Introduction
The Companies (Amendment) Act 2024 (“CA 2024“) was enforced on 1 April 2024 addresses a number of areas regarding the corporate governance framework and corporate rescue mechanism. This article will focus on the discussion on of the amendment which is the disclosure of beneficial ownership (“BO“) reporting framework for companies in Malaysia. The amendment aims to enhance the current reporting mechanism for BO and avoid businesses susceptible to be misused for carrying out illicit activities. In support of this amendment, the Companies Commission of Malaysia (“CCM”) has launched the Electronic Beneficial Ownership System (“e-BOS System”) for companies to update information and rectification of BO information.
Redefining “Beneficial Owner”
Companies Act 2016 (“CA 2016“) defined a “beneficial owner” as the ultimate owner of the shares and does not include a nominee of any description. The CA 2024 widens 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“. The CA 2024 has also authorized the Registrar of Companies to issue guidelines to identify a beneficial owner of a company.
Establishing “Ultimate Effective Control” by a Beneficial Owner
CCM, in their Guidelines for the Reporting Framework for Beneficial Ownership of Companies (“Guidelines”), the phrase “ultimately owns or controls the company” generally refers to either an ownership through interest in share of the company (directly or indirectly) of not less than 20%[1] or 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]
The Guidelines has specified categories for individuals in both company limited by shares and company limited by guarantee that are deemed as a beneficial owner. Based on the Guidelines, an individual is a beneficial owner if he met one or more of the following criteria:-
A. Company Limited by Shares
| Criteria A | Holds interest in not less than 20% of the shares of a company (either directly or indirectly) |
| Criteria B | Holds interest in not less than 20% of the voting shares of a company (either directly or indirectly) |
| Criteria C | Has the right to exercise ultimate effective control either formal or informal, over the company or the directors or the management of the company |
| Criteria D | Has the right or power to appoint or remove a director(s) who holds a majority of the voting rights at the meeting of directors (either directly or indirectly) |
| 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 |
B. Company Limited by Guarantee
| Criteria C | Has the right to exercise ultimate effective control either formal or informal, over the company or the directors or the management of the company |
| Criteria D | Has the right or power to appoint or remove a director(s) who holds a majority of the voting rights at the meeting of directors (either directly or indirectly) |
| 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
Currently, the new guideline provides that no company is exempted from the reporting requirements.[3] In view thereof, public listed companies, licensed financial institutions, stock exchanges,[4] approved private retirement scheme administrators are no longer exempted from the beneficial owner reporting framework. The beneficial ownership reporting requirements shall also be applicable to foreign companies which are carrying on business in Malaysia has the obligation to annually submit beneficial ownership.[5]
However, the Minister retains the discretion, by order published in the Gazette to exempt any class of companies from the application of the new reporting requirement of a BO either unconditionally or subject to such terms as the Minister may impose, if such companies are subject to any requirements under any other similar written laws.[6]
Register of Beneficial Owners and verification of Beneficial Owner Information
The CA 2024 requires every company to keep a register of beneficial owners of the company (“Register of Beneficial Owners”) [7] and record the following information: –
- the full name, addresses, nationality, identification and usual place of residence of a person who is a beneficial owner of the company;
- the date the person becomes a beneficial owner of the company;
- the date the person ceases to be a beneficial owner of the company; and
- such other information as the Registrar may require.
Section 60B (10) CA 2024 provides that “identification” in the case of any person issued with an identity card issued 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 passport or such other similar evidence of identification as is available.
This Register of Beneficial Owners must be kept at the company’s registered office or any other place in Malaysia as notified to the Registrar.[8] Companies must take note that it is a requirement to notify the CCM of any change in the Register of Beneficial Owners within 14 days from the date of the relevant change made.[9] However, the company must retain the BO Information of a beneficial owner for 7 years after the person ceases to be a beneficial owner.[10]
With the new 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 owner(s). Similar to its previous position, companies must then notify CCM of the same within 14 days of recording the information into the register during the 60-day period.[11]
Offences
Under CA 2024, a company is required to request for the beneficial owner’s information[12] and a beneficial owner has a duty to disclose information as soon as practicable.[13] 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.[14]
Companies should also be careful 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 three million ringgit or both.
Conclusion
The new amendment and Guideline require companies to take the initiative in identifying and verifying its beneficial owners. SSM through their Practice Directive No. 9/2024 has given all companies a three months’ time frame starting 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. Therefore, companies should undertake to update their Register of Beneficial Owners and lodge the information with SSM through the e-BOS System to support the CCM’s objective to combat illicit activities by companies.
Authors:
Aryn Rozali
Maryam Amilah
Published Date: 16 May 2024
References:
[1] Paragraph 24 of the Guidelines;
[2] Paragraph 25 of the Guidelines;
[3] Paragraph 13 of the Guideline;
[4] Section 51 (3) CA 2016;
[5] Section 576(2) CA 2016;
[6] Section 60E CA 2024;
[7] Section 60B (1) CA 2024;
[8] Section 60B (2) CA 2024;
[9] Section 60B (3) & 60B (4) CA 2024;
[10] Section 60B (5) CA 2024;
[11] Paragraph 20 (a) of the Guidelines;
[12] Section 60C (1), 60C (2), 60C (3), 60C (4), 60C (5) or 60C (6) CA 2024;
[13] Section 60D CA 2024;
[14] Section 60C (7) & 60D (4) CA 2024;