Beneficial Ownership Reporting in Malaysia: What Companies Need to Know

Introduction

Beneficial ownerships (“BO”) was introduced with the implementation of the Companies Act 2016 in Malaysia on 31 January 2017. 

In 2020, the Companies Commission of Malaysia (“SSM” or “CCM”) has issued a guideline in identifying the “real owner” vide the BO reporting framework. 

Recently, SSM has also issued a consultation paper to seek opinion from public to further enhance the implementation of BO reporting.

What arises of BO Reporting?

There are cases in some companies using other person’s identity to be the shareholder of a business entity, known as “nominee”. It may be due to the “real owner” has his own employment, or the said business entity is carrying out illicit activities such as money laundering, terrorism financing, corruption, tax evasion, “under table” transactions and etc. which the “real owner” is hiding behind the other person. 

Definition of Beneficial Owner

The Companies Act 2016 defined that Beneficial Owner means the ultimate owner of the shares and does not include a nominee of any description. 

The “real owner” set up multiple layers of subsidiaries or associate companies which harden the process of identifying who is the big boss of the business. 

With the introduction of BO, it does not mean that you can simply set up another entity as the holding company to avoid the disclosure of BO. Indeed, the identification of BO is like peeling an onion, each layer is peeling off to reveal the final one. The ultimate individual owner shall be determined as the Beneficial Owner.

The 5 criteria to identify BO:

You might be wondering what if my name is not appearing in the register of members of the Company even though I have power over the company, will I be considered as BO? Yes, you will be considered as BO if you fulfil in one or more of the criteria below:-

1. Has interest, direct or indirectly, in not less than 20% of the shares; 
2. Hold, directly or indirectly, not less than 20% of the voting shares of the company; 
3. Has the right to exercise ultimate effective control whether formal or informal over the company; or the directors or the management of the company; 
4. 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. 

Who is exempted from BO? 

The following are exempted from BO reporting framework:-

• Companies which are licensed by Bank Negara, such as Banks; 
• Public listed companies; 
• Sole proprietors; and 
• Conventional partnerships.

Companies (Amendment) Bill 2023- Strengthening BO Reporting Framework

SSM is in the midst of amending the Companies Act 2016, of which one of the significant proposed amendments is strengthening the BO reporting framework. 

There will be a new detailed definition of BO, mandatory requirement to keep a Register of BO and new obligations to be imposed on the BO once the new act is enacted. 

Penalty for non-compliance

It is an offence for a person to make false or misleading information, upon conviction, to imprisonment for a term not exceeding 10 years or a fine not exceeding RM3 million or to both. 

The Companies (Amendment) Bill 2023 has also introduced the Company shall keep a register of BO and lodge a notice on any change to the particulars in the register of BO within 14 days, failing which, the Company and every officer commit an offence, upon conviction, to a fine not exceeding RM20,000. Continuance offence, to a fine of up to RM500 daily. 

Is the Register of Beneficial Owners accessible by third party or public?

It is currently unknown whether who may access the register of beneficial owners. However, Section 60B(9) of the Companies (Amendment) Bill 2023 states that the Minister should prescribe issues of access to the register of beneficial owners. 

According to the current guideline, the register would be accessible to competent authorities and law enforcement agencies as and when required. 

Conclusion 

Companies need to have an internal procedure to obtain the BO information, not merely for compliance purposes, but also to uphold the overall corporate governance of companies, creating a reliable and transparent business environment in Malaysia. 

As a corporate secretarial services provider in Malaysia, Servecorp assists companies in understanding and complying with BO reporting requirements.

Speak to us for in-depth guidance on Beneficial Ownership matters — our experienced company secretarial team in Penang is ready to support you with BO disclosures and ongoing compliance.