log in
All Articles | Back

Member Articles


Companies (Amendment) Bill 2020 — Proposed Changes to Beneficial Ownership of Shares in Private Companies 

by Lee Yuan Yao

Published: October, 2020

Submission: October, 2020

 



In this article, Lee Yuan Yao looks at the proposed disclosure requirements on beneficial ownership of shares in private companies under the proposed Companies (Amendment) Bill 2020.


Introduction


On 29 July 2020, the Companies Commission of Malaysia (“CCM”) released a consultative document seeking feedback on the proposed Companies (Amendment) Bill 2020 (“CA Bill 2020”). One of the key proposed amendments to the Companies Act 2016 (“CA 2016”) is in relation to improving transparency of shareholding in companies in Malaysia by enhancing the disclosure framework for beneficial ownership.


Current framework


Beneficial owner is defined under section 2 of the CA 2016 to mean “the ultimate owner of the shares and does not include a nominee of any description”. Based on a literal reading of the wording under section 56 of the CA 2016, unless specifically directed by the CCM, a stock exchange or the Securities Commission Malaysia1 , a company incorporated under the CA 2016 is empowered, but not required, to send several notices under section 56(1) to (3) of the CA 2016 to obtain information of beneficial owners of the shares in the company.


Generally, these notices are issued by the company to its shareholder and any person who has an interest in any of the voting shares in the company to, amongst others, inform the company whether he or she is holding the shares in the company as a beneficial owner or a trustee (and in this case, to indicate the beneficial owner(s) and the nature of their interests in the shares)2 , and whether another person is entitled to control the shareholder in exercising the voting rights, and particulars of the agreement or arrangement in respect of the control3.


The information obtained pursuant to the written notices under section 56(1) to (3) of the CA 2016 must be inscribed against the shareholder’s name in a separate part of the company’s Register of Members.


Having said that, in the CCM’s Guideline for the Reporting Framework for Beneficial Ownership of Legal Persons which became effective on 1 March 2020 (“BO Guideline”), it is compulsory for companies to send out the written notice under section 56(1) of the CA 2016 at least once in a calendar year, and companies are recommended to send out notices pursuant to section 56(1) to (3) of the CA 2016 frequently to update the CCM on the beneficial ownerships of their shareholders.


In addition, the CCM has imposed a duty on companies to lodge beneficial ownership information together with the annual return, under the general catch-all item of “such other information as the CCM may require” under section 68(j) of the CA 2016.


Proposed framework under the CA Bill 2020


Under the CA Bill 2020, the CCM will remove and replace the existing provisions relating to beneficial ownership of the CA 2016 with that set out below:


Replacing definition of “beneficial owner”: for the purposes of the proposed beneficial owner disclosure framework of the CA 2016, “beneficial owner” is defined to mean “a natural person who ultimately owns or controls a company and includes an individual who exercises ultimate effective control over a company4.


Although it can be argued that the phrase “ultimate owner” under the existing definition can cover a person who controls the company, this proposed definition expressly goes beyond the direct ownership of shares by covering the perspective of effective control over a company. With the introduction of this definition, it is clearer that a person who is not listed as a shareholder may still be categorised as a beneficial owner.


It is currently unclear what is the extent and threshold of ownership and control of a person over the shares in a company to fall within the definition of “beneficial owner”. The current BO Guideline (which sets out certain thresholds for a person to be categorised as beneficial owner) was drafted based on the existing provisions under the CA 2016 and will likely require amendment following the enactment of the CA Bill 2020.


Obligation to obtain beneficial ownership information: Unlike the existing provisions under the CA 2016, a company incorporated under the CA 2016 will be required to send written notices to obtain information of beneficial owners of the shares in the company. These notices are as follows:


− Written notice by the company to its shareholder to, amongst others, inform the company about the beneficial owner of the shares held by the shareholder. Failure to send such notice without any reasonable ground to do so is an offence and is, on conviction, punishable to a fine of not exceeding RM50,000 as per the general penalty under the present section 588 of the CA 2016.


− Written notice by the company to (aa) any person whom the company knows or has reasonable grounds to believe is a beneficial owner of the company; and (bb) any person whom the company knows or has reasonable grounds to believe knows the identity of a person who is a beneficial owner of the company or is likely to have that knowledge, to state whether he knows or has reasonable grounds to believe that any other person is a beneficial owner of the company.


-Obligation on beneficial owners: beneficial owners are required to notify and provide information required to be included in the Register of Beneficial Owners, including any changes of the beneficial owner5. Failure to comply with this requirement constitutes an offence that is punishable in accordance with the general penalty under the aforementioned section 588 of the CA 2016.


