Following on our E-newsletter of 27 February 2018 for the subject “The Companies (Amendment) Ordinance 2018 – Keeping of Significant Controllers Register”, the Companies (Amendment) (No. 2) Ordinance 2018 (the “Amendment Ordinance”) will commence operation on 1 February 2019. Based on the operational experience and the feedback from various stakeholders on the new Companies Ordinance (Cap. 622) (“new CO”), the Amendment Ordinance introduces new provisions to incorporate new developments, and amends some provisions to improve the clarity and operation of the new CO and further facilitate business in Hong Kong.
What are the major amendments relating to accounting-related provisions?
- Update the definitions of “holding company” and “parent undertaking” to reflect the current accounting standards, to avoid inconsistency between the Companies Ordinance and the current accounting standards; and
- Adopt control as the basis for determining whether an entity is a “subsidiary” of the “parent undertaking”.
What is “parent undertaking” under the Amendment Ordinance?
An undertaking is a parent undertaking of another undertaking if it has control over that other undertaking; or it is a parent of that other undertaking for the purposes of the accounting standards applicable to its financial statements.
What is the definition of “control” under the Amendment Ordinance?
An undertaking has control over another undertaking if it has the power to govern the financial and operating policies of that other undertaking so as to obtain benefits from that other undertaking’s activities. An undertaking is presumed, unless the contrary is proved, to have control over another undertaking if:
- it holds a majority of the voting rights in that other undertaking;
- it has the power to exercise a majority of the voting rights in that other undertaking by reason of an agreement with other members of that other undertaking;
- it has the right to appoint or remove a majority of the board of directors, or an equivalent governing body, of that other undertaking; or
- it has the power to cast a majority of votes at meetings of the board of directors, or an equivalent governing body, of that other undertaking.
What are the types of companies that can benefit from the reporting exemption under the Amendment Ordinance?
Under the Amendment Ordinance, two other types of corporate groups can benefit from the reporting exemption provided that both the holding company and all its subsidiaries meet the size criteria:
- holding companies of corporate groups comprising small private companies or eligible private companies and small guarantee companies (mixed groups); and
- holding companies of groups of small private companies, eligible private companies, small guarantee companies, or mixed groups described in paragraph (i) above, with non-Hong Kong subsidiaries.
What measures are introduced in the Amendment Ordinance to reduce costs and facilitate compliance by companies?
The key measures introduced include the following:
- expanding the scope for simplified reporting;
- providing an option for a holding company which is also a wholly owned subsidiary to prepare consolidated financial statements;
- allowing a partially owned subsidiary to prepare its own accounts instead of consolidated financial statements if all members agree;
- providing that for a group of eligible private companies, the adoption of simplified reporting will require a resolution by members of the holding company only;
- providing that the financial year may be shortened or lengthened by a period not exceeding 7 days;
- providing alternative means for a holding company to disclose the names of the directors of all its subsidiary undertakings on its website, or by keeping such a list at its registered office and making it available for inspection;
- expressly allowing a company’s articles to be in electronic form;
- allowing a company with both an English registered name and a Chinese registered name to display either its English name or Chinese name (but both names must be stated in the articles);
- providing for an exemption from general registration requirement for alteration of articles if such alteration is in respect of a change of company name only, as a separate registration requirement already applies to a change of company name;
- providing for an exemption from the requirement to notify the Registrar of Companies of a change in place where copies of instruments creating charges are kept if the relevant change only relates to a change of the address of a company’s registered office or the address of a registered non-Hong Kong company’s principal place of business in Hong Kong;
- providing that if all members in a class agree to a variation of the class rights, the variation will have effect as agreed;
- specifying the primary accounting reference date for a dormant company that has ceased to be dormant;
- clarifying that the court-free procedure for horizontal amalgamation is also available for subsidiaries of a holding company incorporated outside Hong Kong so long as the merging companies are Hong Kong companies;
- clarifying the conditions for granting applications for administrative restoration of companies; and
- clarifying in the Model Articles that an ordinary resolution of a company is required only for certain types of alteration of the share capital of the company.
For detailed information, please refer to the following website of the Companies Registry relating to the Amendment Ordinance:
https://www.cr.gov.hk/en/companies_ordinance2018/index.htm
If you have any questions regarding the above, please contact your Sertus Client Services Representative or contact us at info@sertus-inc.com.