What is Beneficial Ownership (“BO”) in Malaysia and its implications?

Some of you may have received a Beneficial Ownership (“BO”) declaration notice from your company secretary and request you to declare your interest in the company. Unfortunately, and very likely, no one can answer your question on what is Beneficial Ownership in Malaysia and why can’t the company secretary disclose on your behalf given that he/she most likely has all the information.

Here we will provide you with a simple summary of this topic.

1. Why is there a need for a Beneficial Ownership (“BO”) declaration in Malaysia?

• Business entities play an important role in supporting economic growth. However, the legal structure of business entities such as Sdn. Bhd. or Limited Liability Partnership is susceptible to being misused for carrying out illicit activities such as money laundering, terrorism financing and other serious crimes.
• Often the individual perpetrators hiding behind such business entities employ devious means to avoid their identity from being detected.
• As such, the Malaysian Government is implementing the new Beneficial Ownership (“BO”)  disclosure requirements with the objective to ensure the corporate ecosystem is free from illicit activities and improve the regulations in this area to be on par with international standards.

2. When did the Beneficial Ownership declaration requirement become effective in Malaysia?

The Registrar issued the Guideline for the Reporting Framework for Beneficial Ownership of Legal Persons, which came into effect on 1 March 2020 and established a transitional period between 1 March 2020 to 31 December 2020. During the transitional period, business entities are required to obtain, keep and update the Beneficial Ownership information at the entity’s level. Post the transitional period, business entities are required to obtain, keep & update the BO information & notify the Registrar.

On 17 December 2020, the Registrar announced that the transitional period would be extended until further notice in view. You can read the announcement here.

During this period, the business entities are required to:

• Continue to identify and verify the beneficial owners to ensure the beneficial ownership information is accurate and up-to-date
• Ensure the information kept at the entity’s level can be accessed in a timely manner
• Lodge the beneficial ownership information together with the annual return

3. What are the Beneficial Ownership (“BO”) disclosure requirements?

• Identify the beneficial owners
• Determine whether shareholders are holding shares for themselves or are acting as trustees
• Maintain up-to-date and accurate information on the beneficial owner
• Grant access to the beneficial owner’s information to law enforcement and inform the Registrar of any changes to the information

4. Who is the Beneficial Owner, and what is the disclosure threshold/criteria?

• A beneficial owner is a natural person who ultimately owns or controls a legal entity or arrangement.
• The beneficial owner is required to disclose if he/she:
  • Has interest, direct or indirectly, in not less than 20% of the shares; or
  • Hold, directly or indirectly, not less than 20% of the voting shares of the company; or
  • Has the right to exercise ultimate effective control, whether formal or informal, over the company; or the directors or the management of the company; or
  • Has the right or power to directly or indirectly appoint or remove a director(s) who hold a majority of the voting rights at a meeting of directors; or
  • Is a member of the company and, under an agreement with another member of the company, controls alone a majority of the voting right in the company

5. What type of entities will be required to comply with the Malaysia’s Beneficial Ownership (“BO”) declaration?

Currently, the following entities are required to comply:

• Company Limited by Shares – Sdn Bhd
• Company Limited by Guarantee – Bhd
• Foreign Company
• Local Limited Liability Partnership – LLP
• Foreign Limited Liability Partnership

Related Read: 5 types of companies that you can incorporate in Malaysia »

6. Which type of entities are exempted?

Business entities regulated or licensed by Bank Negara Malaysia, the Securities Commission, or listed on local or foreign stock exchanges are exempted.

7. Who is responsible for the Beneficial Ownership declaration in Malaysia?

• Board of Directors
• Shareholder who has been given the disclosure notice as per S56(1), (2) or (3)
• Other person who has been given notice under S56(2)

8. What is the responsibility of the company secretary?

• The company secretary is responsible for maintaining and lodging the Register of Beneficial Ownership to the Registrar.
• Further, the company secretary is to ensure the Beneficial Ownership information entered is in accordance with the Companies Act.

9. Steps for business entities to take

Step 1: Consider the interests of the business entity held by individuals, corporate entities and/or trusts.
Step 2: Review all documents and information at the entity’s level.
Step 3: Send out notices according to Section 56(1), (2) or (3) of the Companies Act 2016.
Step 4: Consider any evidence that can show interests or rights held through a variety of means which might ultimately be controlled by the same person.
Step 5: Have an internal policy to require shareholders/partners to notify the entity on beneficial ownership information or when there is a change to the beneficial ownership information.
Step 6: Any other actions that may have to be taken depending on the circumstances of each company.

10. What is the legal implication for non-compliance

A person who fails to comply with Section S56(1), (2) or (3) of the Companies Act 2016 or provides false or misleading information commits an offence under section 56(7) of the CA 2016 may face imprisonment of not more than 10 years, a fine not more than RM 3 million or both.

If you need more information in relation to Beneficial Ownership compliance in Malaysia, please don’t hesitate to contact us.

Christine

Christine is a content writer at WeCorporate whose focus is mainly on the business landscape in the APAC region. She also occasionally writes on trending topics and provides useful insights to aspiring entrepreneurs and seasoned businessmen alike.