Companies (Amendment) Act 2024: New Beneficial Ownership Reporting Requirements

The Companies Act 2016 [Amendment] Bill 2023 which comes into force on April 1st 2024 addresses four main areas, one of which is the gaps in the Beneficial Ownership (BO) Reporting Framework for local and foreign companies in Malaysia.

For the brave and the bored, here are links to official documents for full details:

• The Bill in its entirety
• SSM’s consultative document of proposed revisions

Thing is, sentences in such documents are measured not in words but kilometers!

It helps avoid ambiguity, but can be a pain to read! 

For your benefit, we’ve summarised the document into five changes to BO reporting standards that company shareholders, directors, and investors should take note of.

Let’s begin.

1. Broader criteria for ‘Beneficial Owner’

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.”

In keeping with the spirit of the Act, the Bill proposes six criteria that demonstrate ‘ultimate effective control’ of 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.

Meeting just one criteria qualifies a person as Beneficial Owner, and Criteria C is significant as a person can be defined as a Beneficial Owner even with zero direct or indirect share ownership if it can be proven they call the shots!

2. Compulsory Beneficial Owner Register

The Bill proposes that companies be required to maintain and update a database of all Beneficial Owners and to submit it to SSM as part of their Annual Submissions.

Here’s a list of practices the Bill suggests to maintain the register:

• Send notices to Beneficial Owners at least once a year to verify details are up to date.
• Record all communications sent and received in the Register.
• Report any changes in Beneficial Owner details to SSM within 14 days
• Allow access to the register by authorities and those named as Beneficial Owners.
• Start keeping records the day a person becomes a BO until seven years after they stop.
• Keep the register at the registered office either as a physical or electronic document.
• If no Beneficial Owner, name a person in a senior management position as a stand in. 

To be honest, keeping tabs on Beneficial Owners has always been part of a Company Secretary’s responsibilities; the real change is the mandate to routinely share this information with SSM.

3. BO disclosure for foreign companies

Not much here, but the Bill proposes that foreign companies verify and submit their beneficial ownership information to SSM during the registration stage.

4. Companies can legally request details

Under the new Bill, if a company believes that:

• a person is a Beneficial Owner of the company
• a member knows the identity of a Beneficial Owner
• there is a change in the Beneficial Owner’s details, or
• the details of a Beneficial Owner in the register is incorrect

The company is legally authorised to request confirmation from relevant persons in each situation to preserve or restore the accuracy of the Beneficial Owner register

5. New penalties for non-compliance

The Bill introduces a general penalty under Section 558 of up to three years imprisonment and a fine of up to RM50,000 for Individuals and a fine of up to RM50,000 for non-individuals, and which covers the following four offences:

No	Section	Offence	Penalty
1	Subsection 60C(7)	The company and every officer who fails to comply with subsections 60C(1), (2), (3), (4), (5) &(6)	General penalty under Section 588
2	Subsection 60C(8)	Any person who contravenes any notice under section 60C	General penalty under Section 588
3	Subsection 60C(9)	Any person who in purported compliance with any notice under section 60C makes any false or reckless statement	General penalty under Section 588
4	Subsection 60D(4)	Any person who contravenes section 60D	General penalty under Section 588

In addition, there are four new offences with specific penalties

No	Section	Offence	Penalty
1	Subsection 60B(6)	Failing to comply with section 60B	Fine not exceeding RM20,000 and for continuing offence, a further fine not exceeding RM500
6	Subsection 68(9)	Failing to comply with section 68	Fine not exceeding RM50,000 and for continuing offence, a further fine not exceeding RM1,000
8	Section 584	Failing to furnish information relating to shareholding of any person to the Registrar	Maximum of 10 years imprisonment or a fine not exceeding RM3 million or to both
9	Section 593	Making false or misleading statements or reports	Maximum 10 years imprisonment or a fine not exceeding RM3 million or to both

We’re confident this will persuade even the most ‘introverted’ of company stakeholders to comply with SSM’s reporting requirements. What’s the point of hoarding millions if it means risking ten years in prison!

Why the new Beneficial Ownership reporting requirements?

These changes are in response to the Financial Action Task Force’s 2015 evaluation of Malaysia and are intended to combat money laundering while raising Malaysia’s corporate transparency standards to that of FATF global benchmarks.

For company directors, shareholders,and legitimate Beneficial Owners, this means extra attention to maintaining accurate records.

In short, you need a Company Secretary who won’t shy away from a little detective work! 

Let MISHU handle your Beneficial Ownership reporting

MISHU’s team of Company Secretaries keep ourselves updated with the latest laws to advise company stakeholders on their overall compliance needs. Speak to us today for assistance!