Electronic incorporation has some obvious advantages over paperbased incorporation – it's faster, more efficient and the whole process can be conducted from the serenity of your own laptop anywhere in the world, 24/ 7. So why, a year on from the Companies Registry's launch of this new service, has uptake been relatively slow? CSj gets feedback from company secretaries on whether e-incorporation is living up to its promises.

Just over a year ago, on 18 March 2011, the Hong Kong Companies Registry launched a one-stop electronic service for company incorporation and business registration. The roll out of the service was particularly welcome to company secretaries in the corporate services sector, who are major users of the Registry's services. 'Incorporation within a matter of minutes is a very attractive proposition to us here at TMF, it also raises Hong Kong's profile globally as a forward-thinking and business-friendly place to conduct business,’ commented Suzanne Callister, Regional Director, Corporate Services Asia Pacific, TMF Group, at the time of the e-incorporation launch. A year on from the launch of the service, it seems to have fulfilled its aspirations. The time needed to incorporate a business in Hong Kong has been reduced from four days to less than one hour. And, right on cue, Hong Kong's status in the World Bank's 'Ease of Starting a Business’ rankings has climbed from sixth place in 2011 up to fifth place in 2012 (behind New Zealand, Australia, Canada and Singapore). ‘As a leading international business and financial centre, a convenient and efficient company registration system is crucial for Hong Kong,’ says Ada Chung, the Registrar of Companies. 'The new service provides an alternative to the traditional paper-based application. It not only makes it easy to start a business in Hong Kong, but also puts us on a par with business centres like London and Singapore. At the same time, it enhances Hong Kong's competitiveness and pull as a major international business and financial centre.’ There is, however, one small catch to this success story. In 2011 only 11% of company incorporations were processed electronically. Registry statistics released in early January this year indicate that, out of a total of 150,190 incorporation applications received by Registry in 2011, 16,604 were electronic applications. Should we attribute this slow uptake to user apathy and a lack of familiarity with the new service? Human beings are, after all, notoriously resistant to change. Or does it indicate problems with the service itself? The answer to these questions depends, of course, on who you ask.

What do company secretaries think of e-incorporation?

The likes

Company secretaries working in the corporate services sector are an ideal focus group to assess the Registry's e-incorporation service – company incorporation is a staple of corporate services work. As you might expect, they have likes and they have gripes. Top of the list of likes is, in a word, speed. ‘The e-incorporation system is fast and easy to use,’ says Wilson Toe, General Manager of Compliance for Offshore Incorporations HK Ltd. 'It reduces paperwork and speeds up the incorporation and business registration process, which helps us to set up companies quickly for our clients. We use it and would recommend it to other users.’ Mr Toe notes that he usually receives the electronic copy of the Certificate of Incorporation and Business Registration Certificate in a few hours. This is a huge improvement, he says – it would have taken four days via the paper-based route. Eddie Liou, Director, Corporate Management Services for TMF Hong Kong Ltd, is similarly impressed by the speed of the new service. 'Using our TMF in-house companies as the founding member and first directors, we use the e-incorporation service to help our clients establish their companies within the same day. This provides clients with the convenience of being able to transact business immediately,’ he says. These commendations seem to be inconsistent with the statistic that only 11 percent of incorporations are using the digital route. Mr Liou offers a possible answer – speed is not as high on the agenda of corporate clients as you might expect. 'Most of our clients are busy multinationals with a structured business plan for their globalisation which results in very little last-minute urgency. In such cases we may elect to file the incorporation documents manually. Only a small percentage of our clients require urgent incorporation’, says Mr Liou But surely the electronic route has other things to recommend it apart from speed, what about the efficiency and costs savings the service was supposed to offer? In complex incorporations, Mr Liou says, the new electronic route can actually mean extra time spent by senior staff on administration. He believes that the cost and efficiency savings of the new route are more applicable where you have a simple one-director, one-member company. This argument is backed up by the Registry's statistics that more than 80% of companies incorporated electronically were one-member companies and more than 90% were SMEs with authorised share capital of $10,000 or below. A similar picture emerges from Baker & McKenzie's use of the e-incorporation service. Liza Murray, Head of Corporate Services and Special Counsel for Baker & McKenzie, says that most of her clients opt for paper-based incorporation. 'When presenting the options to our clients, nearly all of them prefer normal filing. The odd occasions that we have used e-incorporation were times when there was an urgency to set up a company almost instantly. That, however, rarely happens.’ Baker & McKenzie, she adds, has incorporated no more than 12 companies via the electronic route.

