The Companies (Amendment) Act 2024 which was enforced on 1 April 2024, introduced a new era of transparency in Malaysia’s corporate landscape. A cornerstone of this change is the Beneficial Ownership (BO) Reporting Framework, designed to shed light on the individuals who ultimately control companies. This framework, implemented through a combination of legislative changes and regulatory guidance, aims to combat financial crime, enhance corporate governance, and protect stakeholders. Let’s delve deeper into the five key areas of this framework:
1. Mandatory Reporting
Companies are now legally obligated to identify their beneficial owners and report their details to the authorities. This ensures that a clear picture of ownership structures emerges, replacing the potential for hidden agendas and shadowy figures.
2. The Expanded Definition of Beneficial Owner
The traditional focus on shareholding percentages as the sole indicator of control is no longer sufficient.
The framework acknowledges that control can be exercised through a multitude of means.
Section 60A of the Companies Act 2016 defines a beneficial owner as:
“…a natural person who ultimately owns or controls a company and includes a person who exercises ultimate effective controls over a company.”
This captures situations where individuals wield power through voting rights, control over board appointments, or other mechanisms that grant them significant influence in decision-making processes.
Section 60A also lay down the basic criteria for identifying a BO for a company:
- Criteria A: Directly or indirectly holds at least 20% of company shares.
- Criteria B: Directly or indirectly holds at least 20% of company voting shares.
- Criteria C: Able to exercise control over directors and/or management.
- Criteria D: Able to appoint or remove a director with majority voting rights.
- Criteria E: A company member who partners with another to gain majority voting rights.
- Criteria F: Has less than 20% of shares but has significant control over the company.
3. Compulsory BO Register
A central pillar of the beneficial ownership framework in Malaysia is the Compulsory Beneficial Ownership Register (BO Register). This register, maintained by each company, or precisely, the company secretary, is a critical tool for ensuring transparency and accountability.
The Company Secretary is responsible to maintain the register and ensure accurate and up-date information.
4. Companies Can Legally Request BO Details
Focus on Beneficial Owners: Companies are primarily obligated to identify and obtain details about their beneficial owners, not just any individual associated with the company.
Specific Information: The details companies can request are limited to what’s necessary to identify and verify the beneficial owner. This typically includes full name, nationality, residential address, nature and extent of the beneficial interest (e.g., voting rights, control over board appointments), and any other information required by the Registrar.
Verification Purpose: Companies need this information to verify the accuracy of the information provided by the beneficial owner and to maintain a complete and up-to-date BO Register.
The Beneficial Ownership framework grants companies the legal right to request specific details from individuals, but only insofar as it’s necessary to identify and verify their beneficial owners.
5. Penalties
Failing to Identify or Report Beneficial Owners: This is a serious offense under the Companies (Amendment) Act 2024. Companies that fail to identify their beneficial owners or neglect to report them to the Registrar can be subject to a fine not exceeding RM20,000 (approximately USD 4,700). Additionally, for continuing offenses, a further daily penalty of RM500 (approximately USD 117) can be imposed.
Providing False or Misleading Information: Knowingly providing false or misleading information about beneficial ownership to the Registrar is another offense. Individuals who commit this offense can face imprisonment for a term not exceeding ten years or a fine not exceeding RM3 million (approximately USD 705,000), or both. Companies can also be held liable for such offenses.
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