Consultative Document and the Companies (Amendment) Act 2024: Roles of Nominee Shareholders

Consultative Document and the Companies (Amendment) Act 2024: Roles of Nominee Shareholders

On 22 December 2023, the Companies Commission of Malaysia (“CCM”) issued a consultative document regarding its proposed amendments to the Companies Act 2016 (“CA 2016”) related to nominee shareholders and nominee directors. These proposed changes have been formalised in the Companies (Amendment) Act 2024 (“Amendment”), which was gazetted on 2 February 2024. According to the CCM, the significant amendments to the CA 2016 aim to strengthen the legal framework for corporate rehabilitation and align with international best practices and standards advocated by organisations such as FATF and OECD. This article will discuss Cluster Policy 3, which aims to enhance the beneficial ownership reporting framework to address existing legislative gaps.

Definition of Beneficial Owner

Under the Amendment, the definition of the beneficial owner has been further extended to include the criteria under Section 60A of Division 8A, which states as follows:-

“60A. (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.”

It is clear that, based on the above, the Amendment has distinguished between the beneficial owner in relation to shares and the beneficial owner in relation to a company.

Beneficial Owners Reporting Requirements

Additionally, the Amendment has also required for a beneficial owner reporting under Section 60B of the Amendment, which requires every company to keep a register of beneficial owners of the company and record in the register the full details of such beneficial owners, the date they become and ceases as a beneficial owner, including other information required by the CCM. In addition to the above, the company shall also be required to retain such information for a period of seven (7) years from the date the person ceases to be a beneficial owner, and any changes to the recorded beneficial owners must be lodged to the CCM within fourteen (14) days from the date of the change.

In effort to provide clear explanation to the company and its officers, CCM has issued the case studies and illustrations whereby any nominee shareholders, holding its shares on behalf of the ultimate beneficial owner shall declare to the company of such beneficial owner.

Failure to do so would result in contravention of the newly amended section, which would impose a fine of not exceeding twenty thousand ringgit (RM20,000) and, in case of a continuing offence, a fine not exceeding five thousand (RM5,000) for each day during which the offence continues after conviction.

Protection Against Company and Officers

In order to safeguard the company secretary and officers of a company, Section 60C of the Amendment has been introduced whereby it requires the company to issue a notice in writing to require the member of the company to declare whether such member is a beneficial owner of the company or not (i.e. nominee shareholder) and if the member is not a beneficial owner, to indicate the persons by name and by other particulars sufficient to enable such persons to be identified as beneficial owners of the company. Failure to comply with Section 60C or declaring a false statement by the company or its officers would be an offence under the Amendment.

Applicability to Foreign Company

Accordingly, beneficial owners reporting is also required for members who are a foreign company. Section 573A and Section 576 of the Amendment require the detailing of the content of an annual return for foreign companies, as well as information on the address of the register if such information is kept other than in the registered office.

Consultative Document on Nominee Shareholders

A nominee shareholder is an individual or entity holding shares on behalf of another person, known as the nominator, while not being the beneficial owner. However, the current CA 2016 do not contain specific provisions defining nominee shareholders and directors, nor does the Act require companies to record and maintain registers of nominee shareholders and directors.

This absence of clear regulations creates challenges in identifying beneficial ownership and increases the risks of misuse, such as money laundering and financial crimes. In this context, the Consultative Document On The Proposed Amendments To The Companies Act 2016 Relating To Nominee Shareholders & Nominee Directors (“Consultative Document”) was prepared to obtain feedback on the proposed amendments to the Act.

Proposed Amendments to the Act

The Consultative Document has sought public feedback on the following proposed amendments to the Bil:

1. Inclusion of Division AA

The Companies Commission of Malaysia (“CCM”) recommends the introduction of a new division, Division AA, which deals with new registers of nominee shareholders and nominee directors of a company. This new Division AA will be applicable to local and foreign companies.

2. Register of Nominee Shareholders (Section A3)

Companies are required to establish a register of nominee shareholders to document essential details about their nominees and the nominators they represent. This ensures that all parties associated with company shares are clearly identified and accounted for.

