Disclosing the True Decision Maker: Beneficial Owner
Introduction
While a company's legal owners may be listed in official records, the true decision-makers or financial beneficiaries might remain hidden behind layers of corporate structures. Therefore, it is important for companies to identify the beneficial owner ("BO"), record and submit the BO's information to the Companies Commission of Malaysia ("CCM").
The Companies (Amendment) Act 2024 ("2024 Amendment") touches upon the definition of a BO as a natural person who ultimately owns or controls over a company or exercises ultimate effective control over a company as outlined under Section 60A of the Companies Act 2016 ("Act").
Why is Beneficial Ownership Important?
Identifying BO is crucial as the identification helps to uncover individuals who might misuse companies for illegal activities such as corruption, fraud and money laundering Perpetrators often hide behind another entity to avoid financial obligations and mask such illegal activities. To combat these risks, Companies Act 2016 requires that companies must maintain and disclose beneficial ownership information to SSM, which the requirements under the Act will be discussed in this article.
Identification of Beneficial Owner
The CCM has issued a guideline for companies to identify whether an individual is a BO based on the following criteria. (Guidelines for the Reporting Framework for Beneficial Ownership of Companies. Retrieved From: Paragraph 27, Page 15)
Criteria A: Holds directly or indirectly in not less than 20% of the shares of the company
Criteria B: Holds directly or indirectly in not less than 20% of the voting shares of the company
Criteria C: Has the right to exercise ultimate effective control whether formal or informal over the company or the directors or the management of the company
Criteria D: Has the right or power to directly or indirectly appoint or remove a director(s) who holds the majority of the voting rights at the meeting of directors
Criteria E: 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
Criteria F: Has less than 20% of shares or voting shares but exercises significant control or influence over the company
The BO for Companies Limited by Shares is determined if he fulfills one or more from following six (6) criteria above, and the shares referred to are ordinary shares. On the other hand, the BO for Companies Limited by Guarantee (without shares) is determined if he fulfills one or more from the criteria C, D and E.
Persons Responsible for the BO Information
In maintaining the record of BO information, various parties are involved in ensuring that the requirements by the Act are followed. The parties involved and their duties are as follows:
(A) Directors
- Notify members and collect BO information from members (Section 60C (1) of the Act);
- Ensure that BO information is recorded in the register of BO ("Register") (Section 60C (4) of the Act); and
- Ensure that BO information is accurate and updated whenever there is any change (Section 60C (5) of the Act).
(B) Members
- To inform the Board of Directors if they are BO through a written confirmation. If not, they must disclose the identity of the BO they are representing or acting on behalf (Section 60C (1) of the Act).
(C) Non-members
- To confirm if they are a BO of the company if they receive a notice from the Company (Section 60C (2) of the Act).
(D) Company Secretary
- Keep and regularly maintain the register of BO (Section 60C (4) of the Act);
- Ensure that BO information is entered into the Register as set out under Section 60B of the Act; and
- To lodge any changes to the BO information with the Registrar (Sections 60C (5) and (6) of the Act).
(E) Beneficial Owner
- Notify the company if he is a BO of the company and provide relevant information as required; and
- Notify the company of any charges in his particulars in the Register (Section 60D (2) of the Act).
In essence, any person who has reason to believe that he is a BO of a company must notify the company that he is a BO of the company and provide information as may be prescribed by the company (Section 60D (1) of the Act). It is important for everyone who is involved in the identification process to provide accurate information, as failure to do so is a serious offence under the Act (Section 60C (8) of the Act).
Conclusion
It is of utmost importance for companies to take proactive steps to ensure that BO information is accurately maintained in the Register to prevent illegal activities and the misuse of the company’s finances by perpetrators. Therefore, directors, members, and company secretaries must ensure transparency in maintaining BO information and adhere to the requirements set out by the Act and the CCM.
.png&w=3840&q=100)
Suhada Sapri
Associate (Commercial & Corporate) | NSA Legal
Read other articles
Discover the importance of NDAs in safeguarding business interests, from employment to M&As. Learn when and why you need one with NSA Legal’s insights.
Explore Malaysia’s Act 852, a law that sets strict rules on vaping—covering sales, age limits, nicotine levels, ads, and product safety checks.
Understand key directors’ duties under the Companies Act 2016 as we examine responsibilities, compliance, and consequences of breaches.
Explore how liability and indemnity clauses reveal how contracts manage risks - limiting responsibility while compensating damages.
Explore Malaysia's Gag Orders law : learn the sub judice rule, key approval factors, and how courts balance media freedom with fair trial rights.
Key legal and strategic factors to consider before collaborating with influencers or celebrities to protect your brand and ensure clear expectations.
Uncover the 7 key principles of Malaysia’s PDPA 2010 and recent updates every business should know.
Explore key differences between franchising & licensing, their legal definitions, and penalties for misclassification in Malaysia.
Discover Trademarks that protect your brand, build consumer trust, prevent imitation, and grow as valuable business assets in a competitive market.
Examine the torts of assault and battery in Malaysian law, their key elements, distinctions, and available civil remedies.
Unpack Malaysia’s rules on lifting the corporate veil.
Discover joint venture essentials: explore incorporated vs unincorporated models, case studies & strategies for successful collaboration.
Learn about mandatory Franchise Registration in Malaysia, legal requirements, penalties, and steps for both local and foreign franchisors.