Introduction

Many investors mistakenly believe that by registering a holding company in places like the Cayman Islands or British Virgin Islands (BVI), and then having this holding company own a Hong Kong licensed corporation (commonly known as Type 1, 4, or 9 license), they can bypass the major shareholder approval process of the Hong Kong Securities and Futures Commission (SFC). In reality, the key factor isn’t “where the holding company is registered”, but “who effectively controls this holding company”. As long as the SFC can trace the ultimate beneficial owner or persons acting in concert, regardless of where the holding company is established, major shareholder approval may still be required.

1. Offshore Holding ≠ Automatic Exemption from Approval

1. Ultimate Beneficial Owner Penetration
   • The SFC will require licensed corporations (Hong Kong companies) and their upstream holding companies to disclose each layer of ownership structure until the real controller is identified. Even if the holding company is in Cayman, it cannot automatically “hide”.
2. Persons Acting in Concert
   • If multiple shareholders are found to be funding through the same source of capital and making coordinated decisions, they may be considered as one interest group even if they’ve dispersed their names across multiple offshore companies.
3. It’s All About Who Controls
   • Whether the holding company is set up in Hong Kong, Singapore, Cayman or BVI, as long as the same person or group ultimately controls more than 35% (indirect) or 10% (direct), SFC major shareholder approval is required.

2. Three Amusing Cases of “Offshore Holding”

Character A: Illegitimate Son Controlling a Cayman Company

• Background: Mr. Sun doesn’t want his family to know about his other family, so he registers the legal representative of his offshore holding company under his illegitimate son’s name.
• Misconception: Believing that just by being a nominee in a Cayman holding company, the SFC can’t trace back.
• Truth: When investigating the cash flow, the SFC discovers that all funds are inconsistent with the illegitimate son’s lack of financial capacity; the funds actually come from Mr. Sun. Mr. Sun is identified as the real major shareholder and still needs approval.

Character B: Secret Mistress’s BVI “Shell Company”

• Background: Mr. Leung has a young mistress named Lily, and for “protection” purposes, he registers the BVI company shareholder under Lily’s name.
• Misconception: Thinking that BVI itself is low-profile, and the SFC won’t notice.
• Truth: The SFC requests to see the BVI company’s board records and funding sources; they discover that all funds come from Mr. Leung’s Hong Kong account transfers, and Lily is just a nominee. Not only must Mr. Leung be declared as the ultimate beneficial owner, but they may also face risks of misleading or concealment.

Character C: Multi-layered “Rainbow Couple Holding” Across Five Countries

• Background: Mr. Li and his live-in boyfriend want to discreetly invest in a Hong Kong licensed corporation, setting up five holding companies in different parts of the world (such as Seychelles, Luxembourg, Marshall Islands, etc.) with layered shareholdings.
• Misconception: Believing that “as long as there are enough layers”, the SFC cannot discover that it’s ultimately funded by the two of them.
• Truth: The SFC conducts a “penetrative” examination of cash flows and business documents, finding that all funds of the upper-level holding companies come from the same couple’s joint account. As a result, they still need to undergo approval as “persons acting in concert”.

3. Myth Busting: No Matter Where the Holding Company is Registered, the SFC Can Track It

1. Offshore Registration Does Not Equal Safety
   • With increasingly enhanced global financial intelligence and anti-money laundering measures, information exchange between countries is more frequent, and the secrecy of Cayman or BVI companies is not what it used to be. As long as it involves determining the major shareholders of a Hong Kong licensed corporation, the SFC will conduct cross-border fund investigations.
2. The Real Conditions for Avoiding Approval?
   • Unless each investor is financially and decision-making independent, and shareholding ratio does not reach 10% (direct) or 35% (indirect), they may still trigger the SFC’s major shareholder approval threshold.
3. No Matter How Many Layers, You Can’t Change Effective Control
   • No matter where you place the holding company or how complex the structure, you cannot truly disguise the position of the same financial backer.

4. Conclusion: Transparency and Compliance are the Real Deal

• Location is Not the Point: Whether registering a holding company in Hong Kong or overseas, once “effective control” is concentrated in one person or group, SFC major shareholder approval is required.
• Don’t Gamble with Operations: If caught by the SFC for false declarations or concealment of ultimate beneficiaries, the licensed corporation’s license may be revoked, and criminal charges or fines may be faced.
• Seek Professional Assistance: Rather than fantasizing about using offshore registration to bypass regulations, it’s better to consult lawyers or compliance experts familiar with Hong Kong regulations and follow the correct and stable procedures.