A company may be doing well but still be unnecessarily risky if the company records are incomplete, out of date or difficult to provide. Knowing how to keep statutory records is therefore not simply an administrative task. It is a sensible way to establish good governance for Hong Kong companies and safeguard decision makers. And ensure proper compliance work is carried out within manageable limits.
For the founders, the challenge is that there is no single document or document of the year that is the statutory document. They are various registers, company records, formal decisions, and financial records which must be maintained as the business grows. If there is a simple system that is used consistently, much better than trying to create the file again towards the deadline.
What statutory records include
Statutory records are the documents and registers the company is obliged to keep by the company law requirements. They document the formal history of ownership, management, decisions, and financial activity of the company.
The main corporate file of a typical private company will usually contain the following information: a certificate of incorporation, the business registration information, articles of association, a record of allotment and transfer of shares, and registered office information. It also needs to contain the register of members, register of directors, register of company secretaries and, if any, register of charges and debenture holders’ records.
There is also a requirement for a substantial controllers register to be held by the companies. This is a controlled register, with certain access restrictions, and should not be used in the same manner as a general company file that can be accessed by all employees or third parties.
Maintain written resolutions and minutes of meetings along with statutory registers. Record major corporate actions: Appointments and removals of directors, share issues, change of company secretary, approval of a big contract, change of banking authority, etc. The exact form of approval will vary according to the company’s articles and the nature of the approval, but the record should always contain the information on what has been approved, the date, and the name of the person approving.
Accounting records are also pivotal one. They should communicate the transactions and financial position of the company clearly so that sound financial statements can be made. IIn Hong Kong, all accounting records will be kept for a minimum of seven years. These come in the form of bank statements, contracts, associated schedules, expense claims, sales records, receipts, payroll records and invoices.
How to keep statutory records accurately from day one
The best way to do this is to establish a central statutory records register at the time of incorporation. This shouldn’t be a complex process. It is a controlled index, meaning it displays each record, the current revision of the record, the location of the record, who is responsible for making changes to the record, and the date the record was last seen.
Separate the company’s corporate papers from their normal commercial paperwork. A supplier invoice and a directors’ written resolution can both be kept on the computer, but are for different purposes and need to be kept under different control. Isolating them will make it easier to locate evidence of a corporate decision without having to rummage through day-to-day operational files.
There is a need to keep each of the statutory registers up to date after each of the events has occurred. Update the internal register and prepare the appropriate filing, for instance, if a director is appointed, within the applicable period. Please don’t wait until the annual return is due! It is much easier to conduct compliance work if the company’s own records show its current position throughout the year.
They need to be especially mindful of changes in ownership of shares. Signing an agreement or agreeing a price is not enough from a record-keeping point of view, as the transfer of a share does not occur until it is completed. The company will be obliged to maintain transfer documents, make amendments to the register of members and ensure that there is a record of ownership. The significant controllers’ register should be reviewed if the transaction involves a change in control.
Store records where they can be produced when needed
Under the notification requirements, a company is required to maintain at its registered office or at any location where the company chooses to keep the statutory records a number of documents and records. For many small businesses, it is the most convenient choice to have the registered office and company secretarial address as the main location. It provides a clear point of control and reduces the chance of documents becoming lost in a founder’s home, an employee’s laptop, and an old email address.
Records that are kept complete, legible, and can be reproduced could be stored electronically. A secure document management solution may be more valuable than going with a paper-based file system, offering controlled access, version control and retention policies. But, with digital storage, there’s no excuse for lack of discipline. Documents should be scanned consistently, saved in the right folder, and should be text-readable.
A logical folder system may include incorporation documents, statutory registers, shareholder records, directors’ minute books, company secretary minute books, financial records, tax records and material contracts. Limit access to statutory registers to those who are responsible for maintaining them. Access may be granted to other users, as appropriate.
Give tight permissions for sensitive information, particularly identification information and the vital controllers register. This should be only done by persons authorised and in compliance with the company’s legal obligations. Even when it’s convenient to forget, confidentiality should be considered.