The register must include these details about the nominees:

  • full name, address, nationality, identification, and the usual place of residence of a shareholder who is a nominee shareholder;
  • the dates when the individual became and ceased to be a nominee shareholder; and
  • such other information that the Registrar may require.

 

The register must include these details about the nominators:

  • who is a natural person:
    • full name, address, nationality, identification, and the usual place of residence.
    • the dates when the individual became and ceased to be a nominator; and
    • such other information that the Registrar may require.
  • who is a corporate body:
    • company name, company number, and registered address.
    • the dates when the corporate body became and ceased to be a nominator; and
    • such other information that the Registrar may require.

Companies must lodge any changes to this information to the Registrar within 14 days.

3.  Definition of Nominee Shareholders and Nominators (Section A1)

The amendments provide specific definitions to distinguish the roles of nominee shareholders and nominators, ensuring clarity in identifying the relationships involved.

Nominee Shareholder:

  • An individual or entity holding shares on behalf of another person (the nominator).
  • Exercises voting rights or receives dividends based on instructions from the nominator.

Nominator:

  • The person or entity instructing the nominee shareholder to act on their behalf.
  • Sometimes referred to as a “shadow director” or “silent partner.”

4. Register of Nominee Directors (Section A5)

Similar to nominee shareholders, companies are also required to maintain a register of nominee directors, capturing details of directors who act on behalf of others.

The register must include:

  • full name, address, nationality, and identification details of the nominee director.
  • the dates when the individual became and ceased to be a nominee director.

Any changes to the information must be reported to the Registrar within 14 days.

5. Definition of Nominee Directors and Nominators

The definitions for nominee directors and nominators clarify their roles in company management and establish legal accountability for their actions.

Nominee Director:

  • An individual who acts as a director based on instructions from a nominator.
  • Does not have beneficial ownership of the company but performs duties as instructed.

Nominator:

  • The individual or entity directing the nominee director’s actions.
  • Can also be referred to as a “shadow director” or “silent partner.”

Roles of Nominee Shareholders

Based on the proposed amendments, nominee shareholders are required to fulfil specific responsibilities aimed at ensuring the transparency and accountability of their relationships with the individuals or entities they represent. These responsibilities are structured around timely notifications and accurate disclosures to the company.

Section A4 has outlined the responsibility of nominee shareholders as follows:-

1. Initial Disclosure:

For companies incorporated on or after the enforcement date, a nominee shareholder must notify the company of their nominee status within 14 days of the company’s incorporation.

For companies incorporated before the enforcement date, existing nominee shareholders must disclose their status within 14 days of the enforcement date.

2. Notification Upon Becoming a Nominee:

Shareholders who become nominees after the company’s incorporation must inform the company of their nominee status within 14 days of assuming the role.

3. Cessation of Nominee Status:

If a nominee shareholder ceases to act as a nominee, they are obligated to notify the company within 14 days of the cessation.

4. Updating Information:

Any changes to the details previously provided to the company, such as changes to the nominator’s information, must be reported within 14 days of the change.

Failure to comply with any of these responsibilities constitutes an offence under the law. These obligations ensure that companies maintain up-to-date and accurate records of nominee relationships, enabling regulatory oversight and reducing risks associated with corporate misuse.

Conclusion

The Companies (Amendment) Act 2024 has placed significant responsibilities on the company and its officers, requiring them to disclose their status and details about the ultimate beneficial owners of the Company. Together with the Consultation Document, significant responsibilities will be placed on nominee shareholders, requiring them to disclose their status and details about their nominators within strict timelines. By constantly updating the company on its status, nominee shareholders and their nominators can hope to manage these risks. Similarly, companies need to be aware of these potential changes and ensure records of all nominee shareholders, directors, and nominators.

If you have any questions or queries, please contact our Financial Services Senior Associate, Mr. Aryn Rozali (aryn@nzchambers.com).

Authors:

  1. Aryn Rozali
  2. Alif Mustaqim

Published Date: 14 January 2025