Introduction of a new register of Beneficial Owners: every company incorporated under the CA 2016 must keep a Register of Beneficial Owners and record details of beneficial owners of the shares in the company6.


Failure to comply with the requirement to keep a Register of Beneficial Owners is an offence that is punishable on conviction to a fine not exceeding RM10,000 and, in the case of continuing offence, to a further fine not exceeding RM500 for each day during which the offence continues after conviction7.The company is required to notify the CCM of any change in the particulars in the Register of Beneficial Owners8.


A foreign company registered under the CA 2016 will have to maintain a new register of members of foreign companies with information of local and foreign shareholding in Malaysia in lieu of the current branch register.


The company is required to submit beneficial ownership information as part 5 of the company’s annual return through the proposed amendment of section 576(2) of CA 2016.


Disclosure of beneficial ownership: The beneficial ownership information in the Register of Beneficial Owners that is lodged with the CCM will only be made available to the beneficial owners listed in the register, the persons authorised by the beneficial owners, and the following bodies under the proposed clause 56C(7) of the CA 2016:


i. Royal Malaysian Police;


ii. Malaysian Anti-Corruption Commission;


iii. Royal Malaysian Customs Department;


iv. Bank Negara Malaysia; and


v. Securities Commission Malaysia.


Companies exempted from the beneficial ownership reporting framework


The CA Bill 2020 intends to exempt companies that are licensed or regulated by Bank Negara Malaysia, Securities Commission Malaysia or traded on a stock exchange (in Malaysia or otherwise), from the beneficial ownership reporting framework9. This is to ensure that these companies are not over-burdened as these entities are already subject to rules or regulations pertaining to disclosure of shareholders’ interest and obligations.


Implication


Once the CA Bill 2020 is enacted into law, companies incorporated under the CA 2016 must prepare a Register of Beneficial Owners that is always up to date. Further, it would also be compulsory for a company to send written notices to its shareholders, any person whom the company knows or has reasonable grounds to believe is a beneficial owner of the company, and any person whom the company knows or has reasonable grounds to believe knows the identity of a person who is a beneficial owner of the company or is likely to have that knowledge, to obtain information of beneficial owner of the shares in the company.


In tandem with these notices, beneficial owners must notify and provide information required to be included in the company’s Register of Beneficial Owners. In addition, there would be an express requirement for beneficial ownership information to be submitted to the CCM as part of the company’s annual return.


Although the aforesaid obligations under the CA Bill 2020 are imposed on the company, generally, a company secretary has the duty to maintain and keep updated all the registers, records and books which are required to be kept at the registered office of the company10.


Further, companies whose shareholders have adopted trust arrangements to obtain certain regulatory licences may need to be mindful of any implication of the beneficial ownership disclosure framework since there is a Register of Beneficial Ownership that can be used to check the beneficial owners of the companies.


Summary


The proposed amendments to the beneficial ownership disclosure framework under the CA Bill 2020 serve to improve Malaysia’s corporate governance and transparency of shareholding structure. The company secretary must also ensure that the Register of Beneficial Owners and relevant template written notices are put in place pending the enactment of the CA Bill 2020 as law.


Companies with trust arrangements regarding shareholding structure and have been issued with relevant regulatory approval and licences may need to evaluate its shareholding structure in view of the proposed requirements in the CA Bill 2020.


LEE YUAN YAO


CORPORATE/M&A PRACTICE GROUP


1 Section 56(6) of the CA 2016


2 Section 56(1) of the CA 2016


3 Section 56(3) of the CA 2016


4 Proposed clause 56B(1) of the CA 2016 5 Proposed clause


3 of the CA Bill 2020


6 Proposed clause 3 of the CA Bill 2020


7 Proposed clause 3 of the CA 2020


8 Proposed clause 3 of the CA Bill 2020


9 Proposed clause 3 of the CA Bill 2020


10Paragraph 27, Guidelines Relating to Practising Certificate for Secretaries under section 241 of the CA 2016.


For further information regarding corporate/M&A matters, please contact ourCorporate/M&A Practice Group.


 


 

MEMBER COMMENTS

 

 

WSG Member: Please login to add your comment.

    Disclaimer

WSG's members are independent firms and are not affiliated in the joint practice of professional services. Each member exercises its own individual judgments on all client matters.

HOME | SITE MAP | GLANCE | PRIVACY POLICY | DISCLAIMER |  © World Services Group, 2020