How to Complete the Principal Shareholders Table: Defining Beneficial Ownership

The SEC’s Division of Corporation Finance has intensified its scrutiny of beneficial ownership disclosures in 2025, specifically targeting the Principal Shareholders table (Item 11 of Form F-1) for non-US issuers. Since January 2024, the SEC has issued over 37 comment letters to China and Hong Kong-based filers on this single item, according to a review of EDGAR correspondence by the US Listing Desk. The primary flashpoint: the SEC now demands that filers look through nominee structures, contractual arrangements, and VIE (Variable Interest Entity) control agreements to identify the natural person who ultimately directs voting and investment decisions — not merely the registered shareholder. For Hong Kong issuers using BVI or Cayman holding companies with PRC operating entities, this means the traditional practice of listing a nominee or a corporate vehicle as a principal shareholder is no longer acceptable. The SEC’s 2024 Staff Legal Bulletin No. 1 (revised) reinforces that “beneficial ownership” under Section 13(d) of the Securities Exchange Act of 1934 includes the power to vote or dispose of securities, even if legal title rests elsewhere. This article provides the exact methodology for completing Item 11, referencing the SEC’s specific disclosure requirements, the Hong Kong Companies Ordinance (Cap. 622) definitions, and practical mechanics for cross-border structures.

The Regulatory Framework: Why the Principal Shareholders Table Matters

The Principal Shareholders table is not a mere administrative formality; it is the single most scrutinised disclosure item by the SEC’s Division of Corporation Finance during the F-1 review process. Under Item 11 of Form F-1, a foreign private issuer must disclose the name and shareholding of any person who beneficially owns more than 5% of any class of the issuer’s voting securities, as well as the directors and executive officers as a group. The SEC cross-references this table with the issuer’s corporate governance disclosures, related-party transaction notes, and the underwriters’ due diligence file. In 2024, the SEC issued 142 comment letters to China and Hong Kong-based F-1 filers, with 31% specifically challenging the completeness or accuracy of the Principal Shareholders table, according to data from the SEC’s Office of the Chief Accountant.

The SEC’s Definition of Beneficial Ownership Under Section 13(d)

The SEC’s definition under Rule 13d-3 is broader than the Hong Kong Companies Ordinance (Cap. 622) definition of “substantial shareholder.” Rule 13d-3(a) states that a person is a beneficial owner of a security if they have or share “voting power” (the power to vote or direct the voting) or “investment power” (the power to dispose or direct the disposition). Critically, this includes indirect ownership through any contract, arrangement, understanding, or relationship. For a Hong Kong issuer with a PRC VIE structure, the SEC will look through the VIE agreements — the Exclusive Option Agreement, the Equity Pledge Agreement, and the Proxy Agreement — to determine whether the PRC founder or a Hong Kong holding company exercises de facto control. The SEC’s 2024 Staff Legal Bulletin No. 1 specifically warns that “nominee arrangements or contractual control structures do not negate beneficial ownership; they merely shift the disclosure obligation to the ultimate controlling person.”

The Hong Kong Companies Ordinance (Cap. 622) Definition

Hong Kong law provides a different but overlapping framework. Under Section 2 of the Companies Ordinance (Cap. 622), a “substantial shareholder” is any person with an interest in 5% or more of the voting shares of a Hong Kong-incorporated company. The definition includes interests held through a corporation, trust, or nominee. However, the Hong Kong approach is narrower than the SEC’s: Cap. 622 does not automatically look through contractual control structures like VIE agreements unless those agreements confer a “right to acquire” shares. For a Hong Kong-incorporated issuer listing in the US, the SEC will apply its own definition, not the Hong Kong one. The issuer must therefore complete the Principal Shareholders table using SEC standards, while simultaneously maintaining Hong Kong’s disclosure requirements under the Securities and Futures Ordinance (Cap. 571) Part XV.

The 2025 SEC Comment Letter Trend: Nominee and Trust Structures

The SEC’s 2025 comment letters reveal a specific focus on nominee and trust structures. In a representative letter issued in March 2025 to a Cayman-incorporated, PRC-operating company listing on NASDAQ, the SEC staff asked the issuer to “revise the Principal Shareholders table to identify the natural person who controls the voting and investment decisions of the shares held by [Nominee Company A] and [Trust B].” The issuer had listed a BVI company as the principal shareholder, but the SEC demanded disclosure of the individual founder who held 100% of the BVI company’s shares. The SEC’s position is clear: a corporate entity is not a “person” for purposes of beneficial ownership disclosure unless it is a registered investment adviser or a bank. For family trusts, the SEC requires disclosure of the trustee, the settlor, and any beneficiary with the power to remove the trustee.

Completing the Table: Step-by-Step Methodology

The Principal Shareholders table must be completed in the exact format prescribed by Item 11 of Form F-1. The table has four columns: (a) Title of Class, (b) Name and Address of Beneficial Owner, (c) Amount and Nature of Beneficial Ownership, and (d) Percent of Class. Each column has specific technical requirements that differ from Hong Kong practice.

Step 1: Identifying the “Beneficial Owner” — The Natural Person Test

The first step is to identify every person who beneficially owns more than 5% of the issuer’s voting securities. The SEC applies a “natural person test”: if the registered holder is a corporation, the issuer must look through to the natural person who ultimately controls the voting and investment decisions. For a Hong Kong issuer with a BVI holding company, the SEC will ask for the individual shareholders of the BVI company. For a PRC VIE structure, the SEC will look through the PRC operating company’s equity structure to the individual founders. The SEC’s 2024 Staff Legal Bulletin No. 1 provides that “control” means the power to direct the management and policies of a person, whether through ownership of voting securities, by contract, or otherwise. The issuer must therefore trace the chain of control until it reaches a natural person.

