A natural person who is residing in Hong Kong. Can be an employee, a director, or a shareholder.
2. A licensed professional such as a company secretary, legal counsel, or accountant.

Is the Significant Controllers Register publicly accessible online?

No. A Hong Kong company must maintain a Significant Controllers Register on the premises of the registered address or approved location in Hong Kong. The Register must be shown to law enforcement when requested and is not publicly available. 

Do we still need an SCR if no shareholder owns more than 25%?

Yes. Even if the company has no significant controller, it must still maintain an SCR with the statement "no significant controller". The company must also appoint a Designated Representative. 

What are the consequences of failing to keep or update the SCR?

If the company fails to keep or update the SCR, it might be subject to fines up to HKD$25,000. Directors and company secretaries can also be subject to criminal charges, as the company and every responsible person of the company are liable.