Who is a significant owner of a PHE?
A significant owner of a PHE refers to a person or entity who beneficially owns at least 50% equity interest or voting power (significant ownership threshold) in a PHE either on its own or with its associates.
Where the equity interest in the PHE is conveyed to be held on trust for a bare trust beneficiary i.e. the beneficiary is identifiable and the beneficial ownership has vested at the time of declaration of trust or when the equity interest is transferred into the trust, the beneficiary (together with its associates) will be the party looked to in determining if the significant ownership threshold has been met.
With effect from 10 May 2022, for conveyances of equity interests in PHEs for a non-bare trust, the trustee (together with its associates) will be the party looked to in determining if the significant ownership threshold has been met.
Who are associates?
(A) For direct buyers/sellers
Where the buyer/seller is an individual, his/her associates include:
- family members such as grandparent, parent, child, grandchild, sibling and spouse,
- partners in a partnership, limited partnership or limited liability partnership, or
- the entities which the buyer/seller beneficially owns 75% or more voting capital and more than 50% voting power in.
Where the buyer/seller is an entity, its associates include:
- subsidiaries which it beneficially owns 75% or more voting capital and more than 50% voting power in,
- individuals who or holding entities which beneficially owns 75% or more voting capital and more than 50% voting power in it
- other entities in the group that is an associated entity to a common holding entity or individual which meets condition 2.
- partners in a partnership, limited partnership or limited liability partnership
Associates also include parties with an agreement or arrangement (whether oral/written/expressed/implied) to act together to acquire, hold or dispose of equity interest in, or with respect to the exercise of their votes in relation to the target entity.
(B) For buyers/sellers who are trustees acquiring/disposing equity interests on trust
(1) Bare trust beneficiary
The list of associates of the settlor and beneficiary are the same as in (A).
Example:
Mr A is the sole beneficiary of a bare trust over 30% equity interest in PHE X that was declared on 10 May 2022. Mr A separately owns 15% equity interest in PHE X, and his wife Mrs A also owns 10% equity interest in PHE X. They had acquired their respective equity interest on 1 January 2021.
As Mr and Mrs A are husband and wife, they are associates.
Mr A is a significant owner of PHE X as 15% + 10% + 30% = 55%
(2) Non-bare trust beneficiary
Where the trustee of the non-bare trust beneficiary is acquiring or disposing of the equity interest in the PHE, the trustee’s associates will be the non-bare trust beneficiaries of the trust concerned.
Example:
Mr B and Mr C are beneficiaries of a trust over 30% equity interest in PHE X that was declared on 10 May 2022. The trustee has discretion to decide what percentage to distribute to each of them. Mr B and Mr C separately also own 20% and 10% equity interest in PHE X, which they had each acquired on 1 January 2021.
Mr B and C are non-bare trust beneficiaries, as beneficial ownership of the equity interests in PHE X have not vested at the time of declaration of trust. As such, the trustee will be looked to in determining if the significant ownership threshold has been met.
The trustee’s associates are Mr B and C, as they are the non-bare trust beneficiaries of the trust concerned.
The trustee is a significant owner of PHE X as 20% + 10% + 30% = 60%