The Companies (Amendment) Bill 2023 – Reporting Beneficial Ownership
by Sean Tan Yang Wei ~ 5 January 2024
In its Midterm Review of the 12th Malaysia Plan, the Federal Government announced that it intended to introduce mechanisms to improve the reporting of beneficial ownership of companies. Its’ report stated that the Federal Government would review provisions concerning beneficial ownership in the Companies Act 2016 (the “Act”) and the Limited Liability Partnership Act 2012 according to international standards and best practices. These reforms are intended to increase accountability in the private and public sectors.[1]
The Companies (Amendment) Bill 2023 tabled on 10.10.2023 appears to contain the reforms announced and will amend the Act by including a new Division 8A to govern Beneficial Ownership of a Company. In this article, we take a brief look at what the new provisions mean as well as the new reporting obligations imposed on all companies in respect of beneficial ownership.
What is the Current Framework Governing Beneficial Ownership?
Before delving in to the upcoming amendments, it is worth briefly examining the existing obligations concerning beneficial ownership. Under Section 56 of the Act, companies are given the power to require any member to disclose to the company whether or not they hold shares as a beneficial owner or trustee. If the shares are held on trust, the member is required to disclose the beneficial owner and the nature of the beneficial interest – and in this context, “beneficial owner” in relation to shares is defined in the Act as ‘the ultimate owner of the shares and does not include a nominee of any description.’[2]
In addition to the above, the company is required to keep a record against the name of the member whenever a member is required to disclose information of beneficial ownership of shares, as well as the information received from the member.[3] Section 56(6) of the Act also empowers the Registrar, a stock exchange, or the Securities Commission to require a company to request disclosure of beneficial ownership.
The New Requirements – Beneficial Owner of a Company
The new provisions go much further and will require the company to report who its beneficial owners are. In contrast to the beneficial owner of shares, the “beneficial owner of a company” is defined as:
‘a natural person who ultimately owns or controls over a company and includes a person who exercises ultimate effective control over a company’[4]
While the bill does not include further definitions of a beneficial owner, the new Section 60A(2) will leave it open to the Registrar of Companies to issue further guidelines on this issue. These may be similar to the current Guideline for the Reporting Framework for Beneficial Ownership of Legal Persons issued by SSM which sets out that a beneficial owner of shares is an individual (natural person) who meets one or more of the following criteria:
- Has interest, directly or indirectly, in not less than 20% of the shares of the company;
- Holds, directly or indirectly, not less than 20% of the voting shares of the company;
- Has the right to exercise ultimate effective control whether formal or informal over the company, or the directors or the management of the company;
- Has the right or power to directly or indirectly appoint or remove a director(s) who holds a majority of the voting rights at a meeting of directors; or
- 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.
SSM may consider setting the equity interest threshold from 20% to 25% in order to bring the requirements in line with Bank Negara Guidelines made pursuant to the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA)[5]. Notably, the 25% threshold would also bring Malaysia in line with the standards applied in England and Wales, Singapore, Australia, and Hong Kong. However, this is speculation until SSM releases updated guidelines on this issue.
Register of Beneficial Owners of a Company
Under the new regime, companies will be required to keep a register of beneficial owners of the company and record information such as the identification information and usual residential address of the beneficial owner, the date the person becomes a beneficial owner of the company, and when they cease to be a beneficial owner[6]. This register must be kept at the registered office of the company and must also be lodged with the Registrar.[7]
The company is also required to store information of persons who have ceased being a beneficial owner of the company for at least 7 years from their cessation.[8]
Is the Register of Beneficial Owners Accessible by the Public or Third Parties?
It is currently unknown who may or how the register of beneficial owners can be accessed. However, Section 60B(9) allows the Minister to prescribe issues of access to the register of beneficial owners.
If the current Guidelines are applicable, the register would be accessible to “competent authorities and law enforcement agencies as and when required.”[9]
It remains to be seen whether SSM will eventually take steps to allow the public to access this information, as is done in England and Wales.
Company Can Require Disclosure of Beneficial Owner of a Company
The new Section 60C grants powers to a company to require its shareholders or any other individual to disclose whether they are beneficial owners of a company.
Briefly, under Section 60C(1), a company shall, by notice in writing, require any member of the company to disclose whether the member is a beneficial owner or to disclose the persons who are the beneficial owners. The company can also require any person it believes to be a beneficial owner to confirm whether the said person is a beneficial owner under Section 60C(2). Finally, the company can also require any member or person who knows the identity of a beneficial owner to disclose such information to the company under Section 60C(3).
Beneficial Owner of a Company Required to Disclose Their Status as Such
In line with a company’s power to request for disclosure of beneficial owners from individuals or its shareholders, beneficial owners of a company are required to disclose their status as such pursuant to the new Section 60D of the Act. The beneficial owners would also be required to provide the company with the information required under Section 60B(1).
Like All General Rules…
There are always exceptions and the new Section 60E grants power to the Minister to exempt any class of companies from the application of these new provisions concerning beneficial ownership whether conditionally or otherwise.
A summary of the companies exempted under the current beneficial ownership guidelines can be found here at pages 14 and 15.