The recent amendments to the Companies Act 2016 (“CA 2016”) provide a mandatory requirement for the entities registered under the Companies Commission of Malaysia (“CCM”) to identify, obtain, and maintain their beneficial ownership information. According to the Guidelines for the Reporting Framework For Beneficial Ownership of Companies issued by the CCM (“Guidelines”), the following natural person shall be deemed as a beneficial owner (“BO”) of a company:
- having an interest in shares (directly) including effective interest (indirectly) (e.g. joint interests, joint arrangements, and nominees) in not less than 20% of the shares or voting rights;
- does not hold 20% or more of the shares or voting rights but still exercises significant control or influence over the directors or the management of the company (whether formal or informal); or
- has the right or power to directly or indirectly appoint or remove a director who holds the majority of the voting rights at the meeting of directors.
How do Beneficial Ownership Reporting Obligations Affect You?
- Appointment of a Nominee Shareholder Relationship
Prior to the amendments, it was a common practice to appoint a nominee shareholder to hold the shares of a company for the beneficiary due to various reasons including issues in respect of governance or sanctions that prevent the BO from holding the shares under his or her own name. Upon the implementation of this Beneficial Ownership Reporting Framework, companies are now required to identify the ultimate beneficiary of the shares and register the information of the beneficiary with the CCM. As such, whether the beneficiary is holding the shares directly or indirectly, such beneficiary will eventually be considered as ultimate shareholder and his information shall be reported to and made available to the public by the CCM.
- Circumventing Shareholding Restrictions
In specific sectors and/or industries, companies are required to comply with certain shareholding restrictions and prohibitions. Common examples in Malaysia include complying with a minimum local or Bumiputra shareholders’ participation; or complying with a maximum foreign shareholders’ participation. This is a common requirement in the event of obtaining licensing and/or approvals from certain governmental authorities in highly regulated sectors. In the past, companies and their shareholders entered into different arrangements to fulfill such requirements which would result in the circumvention of any Malaysian laws. Such arrangements are considered void based on the past decisions of the courts in Malaysia. Nevertheless, the decisions of the courts have not been legislated until the recent amendments to the CA 2016.
Following the implementation of the BO reporting obligations, the ultimate beneficiary of the shares of a company will be identified and reported. As a final nail to the coffin, this legislated provision would render all shares held by a nominee or in trust by another person redundant in such circumstances.
- Due Diligence in M&A Transaction Process
Due diligence exercises form an integral part of a mergers and acquisitions (“M&A”) transaction which allows the acquirer to identify the risks involved in the M&A of a target. These due diligence exercises should be enhanced to cover risks involving the BO reporting obligations and the BO. Prior to conducting a due diligence exercise, proper authorisations should be obtained from the target and the relevant BO to permit disclosures of such information and further checks (e.g. credit checks) to be conducted. Target companies will also be required to provide all relevant corporate secretarial filings in respect of the new Section 60C of CA 2016.
Consequence of Non-compliance
Pursuant to Section 60B(6) of the CA 2016, failure to comply with the reporting obligations will be an offence in which if the company and every officer of the company found to be liable shall be subjected to a maximum fine of RM20,000. If such non-compliance continues after a conviction, such entities will be liable to a further maximum fine of RM500 for each day until the reporting obligations are fulfilled.
Conclusion
In light of the above, business owners should now reconsider whether the structure of the company is in compliance with the law. On a commercial basis, business owners should also consider whether the Beneficial Ownership Reporting Framework will be an obstacle to their strategies and plans for their businesses. If it is an obstacle, business owners can reconsider reaching out for legal advice on whether other alternatives are available or a restructuring of their company structure is required.
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Author(s):
Ashley Yeo, Partner
E: ashley@yeoashley.com.my
Andros Lim, Partner
E: andros@yeoashley.com.my
Ku Nuo Qi, Pupil
E: nuoqi.ku@yeoashley.com.my
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Hello! This is Yeo Ashley & Partners, a law firm based in Bangsar South, Kuala Lumpur, Malaysia. We provide comprehensive services tailored to meet the complex needs of businesses. Our experiences include structuring of company shares for purposes of fundraising and incentivising employees, capital markets, mergers and acquisitions, regulatory compliance, anti-bribery and anti-corruption measures acquisitions, and other shares-related matters, ensuring efficient and compliant processes. Our dedicated team is committed to empowering companies with the tools and guidance needed to navigate these critical areas, enabling them to focus on growth and success with confidence.
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This article is intended to provide general information and does not constitute and/or should be relied on as any legal opinion or professional advice. For more information, you may reach out to Yeo Ashley & Partners, a law firm based in Bangsar South, Kuala Lumpur, Malaysia.
