Companies (Amendment) Bill 2017

1. INTRODUCTION

The Companies (Amendment) Bill 2017 (the “Bill”) was published by the Hong Kong government on 23 June 2017 as part of the effort to bring the regulatory regime on combating money laundering and terrorist financing in Hong Kong in line with international standards. 

The proposed new law aims at introducing greater transparency to the beneficial ownership of Hong Kong incorporated companies. The Bill, if passed by the Legislative Council, is expected to take effect from 1 March 2018.

1. HOW IT COULD AFFECT YOU

Applicable companies and their officers will be subject to the continuing duties of keeping and maintaining a Significant Controllers Register (“Register”) and investigating and obtaining information about its Significant Controllers, whether or not they actually have any.

Applicable Company

The requirements under the Bill are applicable to all companies incorporated in Hong Kong except:

1. listed companies; or

2. companies belonging to a class which is exempted by regulations that may be made by the Financial Secretary of Hong Kong.

Companies incorporated overseas or having registered branches or representative offices in Hong Kong under Part 16 of the Companies Ordinance (Cap. 622) do not fall within the scope of the Bill. 

Who is a Significant Controller?

A Significant Controller may be a Registrable Person or a Registrable Legal Entity. 

A Registrable Person is a natural person (or specified entities such as government authorities and international organisations) which holds, directly or indirectly:

1. more than 25% of the issued shares or voting rights in the applicable company; or

2. the right to appoint or remove a majority of the board of directors of the applicable company; or

3. the right to exercise, or actually exercises, significant influence or control over the applicable company (for instance, through a trust or a firm, if any trustee or member satisfies any of these criteria). 

However, natural persons or specified entities that have significant control over the company due to the following reasons only are not considered Registrable Persons:

1. the person or entity holds or has rights or shares in the company through a Registrable Legal Entity of the company, and this Registrable Legal Entity has any of its shares listed on a recognized stock market; or

2. the person or entity holds or has rights or shares in the company through a chain of legal entities with the last one in the chain being a Registrable Legal Entity of the company, and this Registrable Legal Entity has any of its shares listed on a recognized stock market.

The Bill contains further provisions on determining whether the above criteria are met. 

A Registrable Legal Entity is an incorporated or unincorporated Hong Kong or overseas legal entity which meets any of the above criteria and is a member of the applicable company. This means that indirect parent companies of the applicable company will not be regarded as a Registrable Legal Entity and hence a Significant Controller, although their beneficial owners may still be a Registrable Person.

Obtaining Information about Significant Controllers

The applicable company must take reasonable steps to ascertain whether it has any Significant Controllers and to obtain information about them by, subject to exceptions, serving a notice to a person within 7 days if the applicable company knows, or has reasons to believe, that:

1. such person is a Significant Controller; 

2. such person knows the identity of another person or entity which is a Significant Controller; or

3. a registrable change prescribed under the Bill has occurred to such person.

The notice should require the addressee to confirm the subject matter and to give the relevant particulars. Within 7 days after the applicable company confirms or has knowledge of the registrable particulars, the applicable company must enter them in the Register.

Currently, it is not mandatory that Significant Controllers voluntarily disclose their status to the applicable company. However, unless an exception under the Bill applies, a person on whom the notice was served (and every related person of the entity, if the addressee is a legal entity) must comply with its requirements within 1 month from the date of such notice, failing which the person commits an offence and may face a maximum penalty of HK$25,000.

Inspection of the Register

The applicable company must allow inspection of the Register, upon demand, by Significant Controllers whose particulars are entered in it and law enforcement officers of various statutory bodies including the Hong Kong Monetary Authority, the Securities and Futures Commission, the Inland Revenue Department, and the Independent Commission Against Corruption. There is no right of the public to inspect the Register as of now. 

1. DUTIES AT A GLANCE

New statutory duties imposed on an applicable company and its officers may be summarised as follows:

1. Duty to keep a Register;

2. Duty to ascertain and obtain information about Significant Controllers;

3. Duty to update the Register upon any person ceasing to be a Significant Controller, any change which may result in the particulars in the Register being incomplete or inaccurate and other prescribed changes under the Bill;

4. Duty to make available the Register for inspection by specified persons;

5. Duty to appoint a designated representative (who must be a natural person and a director, employee or member of the applicable company residing in Hong Kong, or an accountant or legal professional) to assist compliance with the new law and to liaise with law enforcement officers and the Companies Registry; and

6. Duty to notify the Registrar of Companies of the location of the Register and any change thereof.

1. SANCTIONS FOR NON-COMPLIANCE

An applicable company and every responsible person of it commit an offence and will be subject to a maximum fine of HK$25,000 and HK$700 extra each day (for continuing offences) if the applicable company fails to:

1. keep a Register at the prescribed place or to notify the Register of Companies of the place at which the Register is kept;

2. enter prescribed particulars in the Register within the specified period; or

3. investigate and obtain information about its Significant Controllers.

Penalties apply to the failure to comply with other statutory duties under the Bill. 

1. OUR TAILORED SERVICES

• We can provide updates and legal advice on any questions you may have on the Bill before and after it is promulgated. 

• We offer a full range of legal services to help you and your company fulfil the statutory duties, including the creation and maintenance of the Register and preparation of the requisite notices. 

• We can come up with bespoke and comprehensive plans to facilitate your company in the long run which may cover internal compliance guidelines and our service as designated representative.
  

IMPORTANT

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