The gripes

Ms Murray cites another, much more serious, obstacle to the greater uptake of e-incorporation – anti-money laundering (AML) concerns. Baker & McKenzie is reluctant to use the electronic route unless the client has a longstanding relationship with the firm and where they consequently do not need to conduct AML clearance. 'Our firm takes AML very seriously,’ she says. AML has become a major compliance issue for company secretaries, particularly those in the corporate services sector. Many are concerned that, while the rest of the world is heading in the direction of tougher controls on the identification of company founders and beneficiaries, this new service is going in the opposite direction. Ms Murray points out that many company secretaries consulted in the development phase of the e-incorporation service argued that the new service should be restricted to professionals. ‘Our original position was that it is disappointing to see the e-service was not restricted to use by professionals or registered agents only. Our position has not changed because the law has not changed. Any individual in any part of the world can incorporate a company in Hong Kong online by simply providing a copy of the required identification document. The fundamental issue is AML,’ she says. Wilson Toe, of Offshore Incorporations HK Ltd, agrees. 'In the past, companies were mostly incorporated through professional intermediaries such as lawyers, CPAs or Chartered Secretaries. Their respective professional organisations require them to conduct proper “know your customer” and “due diligence” processes. They are also required to report suspicious transactions to the relevant authority. The e-incorporation system allows individuals and companies registered as users to incorporate companies without enforcing client identification requirements,’ he says. The Registry maintains, however, that it has to seek a balance between improving convenience and discouraging abuse. It believes that access to the new service should be open to all and that sufficient safeguards exist because the identity of all users needs to be authenticated. An individual user who registers to use the e-Registry's services is required to provide, not simply a copy of his/ her identification document, but the copy has to be certified by specified persons such as lawyers, CPAs or Chartered Secretaries. ‘Our e-incorporation service is developed to provide a service to all members of the public, limiting its use to professionals would be seen as a backward move,’ says Peggy Lau, Registry Manager, Companies Registry. She adds that the e-incorporation service implemented in the UK is similarly not restricted to professionals.

New and improved?

Apart from the AML concerns discussed above, the main concerns of users of the e-incorporation service relate to its usability. Respondents to this article highlighted the four areas discussed below.

1. How do I register for the e-incorporation service?

Details of user registration requirements are available at the e-Registry website (www.eregistry.gov.hk). User registration can be completed online if you have electronic certificates or certified true copies of the necessary identification documents. Otherwise, you need to submit the required identification documents in person at the Companies Registry. Ron Lesh, Managing Director of BGL Corporate Solutions, a compliance software provider, believes the user registration procedures for the e-incorporation service are cumbersome and have turned customers away. 'We don’t have a single client that has filed electronically,’ he says. 'The system is difficult to use and the ID requirements are difficult to deal with.’ The Registry counters that it has streamlined these procedures as much as possible – see 'E-services: an update' adjacent page 9 for details.

2. Can I use third-party software?

This has been a key issue for company secretaries since there are obvious efficiency gains if forms can be submitted to the e-Registry using company secretarial software. The Registry has taken on board the feedback received on this issue and you can now submit e-forms generated by thirdparty software. You do, however, need to register to use this new 'third party software interface' (TPSI) function – see the 'TPSI demo’ on the e-Registry website (www.eregistry.gov.hk) for details.

3. Can I use my own customised M&A?

There has been a misconception among company secretaries that only the Registry's template M&A can be used when incorporating electronically. The Registry clarified that customised M&As can be used and that, since July 2011, companies using their own customised M&As can now be incorporated in less than a day.

4. Where can I get technical support?

As with any new service, the availability of technical support is clearly critical to its success. The Registry has provided answers to the most common technical questions raised by users of the service in the form of FAQs and technical demos on the e-Registry website. Failing that, users can contact the Registry's 24-hour help desk (see endnote for details). Wilson Toe, of Offshore Incorporations HK Ltd, recommends the help desk to users. 'My experience with the help desk was positive. My inquiry, which related to the entry of a company name with a combination of English and Chinese characters, was well handled and followed up.’

The future… delayed?

If the expectation was that e-incorporation would rapidly render paper-based incorporation obsolete, then the take-up rate of the new service in its first year calls that optimism into doubt. Some respondents to this article believe the low uptake poses questions about the design and usability of the system. 'We would say the numbers show it hasn’t been a success,’ says Ron Lesh of BGL Corporate Solutions. The Companies Registry takes the view that its customers should be given the chance to adapt to the new service in their own time. 'We believe that our customers need time to adapt to the new services and the take-up rate will increase over time,’ says Registry Manager Ms Lau. She adds that the most recent statistics show that the trend is encouraging. 'The take-up rate of our e-incorporation service was nearly 20% in January 2012,’ she says. Significantly, unlike its counterpart in Singapore, the Hong Kong Companies Registry opted to launch its e-incorporation service on a voluntary basis. The Registry wants to ensure a smooth transition to the new digital route for incorporation. Registrar of Companies, Ada Chung says the Registry will continue to expand and improve its e-services. 'Electronic filing of the more commonly filed specified forms under the Companies Ordinance will be introduced in phases this year,’ she says. The Registry implemented a new service for the electronic filing of specified forms notifying changes in the registered office address and particulars of directors (namely Forms D2A, D2B, D4 and R1) on 20 February 2012. The Registry has good reason, of course, to believe that the longer-term trend is ensured. No one wants to go back to inspecting microfilms to search for company information or to stand in a queue to submit paper forms at the Registry's offices. Moreover, the need for companies to report on their carbon footprints and environmental impacts is likely to accelerate the trend towards the increased use of digital services. Gina Miller, Journalist More information is available online at the e-Registry website: www. eregistry.gov.hk. The Companies Registry's 24-hour help desk can be contacted by email: cr.helpdesk@ pccw.com, or by phone: 8201 8273.  

SIDEBAR: E-services: an update

The menu of e-services available at the e-Registry has been expanded to include: • bulk-submission – allowing users to submit e-forms in bulk • registration of registered agents – allowing users to appoint and register agents to deliver e-forms, and • e-monitor – helping users to keep an eye on updates of information on relevant companies in the public register. Improvements planned for this year include: • electronic filing – allowing users to submit more of the more commonly filed specified forms electronically, and • mobile e-search – adding an e-search enhancement for smartphones. More details on the above services are available on the Registry's websites: www.eregistry.gov.hk and www.cr.gov.hk.