As businesses may also be misused to finance serious offences such as money laundering, terrorism, proliferation financing, and other illegal activities, the Companies Act 2016 implemented a beneficial ownership (BO) reporting system to reduce the prevalence of such unlawful activities.
The Companies (Amendment) Act 2024 (Amendment Act) came into operation on 1 April 2024. This alert discusses the key amendments, specifically the beneficial ownership reporting requirements.
The Companies Commission of Malaysia (Registrar) issued the Guidelines For The Reporting Framework For Beneficial Ownership Of Companies on 1 April 2024 (Guidelines). With the view of minimising the risks faced by companies in Malaysia against illicit activities, the CA 2016 introduced provisions relation to the beneficial reporting framework with the objective of promoting corporate transparency through a disclosure regime. The Amendment Act introduced a more comprehensive beneficial ownership reporting framework in line with the current international standard and practices.
Clearer Definition And Criteria Of BO
Previously, the definition of the BO, as provided under Section 2 of the CA 2016, simply meant “the ultimate owner of the shares and does not include a nominee of any description.” However, with the Amendment Act coming into force, further clarity and emphasis have been added to the definition of BO as follows:
“beneficial owner” means—
(a) in relation to shares, the ultimate owner of the shares and does not include a nominee of any description; and
(b) in relation to a company, a person as provided for in Section 60a;
Further, the Amendment Act introduced a new Section 60A which states:
“(1) A person is a beneficial owner of a company if he is a natural person who ultimately owns or controls over a company and includes a person who exercises ultimate effective control over a company.
(2) The Registrar may issue guidelines for the purpose of identifying a beneficial owner of a company.”
Pursuant to paragraph 27 of the Guidelines, an individual is a beneficial owner of a company limited by shares if he satisfies one or more of the following requirements:
(a) Holds directly or indirectly in not less than 20% of the shares of the company.
(b) Holds directly or indirectly in not less than 20% of the voting shares of the company.
(c) Has the right to exercise ultimate effective control whether formal or informal over the company or the directors or the management of the company.
(d) Has the right or power to directly or indirectly appoint or remove a director(s) who holds the majority of the voting rights at the meeting of directors.
(e) Is a member of the company and, under an agreement with another member of the company, controls alone a majority of the voting rights in the company.
(f) Has less than 20% of shares or voting rights but exercises significant control or influence over the company.
Company’s Duty to Create, Keep And Maintain Register of BO’s
In accordance with the new regulations, companies will need to maintain a comprehensive record of BO’s. The new section 60B highlights the need for BO’s to:
(a) record their identification details, residential addresses and the dates they become and cease to be BO’s.
(b) This register must be stored at the company's registered office or at any other place as notified to the Registrar.
(c) The Act further imposes the need for beneficial ownership information to be reported to the Registrar within 14 days should any changes occur.
(d) This is followed by a need to hold an individual’s information with the BO Register for minimum period of 7 years in the event they cease to be a BO.
Section 60B also provides as follows:
(a) The form, manner and extent of the information to be kept in the BO Register, including details must be provided when there are changes to the information in the register.
(b) The Minister of Domestic Trade and Cost of Living (Minister) may, in relation to the BO Register or the beneficial ownership information lodged with the Registrar (Information), prescribe:
(i) The person or class of persons who may access the BO Register or the
Information; and
(ii) The manner and terms and conditions for accessing the BO Register or the
Information.
(iii) The fee for the supply of the Information.
Mandatory Duty For Companies To Record And Lodge BO Information
The imposition of ‘mandatory disclosure’ under the new Section 60C serves to promote corporate transparency through a disclosure regime. This involves the mandatory process for a company to issue notices in writing to its members or any individual whom the company knows or has reasonable grounds to believe is a BO of the company, with the goal of obtaining the required BO information or any changes to the information.
Compliance with these disclosure requirements is essential for companies to uphold their legal obligations and contribute to the broader goals of transparency and accountability in the Malaysian business landscape.
Duty Of Company To Require Member To Disclose Beneficial Owner
Section 60C imposes various duties on companies regarding the disclosure and confirmation of beneficial ownership. It mandates that companies require any member to inform them if they are a beneficial owner or to identify any beneficial owners if they are not providing relevant particulars as specified in Section 60B(1). This ensures transparency and accurate record-keeping of beneficial ownership information.
Additionally, if a company knows or has reasonable grounds to believe that a person is a beneficial owner, it must request that person to confirm their status or identify any other beneficial owners. Similarly, companies must seek confirmation from any member or person who is believed to know the identity of a beneficial owner, requiring them to provide accurate particulars as per Section 60B(1).
When changes occur to the particulars of a beneficial owner in the BO Register, companies are required to notify the beneficial owner to confirm these changes and update the register accordingly. If there is reason to believe that the information in the BO Register may be incorrect, companies must seek confirmation and ensure the accuracy of the records.
Notices issued under these provisions must be in writing, and recipients are required to respond within a specified timeframe. Companies must record the issuance date of such notices and the information received in the BO Register within 14 days.
Non-compliance with these requirements constitutes an offence for both the company and its officer. Individuals who contravene any notice under Section 60C or provide false information in response also commit an offence, subject to certain defenses. These stringent measures aim to ensure the integrity and accuracy of beneficial ownership information.
BO’s Obligation To Self-Disclose
Pursuant to the proposed new Section 60D, “a person who has reason to believe that he is a beneficial owner of a company”, has a duty to self-disclose themselves as the BO of the company, further with any information as required in the BO Register. Subsequently, the proposed Sections 60D(2) and 60D(3) impose further obligations on a BO of a company to notify the company of any changes in his particulars in the register and to disclose to the company the date and particulars of cessation should that occur. In such a case, the liability now extends to each individual beneficial owner, who will have a separate obligation to disclose their details to the company.
Non-compliance with the new requirements attracts sanction in the form fine.
Commentary
Ultimately, the Amendment Act seeks to encourage transparency within the corporate sector and provide assistance to enforcement agencies. Whilst it is too soon to determine how these amendments will work in practice at this point, these legislative amendments represent a welcome shift towards compliance. By improving corporate governance, this promotes a robust, secure and internationally competitive environment.
5 July 2024
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