On 10 October 2023, the Government tabled amendments to the Companies Act 2016 (CA) via the Companies (Amendment) Bill 2023. This Bill introduces, among others, a comprehensive beneficial ownership reporting framework under the new Division 8A in Part II of the CA.
Proposed Amendments
The key proposed amendments are as follows:
1.Criteria of Beneficial Owner
Presently, Section 2 of the CA defines “beneficial owner” as the ultimate owner of the shares and does not include a nominee of any description. Meanwhile, the Guideline for the Reporting Framework for Beneficial Ownership of Legal Persons (Guideline) issued by the Companies Commission of Malaysia (CCM) provides a more expansive definition, stipulating that a beneficial owner must be a natural person who ultimately owns or controls a legal entity or arrangement and fulfill at least one of the following criteria:
(i)Has interest, directly or indirectly, in not less than 20% of the shares of the company.
(ii)Hold, directly or indirectly, not less than 20% of the voting shares of the company.
(iii) Has the right to exercise ultimate effective control whether formal or informal over the company; or the directors or the management of the company.
(iv)Has the right or power to directly or indirectly appoint or remove a director(s) who hold a majority of the voting rights at meeting of directors.
(v)Is a member of the company and, under an agreement with another member of the company, controls alone a majority of the voting right in the company.
The proposed revised definition of “beneficial owner” under Section 2 of the CA is as follows:
(a)In relation to shares – the ultimate owner of the shares and does not include a nominee of any description.
(b)In relation to a company – a natural person who ultimately owns or controls a company and includes a person who exercises ultimate effective control over a company.
The proposed revised definition of a beneficial owner effectively bridges the gap between the definition provided by the CA and the broader definition outlined in the Guideline. Notably, this proposed revised definition is also in line with the Financial Action Task Force’s (FATF) Revision of Recommendation 25 on the transparency and beneficial ownership of legal arrangements[1] as it covers beneficial ownership based on both shares and ultimate effective control over a company.
2.Register of Beneficial Owners of Company
Under the proposed new Section 60B(1) of the CA, every company is required to keep a register of beneficial owners and record in the register all the requisite information. Such register is to be kept at the registered office of the company or any other place in Malaysia as notified to the CCM. In addition, the beneficial owner’s information and the supporting documents must be kept for at least 7 years from the date a person ceases to be a beneficial owner under the proposed new Section 60B(5).
The newly introduced Section 60B(9) of the CA further empowers the Minister of Domestic Trade and Costs of Living (Minister) to specify the person or class of persons who may access the register of beneficial owners of the company or the beneficial ownership information therein.
Any person who contravenes this section commits an offence and shall be liable to a fine not exceeding RM 20,000.00 and, in the case of a continuing offence, to a further fine not exceeding RM 500.00 for each day during which the offence continues after conviction pursuant to new Section 60B(6) of the CA.
3.Duty of the Company to Obtain Beneficial Owner Information
Under the current Section 56 of the CA, a company may issue notices in writing to its members or any person to require disclosure of beneficial interest in the voting shares of the company. However, with the introduction of the new Section 60C of the CA, it will be mandatory for a company to issue notices in writing to:
(1)Any member of the company.
(2)Any person whom the company knows or has reasonable grounds to believe is a beneficiary owner of the company.
(3)Any member or person the company knows or has reasonable grounds to believe knows the identity of the beneficial owner of the company,
The company is also required to record such information and particulars in its register of beneficial owners within 14 days from the date on which such information is received in accordance with the new Section 60C(4) of the CA. Any person who fails to comply with a notice issued or makes any statement which he knows to be false or recklessly makes any false statement commits an offence.
4.Duty of Beneficial Owner of Company to Provide Beneficial Owner Information
The proposed new Section 60D(1) of the CA seeks to compel a person who is beneficial owner of a company to notify the company of his status as a beneficial owner and to provide any prescribed information. The legal onus therefore lies on the beneficial owner to furnish his beneficial ownership information to the company irrespective of whether the company has issued a written notice to the beneficial owner.
Similarly, under the proposed new Section 60D(2), an individual identified as a beneficial owner of a company is obligated to inform the company of any changes in their details as recorded in the register of beneficial owners. If an individual ceases to be a beneficial owner of a company, he must notify the company, as soon as practicable, of the change in accordance with the proposed new Section 60D(3).
5.Exempted Companies
Under the new Section 60E, the Minister may, by order published in the Gazette, exempt any class of companies from the application of the beneficial ownership of companies reporting, either unconditionally or subject to such terms as the Minister may impose.
Moving Forward
This much-anticipated Bill signifies a major leap in the direction of enhancing corporate transparency and accountability, aligning the Malaysian regulatory framework more closely with international standards and practices. Looking ahead, the Bill is on track for its second reading at Dewan Rakyat, which is scheduled for the end of November 2023. Therefore, it is highly advisable for companies to initiate preparations for the forthcoming implementation of this framework to ensure a smooth transition in the realm of beneficial ownership reporting.
[1]The FATF Recommendations are the internationally endorsed global standards against money laundering and terrorist financing. In February 2016, the FATF granted full membership to Malaysia based on its commitments to continue improving its Anti-Money Laundering and Combating the Financing of Terrorism regime.
20 November 2023