The Reporting Framework For Beneficial Ownership Of Companies – A Commentary

It is interesting that with the advent of Company law, individuals and companies sometimes have the tendency to utilise the nominee structure. However, this may all come to a hard stop with the new amendments to the Companies Act . The Companies (Amendment) Act 2024 ("CA 2024") was gazetted on 2 February 2024 and has come into force on 1 April 2024 save for few sections will come into force on a date to be announced later (i.e Sections 4, 14, 26 and 28). 

The recent amendments made to the Companies 2016 (“CA 2016”) among others, introduces a framework for the reporting of beneficial ownership of companies and enhances the existing provisions on schemes of arrangement and reconstruction, and corporate rescue mechanisms. This article will highlight and provide a summary specifically on the disclosure of beneficial ownership reporting framework for companies in Malaysia. 

The main objective of the improvement of the disclosure of beneficial ownership reporting framework is to mitigate the risks of money laundering, terrorist financing, corruption and tax evasion activities faced by companies in Malaysia and to enhance corporate transparency through a disclosure regime. Besides, it also will establish a more comprehensive beneficial ownership reporting framework that adheres to current international standards and best practices. 

Definition of “beneficial owner” 

Section 2 of the CA 2016 defines a "beneficial owner" as the ultimate owner of the shares and does not include a nominee of any description. 

Section 2 and Section 60A of the CA 2024 however enhances the previous definition of a beneficial owner of a company to include "a natural person who ultimately owns or controls over a company and includes a person who exercises ultimate effective control over a company". 

Establishing "Ultimate Effective Control" by a Beneficial Owner 

Section 60A(2) of the CA 2024 empowers the Registrar of the Companies Commission of Malaysia (“Registrar") to issue guidelines to identify a beneficial owner of a company. Pursuant to the Guidelines for the Reporting Framework for Beneficial Ownership of Companies (“Guidelines”), the phrase "ultimately owns or controls the company" usually refers to either: 

1. an ownership through interest in share of the company (directly or indirectly) of not less than 20%[1]; or 

2. situations where an individual who holds less than 20% shares or voting rights but maintains or exercises a significant control or influence over the directors or the management of the company.[2] 

Paragraph 27 of the Guidelines specifies that an individual is a beneficial owner of a company limited by shares if he satisfies one or more of the following requirements: 

• Criteria A: holds, directly or indirectly, interest in not less than 20% of the shares of a company; 

• Criteria B: holds, directly or indirectly, interest in not less than 20% of the voting shares of a company; 

• Criteria 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; 

• Criteria D: has the right or power to, directly or indirectly, appoint or remove a director(s) who holds a majority of the voting rights at the meeting of directors; 

• Criteria 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; 

• Criteria F: has less than 20% of the shares or voting rights but exercises significant control or influence over the company. 

Paragraph 29 of the Guidelines stipulates that an individual is a beneficial owner of a company limited by guarantee if he satisfies one or more of the following requirements: 

• Criteria 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; 

• Criteria D: has the right or power to, directly or indirectly, appoint or remove a director(s) who holds a majority of the voting rights at the meeting of directors; 

• Criteria 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; 

Reporting Obligation and Scope of Reporting 

Pursuant to Paragraph 13 of the Guidelines, it states that no company is exempted from the reporting requirements. Therefore, public listed companies, licensed financial institutions, stock exchanges, approved private retirement scheme administrators shall be subject to the beneficial owner reporting framework. 

The beneficial ownership reporting requirements also shall be applicable to foreign companies operating in Malaysia. These foreign companies are obligated to annually submit their beneficial ownership information. 

Register of beneficial owners of a company 

Section 60B(1) of the CA 2024 requires for every company to keep a register of beneficial owners of the company (“BO Register”) and record the following information: 

1. the full name, addresses, nationality, identification and usual place of residence of a person who is a beneficial owner of the company; 

2. the date the person becomes a beneficial owner of the company; 

3. the date the person ceases to be a beneficial owner of the company; and 

4. such other information as the Registrar may require, 

Note: For this purpose, Section 60B(10) of the CA 2024 provides that the expression “identification” means in the case of any person issued with an identity card under the National Registration Act 1959, the number of the identity card, and in the case of a person not issued with an identity card, particulars of his passport or other similar evidence of identification as is available. 

The BO Register is to be kept at the company’s registered office or any other place in Malaysia as is notified to the Registrar.[3] A company is required to lodge with the Registrar a notice on any change to the particulars in the BO Register within 14 days from the date on which the change is recorded in the BO Register.[4] 

The information of a person who has been recorded in the BO Register as a beneficial owner of the company but subsequently ceases to be so, is to be retained for 7 years from the date the person ceases to be a beneficial owner.[5] 

With the introduction of the CA 2024 and the Guidelines, new companies now have 60 days from the appointment date of the company secretary to obtain and record the information of its beneficial owners. Similar to its previous position, companies must then notify the Companies Commission Malaysia (CCM) of the same within 14 days of recording the information into the register during the 60-day period.[6] 

Offences 

Under the CA 2024, a company is required to request for the beneficial owner’s information[7] and a beneficial owner has a duty to disclose information as soon as practicable.[8] Failure of a company to request, or failure for the beneficial owner to disclose information or provide false information shall commit an offence under the CA 2016.[9] 

Companies should also be cautious in providing verified information to the Registrar as a company or their officers who provide false or misleading information to the Registrar may also be found guilty of an offence under Section 592 of the CA 2016 which, on conviction may be liable to an imprisonment for a term not exceeding 10 years or a fine not exceeding RM3 million or both. 

Conclusion 

The new amendments to the CA 2016, along with the Guidelines, mandates companies to proactively identify and verify their beneficial owners. The companies are given a 3-month window from 1 April 2024 until 30 June 2024 to update and lodge the beneficial ownership information with the Registrar and the Registrar may extend this period if he deems necessary to do so. [10] 

[1] Paragraph 24 of the Guidelines

[2] Paragraph 24 of the Guidelines

[3] Section 60B(2) of the CA 2024

[4] Section 60B(3) and Section 60B(4) of the CA 2024

[5] Section 60B(5) of the CA 2024

[6] Paragraph 20(a) of the Guidelines

[7] Sections 60C (1), 60C (2), 60C (3), 60C (4), 60C (5) or 60C (6) of the CA 2024

[8] Section 60D of the CA 2024

[9] Sections 60C (7) & 60D (4) of the CA 2024

[10] Practice Directive No. 9/2024