Step 2: Calculating the “Percent of Class” — The Dilution Problem

The percent of class must be calculated based on the total number of shares outstanding as of the latest practicable date before filing. The SEC requires that the calculation include all shares of the same class, including shares issuable upon exercise of options, warrants, or convertible securities within 60 days. This is a critical difference from Hong Kong practice under the Listing Rules, where the percentage is typically calculated on the issued share capital only. For a pre-IPO company with outstanding convertible notes or employee stock options, the Principal Shareholders table must reflect the fully diluted percentage. The SEC’s 2024 Financial Reporting Manual (Section 6420) states that “shares issuable upon conversion of convertible securities or exercise of options or warrants shall be deemed outstanding for the purpose of computing the percentage of outstanding shares of the class.”

Step 3: Disclosing the “Nature of Beneficial Ownership” — Sole vs. Shared Power

The third column requires disclosure of whether the beneficial owner has sole voting power, shared voting power, sole investment power, or shared investment power. The SEC’s Form 13D and Schedule 13G provide the template: the issuer must state the exact number of shares over which the beneficial owner exercises each type of power. For a Hong Kong family trust, the trustee typically has shared voting power with the settlor if the settlor retains the right to remove the trustee. For a PRC VIE structure, the founder typically has sole voting power over the shares held through the VIE agreements, but the SEC may require disclosure of the nominee shareholder’s shared voting power if the nominee has any residual rights. The issuer must review each VIE agreement carefully: the Equity Pledge Agreement may give the lender (the offshore company) the right to vote the pledged shares upon default, creating a shared voting power scenario.

Cross-Border Structures: Special Considerations for Hong Kong and PRC Issuers

Hong Kong and PRC issuers face unique challenges in completing the Principal Shareholders table due to the prevalence of nominee holdings, VIE structures, and PRC regulatory restrictions on foreign ownership. The SEC’s 2025 review of China-based filers has focused on three specific areas: the PRC founder’s control through VIE agreements, the use of Hong Kong trust companies as nominees, and the disclosure of PRC regulatory approvals under the 2023 PRC Securities Law.

The VIE Structure: Who Is the Beneficial Owner?

In a standard VIE structure, the PRC operating company’s equity is held by PRC nationals (the “nominee shareholders”) who have entered into VIE agreements with the offshore holding company. The SEC’s position is clear: the PRC nominee shareholders are not the beneficial owners of the offshore issuer’s shares. The beneficial owner is the person who controls the offshore holding company, typically the PRC founder. The SEC will require the issuer to disclose the founder’s name, address, and shareholding percentage in the Principal Shareholders table, even though the founder does not hold any shares in the offshore issuer directly. The SEC’s 2024 Staff Legal Bulletin No. 1 specifically addresses this: “Where a person controls the voting and investment decisions of shares held by a nominee, that person is the beneficial owner of those shares.”

The Hong Kong Trust Company Structure

Many Hong Kong issuers use a Hong Kong-licensed trust company as the registered holder of shares for family trusts. The SEC requires disclosure of the trust’s beneficiaries, the settlor, and the trustee. The trust company itself is not the beneficial owner; the beneficial owner is the person who has the power to direct the trust company’s voting decisions. For a typical Hong Kong family trust, the settlor retains this power through a “letter of wishes” or a “protector” appointment. The issuer must therefore disclose the settlor’s name and shareholding percentage, not the trust company’s name. The SEC’s 2025 comment letters have consistently demanded that issuers “identify the natural person who controls the voting and investment decisions of the shares held by the trust.”

PRC Regulatory Approvals and the 2023 PRC Securities Law

The 2023 PRC Securities Law requires that any offshore offering of securities by a PRC company must be approved by the China Securities Regulatory Commission (CSRC). The SEC’s Principal Shareholders table must disclose whether any PRC regulatory approvals are required or have been obtained. If the PRC founder holds shares in the offshore issuer through a BVI or Cayman company, the SEC will ask whether the founder has obtained the necessary approvals under the PRC’s 2023 Cross-Border Data Transfer Regulations and the 2024 PRC Anti-Money Laundering Law. The issuer must include a footnote to the Principal Shareholders table stating the status of these approvals.

Actionable Takeaways

1. Complete the Principal Shareholders table using the SEC’s definition of beneficial ownership under Rule 13d-3, not the Hong Kong Companies Ordinance (Cap. 622) definition, and trace control to the natural person for every corporate nominee or trust structure.
2. Calculate the percent of class on a fully diluted basis, including shares issuable within 60 days upon exercise of options, warrants, or convertible securities, as required by the SEC’s 2024 Financial Reporting Manual Section 6420.
3. For VIE structures, disclose the PRC founder as the beneficial owner of the offshore issuer’s shares, with a footnote explaining the VIE agreements and the founder’s control over voting and investment decisions.
4. For Hong Kong family trusts, disclose the settlor as the beneficial owner, not the trust company, and include a description of the settlor’s retained powers under the trust deed.
5. Include a footnote to the Principal Shareholders table disclosing the status of all PRC regulatory approvals required under the 2023 PRC Securities Law and the 2024 Cross-Border Data Transfer Regulations.