The legislative council passed the Companies (Amendment) Bill 2017 (the "Bill") on 24 January 2018. The Companies (Amendment) Ordinance 2018 was gazetted on 2 February 2018. The commencement date of the new law is 1 March 2018. A summary of the new law, which is substantially the same as the Bill, is set out in our client alert dated 17 July 2017.

What does this mean for a Hong Kong company?

If the Hong Kong company is a company listed on The Stock Exchange of Hong Kong Limited, it does not have to keep a significant controllers register (the "SCR"). Please note however that there is no exemption for Hong Kong companies that are subsidiaries of a Hong Kong listed company.

Every other Hong Kong company must have created a SCR, which contains the information of its (a) registrable person(s) (could be a natural person or a specified entity, as the case may be); (b) registrable legal entity or entities; (c) designated representative; and (d) any note the Hong Kong company is required to enter into the SCR relating to additional matters pertaining to the new law, by 1 March 2018. There is no transitional period for Hong Kong companies to comply with the new law. As a Hong Kong company has 7 days to enter the particulars into the SCR, practically the long stop date for compliance may be pushed back slightly to 8 March 2018. As there is only about one month's time to comply with the new law, it is important that immediate steps be taken to comply with the new law without any delay.

A Hong Kong company cannot have a SCR which is empty. Ongoing efforts are also required to keep the SCR updated with all registrable changes, and accurate information, of its significant controllers.

Who are significant controllers?

A significant controller ("SC"), in relation to a Hong Kong company, is:

(a)  any registrable legal entity which is a member of the Hong Kong company and has significant control over the Hong Kong company; and/or

(b)  any registrable person, who is either a natural person or a specified entity having significant control over the Hong Kong company.

A person has significant control over a Hong Kong company if it satisfies one or more of the conditions set out in Clause 1(a) to (e) of Schedule 5A to the Companies Ordinance, as amended (each of the five conditions, a "Condition" and together, the "Conditions"). The Conditions cover sufficiently broad situations which should allow a Hong Kong company to identify a registrable person in most cases.

It is relatively straightforward to identify a registrable legal entity or registrable person who is a member of the Hong Kong company having significant control over it.

It may be more complicated to identify a registrable person having significant control over the Hong Kong company indirectly. If a registrable person holds shares indirectly in the Hong Kong company, he/she (if a natural person) or it (if a specified entity) has a majority stake in the ultimate holding entity (X) if each of the entities below X has a majority stake in the entity immediately below it in the chain and the last one in the chain is the person holding the shares directly in the Hong Kong company.  If interests in the Hong Kong company are held in the form of rights, the same principles apply.

Where interests are held in the form of shares, a person holds a majority stake in a legal entity (X) if it satisfies one of the 4 criteria set out in Clause 7 of Schedule 5A to the Companies Ordinance (as amended) which are set out below:

(i)   the person holds a majority of the voting rights in X;

(ii)  the person is a member of X and has the right to appoint or remove a majority of the board of directors of X;

(iii) the person is a member of X and, under an agreement with another member of X, controls alone a majority of the voting rights in X; or

(iv) the person has the right to exercise, or actually exercises, dominant influence or control over X.

Based on these criteria, the person holding a majority stake may or may not be a member of X. Unlike in other jurisdictions, Hong Kong has not provided for the investigation to stop at X if it is a listed corporation. This is a significant departure from the approach taken by other jurisdictions and will potentially create great inconvenience to foreign listed groups having foreign subsidiaries in Hong Kong.

Additionally, if a trustee of a trust or partner of a firm is a SC pertaining to any of the Conditions under Clause 1(a) to (d) of Schedule 5A to the Companies Ordinance (as amended) further investigation is required to identify a natural person who has the right to exercise, or actually exercises, significant influence or control over the activities of the trust or the firm (as the case may be) pursuant to the Condition under Clause 1(e) of Schedule 5A to the Companies Ordinance ( as amended).

If the registrable person is a specified entity, which is effectively an entity that is associated with one or more national, provincial or local government(s), there is no need to trace further for a natural person.

What should a company do now?

1.   Review the group structure and make investigation to identify its SC, namely a registrable legal entity and/or a registrable person.

2.   Appoint a designated representative who must be a local person.

3.   Gather the prescribed particulars of the SC(s).

4.   Send the relevant notices to: (a)  the SC(s), or

(b)  any person who knows, or the Hong Kong company has reasonable cause to believe that he knows, who the SC(s) is/are,

to get confirmation of particulars of the SC(s).

5.   Create the SCR which contains the prescribed information.

6.   Complete the SCR and have it in place by 1 March 2018 but in any event no later than 8 March 2018.

What can we do to help?

1.   Act as the designated representative.

2.   Create the SCR.

3.   Assist with analyzing and identifying the SC(s) of your Hong Kong company.

4.   Prepare and send the relevant notices to the relevant parties.

5.   Complete the SCR after the SC(s) have been identified.