Build updates into normal business activity
It will be difficult to keep to the statutory record keeping if it is regarded as a year-end task. Rather, tie it in with events already occurring in the business.
For all bank account openings, change of signatory, change in an investor, issuance of new shares, change in registered office, change in bank officer, ask yourself, “What documents and registrations will be affected? Give the name of the person who will take the follow-up of the update and establish a time limit to finalize it. Such changes are crucial for company maintenance requirements, and keeping statutory documents and documents up to date are necessary.
For a small or medium-sized company, a compliance review typically takes place monthly or quarterly, and major changes are dealt with promptly. A review of the statutory registers with the latest information provided by management, the bank, payroll provider and accounting records should be conducted at review. These discrepancies can frequently reveal a problem that has arisen, long before it has become a more serious problem.
Additionally, it is useful to have a forward calendar. Include the date the return of the annual return, date of renewal of registration of the business, tax-related deadlines, dates for board approval of the annual return, dates for shareholder approval of the annual return, dates for internal review of registers, etc. A calendar will not take the place of professional judgment, but will help ensure that regular duties are not neglected during hectic trading seasons.
Keep evidence behind every important change
A register entry without supporting evidence can raise questions later. For every material corporate change, retain the documents that explain it. This can be consent to act forms, resignation letters, transfer instruments, share certificates, written resolutions, meeting notices, meeting minutes, or correspondence confirming the effective date.
It’s not about paperwork, paperwork. It’s a means to ensure that if one of the founders were to forget, someone else will be able to run the business. When new investors join the fold, management changes, a bank asks for information or a company wants to verify who ownes it and what it has decided previously.
Date and keep signed final documents. Drafts may be helpful when preparing a decision, but should not be interpreted as the approved document. Keep a copy of the resolution and the electronic circulation of the written resolution in the same file if the resolution is circulated electronically.
Common record-keeping mistakes to avoid
The most often made error is believing that a change filed with the Companies Registry is a true representation of the internal records. Filing and record maintenance are not the same. Both are required for a company.
A common issue is the use of informal communications. When a message states that a director has agreed to something, it may be useful for a commercial reason, but it is not necessarily a valid stand-in for a corporate decision that is properly documented. The level of formality should be commensurate with the decision and the company’s articles.
Records that are in the hands of a departing employee, former service provider, or overseas shareholder also result in loss of control for the business. Keep a company storage area and pass over access and original documents and up-to-date registers when responsibilities are passed on.
Last but not least, don’t mistake a neat folder for good record keeping. Even an archive that is well organised may have some invalid director information, a short list of members, or even lack resolutions. It is critical to undertake regular audits of the company’s actual operations.
When outsourced support makes sense
It’s not for the founders to become the best-known experts in statutory administration, but they do require a reliable process and some level of accountability. Company secretarial and bookkeeping outsourcing services may be especially beneficial if a company is owned by foreign investors, the ownership frequently changes, or the company directors are numerous, or the management of the company is light.
The right support should help to keep corporate records and financial paperwork in sync, keep the business on top of deadlines, and make sure it is kept informed on decisions that need to be approved. Geekay Systems & Accounting Limited assists Hong Kong companies with ongoing tasks in a practical and coordinated manner.
A good set of statutory records should never be a “post mortem” exercise. Ensure they are up to date, protected, and readily accessible, and they will help to make better decisions and provide more trust within the business as it expands.
FAQs
1. What are statutory records in Hong Kong?
The statutory records are the official documents of the company, which are engaged in monitoring a company’s ownership, management, decisions, and legal compliance.
2. Which statutory records must a Hong Kong company maintain?
These are registers of company’s directors, company secretaries, and members, minutes of meetings, and accounting records.
3. How many years does the company in Hong Kong have to keep the accounting books?
For Hong Kong companies, the general guideline for accounting record keeping is seven years.
4. When should statutory records be changed?
Update records as needed and check records from time to time for accuracy.
5. What are the consequences of not keeping statutory records?
Not having the information lead to compliance issues and difficulty managing transactions or penalties.
