Who counts as a significant controller in Hong Kong

Who Counts as a Significant Controller in Hong Kong

The question of who counts as a significant controller is answered by the Companies Ordinance (Cap. 622), which sets out specific criteria for identifying individuals and legal entities that must be recorded in a company's Significant Controllers Register (SCR). A significant controller is any person who meets one or more of the statutory conditions relating to ownership, voting rights, or influence over the company.

Significant Controller Definition Hong Kong

The significant controller definition Hong Kong uses is drawn from the anti-money laundering provisions of the Companies Ordinance. A person qualifies as a significant controller if they hold more than 25% of the issued shares in the company, or hold more than 25% of the voting rights, or otherwise exercise significant influence or control over the company. The definition applies equally to natural persons and legal entities.

25 Percent Threshold SCR

The 25 percent threshold SCR is the primary quantitative test. A person who holds more than 25% of the company's issued shares is a significant controller. The same threshold applies to voting rights: a person who controls more than 25% of the voting rights at general meetings is also a significant controller. Where shares are held jointly, each joint holder is treated as holding the entire interest for the purpose of the threshold.

Who Is a Significant Controller

Who is a significant controller extends beyond shareholders. A person who does not hold shares or voting rights above the 25% threshold may still be a significant controller if they exercise significant influence or control over the company. This includes directors who effectively control the company's operations, persons who have the right to appoint or remove a majority of the board, and persons whose directions the board is accustomed to follow. The test is substantive rather than formal.

SCR Significant Controller Criteria

The SCR significant controller criteria require the company to identify every person who meets any of the following conditions:

• Holds more than 25% of the issued shares
• Holds more than 25% of the voting rights
• Has the right to appoint or remove a majority of the board of directors
• Is a member of a partnership or unincorporated body that itself meets any of the above conditions
• Exercises significant influence or control over the company in any other way

Where no individual can be identified, the company must record the fact and state the steps taken to identify any significant controller.

Identifying Significant Controllers

The company must take reasonable steps to identify its significant controllers. This includes reviewing the register of members, examining shareholder agreements, and sending written notices to any person the company believes may be a significant controller. The company must update the Significant Controllers Register within seven days of becoming aware of any change.

The Designated Representative

Every company must appoint a designated representative to assist law enforcement in accessing the Significant Controllers Register. The designated representative is typically the company secretary, a director, or an employee of the company. The representative's contact details are recorded in the register.

Practical Implications

The Significant Controllers Register has been required since 1 March 2018 for all companies incorporated in Hong Kong. The register is kept at the company's registered office or another prescribed place in Hong Kong. It is not open to public inspection, but law enforcement authorities may access it on request. Failure to maintain the register or to identify significant controllers is an offence under the Companies Ordinance.

What to Do Next

If you are a director or company secretary of a Hong Kong company, review your current register of members and any shareholder agreements to identify persons who meet the 25% threshold or who exercise significant influence or control. Send written notices to any person you believe may be a significant controller, and record their particulars in the Significant Controllers Register. Appoint a designated representative if you have not already done so.