Beneficial Ownership Compliance in Corporate Malaysia
The new addition of Division 8A of the Companies Act 2016 (“CA 2016”) brings new obligations to corporations in Malaysia in relation to beneficial owners related to the company.
Under this amendment to the CA 2016, companies now have new obligations in relation to beneficial owner(s) which we will discuss in the Q&A below.
· In relation to shares,
S. 2(a) CA 2016 defines “beneficial owner (BO)” as-
(a) in relation to shares, the ultimate owner of the shares and does not include a nominee of any description; and
With this definition of BO, it is clearer that a person who is not listed as a shareholder may still be categorised as a beneficial owner.
· In relation to a company,
S. 2(b) Companies Act 2016 (“CA 2016”) defines “beneficial owner (BO)” as-
(b) in relation to a company, a person as provided for in section 60A;
S. 60A(1) CA 2016 states that 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.
Q: B holds shares in ABC Sdn Bhd for A, who exercises control over the company while B holds legal title. Who should be recorded as the beneficial owner in ABC’s Register of Beneficial Owners?
A: A, who is the underlying beneficial owner.
Explanation: This is because A is a natural person who exercises control over the company so A is the BO, as laid out in S. 60A(1) CA 2016.
Q: A trust holds shares in XYZ Sdn Bhd and the trustee is recorded as the registered shareholder. According to the guidelines, who should typically be identified as BO?
A: The settlor, beneficiary or the person who ultimately benefits or exercises ultimate effective control.
Explanation: The BO is the person who is the ultimate owner of the shares in the company, as laid out in S. 2(a) CA 2016.
Q: When a company issues a formal notice under Section 60C requiring someone to disclose BO information, the company must record the particulars within how many days from receiving that information?
A: 14 days from the date of receipt of the information.
Explanation: The timeframe to lodge a notice to disclose BO information is provided for under S. 60(4) CA 2016.
S. 60(4) CA 2016 states that “Any notice required under subsection (3) shall be lodged within 14 days from the date on which the change is recorded in the register of beneficial owners of the company.”
Q: Is there a timeline for enforcement under the updated framework?
A: Grace period until 30 Sept 2024, with enforcement (fees/sanctions) starting from 1 Oct 2024.
Explanation: As of date, the grace period has ended.
Q: What is the next step, under the guidelines, when a company is unable to identify any individual that meets the 20% shareholding threshold?
A: Record the CEO or senior management as BO if they exercise ultimate effective control per the criteria.
Explanation: Paragraph 43(a) and (b) of the Guidelines For The Reporting Framework For Beneficial Ownership Of Companies by Suruhanjaya Syarikat Malaysia (SSM) (“SSM’s Guidelines”)[1] provides that senior management who is primarily in charge of the management of the company can be named in place of the BO in the event where the company has taken all reasonable measures to identify its BO but is unable determine its BO due to:-
(a) the company has no beneficial owner – the company has reasonable grounds to believe that it has no beneficial owner; or
(b) the beneficial owner of the company cannot be identified – the company has reasonable ground to believe that it has a beneficial owner but the beneficial owner of the company cannot be identified.
SSM’s Guidelines also lays down what would be considered as reasonable measures for a company to take in identifying, obtaining and keeping the BO information accurate and up-to-date:-
Source: Section 4 Page 13 of SSM’s Guidelines
Q: Is it true that the e-BOS submission alone relieves a company from maintaining its own internal Register of Beneficial Owners (RBO)?
A: False, the company still has to maintain and update its own internal RBO.
Explanation: The requirement for the company to keep and maintain its own internal RBO is clearly laid down in S. 60B CA 2016 together with the information of the BO that has to be recorded.
S. 60B(1)(a) to (d) CA 2016 states that Every company shall keep a register of beneficial owners of the company and record in the register-
(a) the full name, addresses, nationality, identification and usual place of residence of a person who is a beneficial owner of the company;
(b) the date the person becomes a beneficial owner of the company;
(c) the date the person ceases to be a beneficial owner of the company; and
(d) such other information as the Registrar may require.
S. 60B(2) CA 2016 states that The register of beneficial owners of the company shall be kept at the registered office of the company or any other place in Malaysia as notified to the Registrar.
Q: What happens if a person who is a beneficial owner fails to notify the company of their BO status, as required under Section 60D of the Companies Act 2016?
A: The person will face administrative or criminal sanctions including fines or imprisonment depending on the offence.
Explanation: S. 60D(4) CA 2016 states that Any person who contravenes this section commits an offence.
The punishment is provided under S. 588(2)(a) CA 2016, which states that A person who is guilty of an offence under this Act shall, on conviction, be liable to a penalty or punishment not exceeding the penalty or punishment expressly mentioned as the penalty or punishment for the offence, or if a penalty or punishment is not mentioned, to a fine not RM50,000.00 or to imprisonment for a term not exceeding 3 years or to both.
For entities other than an individual the punishment is under S. 588(2)(b) CA 2016, which liable to a fine not exceeding RM50,000.00.
Q: Company with layered ownership: A parent foreign company holds 100% of a Malaysian subsidiary. The parent’s ultimate natural person owners are known overseas. Under the BO rules, what must the Malaysian subsidiary do?
A: The Malaysian subsidiary must identify and record the ultimate natural person(s) who ultimately own or control the parent company as the BO of the Malaysian subsidiary.
Explanation: The foreign company is required to submit beneficial ownership information as part of the company’s annual return through the proposed amendment of S. 576(2) CA 2016.
A foreign company registered under the CA 2016 will have to maintain a new register of members of foreign companies with information of local and foreign shareholding in Malaysia. This register is in lieu of the current branch register.
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A detailed guideline on BO reporting framework has been published by SSM which can be found in the link below.
Guideline for the Reporting Framework for Beneficial Ownership of Legal Persons issued by SSM https://www.ssm.com.my/Pages/Legal_Framework/Document/01_Guideline%20BO%20(Post%20T%26P)%20Final%20Uploaded%20Version.pdf
Disclaimer: The contents are not and do not constitute legal advice and shall not be taken or relied upon as such. It is provided for general information purposes only.
[1] Page 23 Paragraph 43 of the Guidelines For The Reporting Framework For Beneficial Ownership Of Companies (https://www.ssm.com.my/Pages/Legal_Framework/Document/01_Guideline%20BO%20(Post%20T%26P)%20Final%20Uploaded%20Version.pdf)
