The Companies Amendment Bill 2023 provides enhancements to the beneficial ownership of companies framework and will usher in stronger statutory footing to enforce beneficial ownership reporting.
Current Law
Section 2 of the Companies Act 2016 (CA 2016) only defines ‘beneficial owner’ as ‘the ultimate owner of the shares and does not include a nominee of any description’. Information on the beneficial ownership of shares will be disclosed under section 56 of the CA 2016.
The current beneficial ownership reporting regime is also governed by the Companies Commission of Malaysia’s Guideline for the Reporting Framework for Beneficial Ownership of Legal Persons (BO Guidelines) (accessible here).
There is a possible gap in the current legal framework. The CA 2016 only relates to reporting on beneficial ownership of shares in a company. However, the BO Guidelines are wider and enforce a reporting on the beneficial ownership of companies.
Proposed Amendments: 8 Key Areas
In the Companies Amendment Bill 2023, we will see an enhancement of the statutory framework on the reporting of beneficial ownership of companies. There are 8 key areas.
The references below are to the proposed new sections of the CA 2016 as referred to in the Companies Amendment Bill 2023.
#1: Definition of Beneficial Owner of a Company
A beneficial owner of a company is ‘a natural person who ultimately owns or controls over a company and includes a person who exercises ultimate effective control over a company’ – see the proposed section 60A(1).
#2: Guidelines with Further Criteria to Identify a Beneficial Owner of a Company
The Registrar of Companies may issue guidelines for the purpose of identifying a beneficial owner of a company – see the proposed section 60A(2).
I expect that such guidelines may follow closely the current criteria used in the BO Guidelines and could include criteria such as:
- Has interest, directly or indirectly, in not less than 20% of the shares in the company.
- Holds, directly or indirectly, not less than 20% of the voting shares in the company.
- Has the right to exercise ultimate effective control, whether formal or informal, over the company, its directors or its management.
- Has the right or the power to directly or indirectly appoint or remove a director or directors who hold the majority of the voting rights at a meeting of directors.
- Is a member of the company and, under an agreement with another member or members of the company, controls a majority of the voting rights in the company.
#3: Companies to Record and Lodge Beneficial Owner Information
First, companies are to record the beneficial ownership information in the company’s register of beneficial owners of the company. This register is to be kept at the registered office of the company or any other place in Malaysia as notified to the Registrar – see the proposed section 60B(1) and (2).
Second, companies are to lodge with the Companies Commission of Malaysia a notice with the particulars of the beneficial owners of the company – see the proposed section 60B(3).
#4: Access to the Beneficial Owner Information
The Minister may then prescribe the person or class of persons who may access the company’s register of beneficial owners or the beneficial ownership information lodged with the Companies Commission of Malaysia. The Minister may also set out the manner and terms and conditions for such access – see the proposed section 60B(9).
#5: Duty of Company to Issue Notices to Obtain Beneficial Owner Information
The company has a duty to issue notices to essentially gather the information and particulars of the beneficial owners of the company.
First, notices to members of the company. The company shall require any member of the company to inform the company whether:
- The member is a beneficial owner of the company or not.
- If not, and as far as it is possible to do so, the member is to indicate the persons by name and by other particulars to enable those persons to be identified as beneficial owners of the company.
– see the proposed section 60C(1).
Second, notices to persons the company knows or has reasonable grounds to believe to be a beneficial owner of the company. The company shall require that person:
- To state whether that person is a beneficial owner of the company or not.
- If not, that person is to state whether he knows or has reasonable grounds to believe that any other person is a beneficial owner of the company and to provide particulars.
– see the proposed section 60C(2).
Third, notices to 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 shall require the member or person:
- To state whether he knows, or has reasonable grounds to believe, that any other person is a beneficial owner of the company and to provide particulars.
– see the proposed 60C(3).
#6: Duty of Beneficial Owner to Give Beneficial Owner Information
A person who has reason to believe that he is a beneficial owner of a company shall notify the company that he is a beneficial owner and provide the prescribed information – see the proposed section 60D(1).
#7: Exempted Companies
The Minister may by Gazette publication exempt any class of companies from the beneficial ownership of companies reporting, either unconditionally or subject to such terms – see the proposed section 60E.
It will be interesting to see if the current list of exempted companies in the BO Guidelines will also be the same list of exempted companies in the amended CA 2016.
#8: Penalties
The penalties for breaches of the beneficial owner of companies sections.
First, there is a specific penalty for contravening the section on maintaining the register of beneficial owners and the lodgment of information with the Companies Commission of Malaysia. The company and every officer who contravenes the section may be liable to a fine not exceeding RM20,000.00 and a further fine of RM500 per day in the case of a continuing offence – see the proposed section 60B(6).
Second, all other provisions would trigger the general penalty provision under the CA 2016. For example, if the beneficial owner of the company fails to notify the company, he may be convicted of that offence. The general penalty under section 588 of the CA 2016 applies. Upon conviction, the penalty is a fine not exceeding RM50,000 or a maximum three-year jail term or both.
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