A shareholder within a business entity here in Malaysia refers to a legal entity or a person that owns legally one or more shares in a private or a public company. By doing so, this person or legal entity becomes a member of the company. In other words, the term shareholder is understood as being an owner of the company.
In Malaysia, in accord with the Companies Act, all private companies must have at the very least one shareholder, be it a corporation or an individual. The shareholder does not necessarily have to be a resident of Malaysia as some types of business entities allow for 100% foreign shareholding.
Related Read: Guide to set up a foreign company in Malaysia »
What Is A Nominee Shareholder?
Simply put, the term nominee shareholder refers to the registered owner of a company’s shares. In some cases, a shareholder may want to buy the shares of a Malaysia company but may prefer that these shares not be registered in their name for reasons that are known to them. In this case, this owner may choose to appoint a Nominee Shareholder in Malaysia whose name the shares will be registered, while the owner of the shares remains anonymous.
Under this arrangement of a nominee shareholder, the beneficial owner will retain all the benefits and rights in the shares. For instance, the beneficial owner will still have the right to receive dividends, sell the shares, or vote at general meetings.
What Is Nominee Shareholder Service?
These days, some companies offer Nominee shareholder services. Once the services of such a company are enlisted, then for a fee, they will be listed on your Companies House register, but in name only. This entity will not be involved in the running of your business in any way.
The documentation required for such a service will be the beneficial owner’s name, the beneficial owner’s number, and the beneficial owner’s number. You will also be required to provide information on the value of shares allocated to the Nominee shareholder.
Related Read: What is beneficial ownership in Malaysia? »
Once sufficient information has been provided, this nominee shareholder service will, in turn, provide you with the following documents:
- A declaration of trust
- A declaration by the beneficial owner
- An indemnity letter to the Nominees
- A transfer of shares
- Terms and conditions
In most cases, this nominee shareholder service is valid for 1 year, after which you are free to renew the services every year. If you choose to terminate these services, this particular nominee will resign from the position of nominee shareholder for your company, and the shares will be passed back to the beneficial owner, any other nominated person, or director. You will then be required to submit this new shareholder information to the Companies House.
Why Appoint A Nominee Shareholder?
One of the most common reasons for appointing a nominee shareholder is usually to keep as confidential the identity of an individual or a legal entity as a company shareholder.
Any member of the public can search business entities and companies’ information to identify the shareholders and directors of that company. This is because this information company directors and shareholders are publicly available, and yet this is something that some business owners would wish to remain private.
For instance, if your company is in the process of expanding into a new sector or vertical in which your distributors, suppliers, or customers are in. It would be a good idea to make use of the nominee shareholder arrangement to prevent or at the very least delay them from coming to know that your company will be in direct competition with them.
Another scenario where it would be advisable to use the nominee shareholder arrangement is where a company employs you. One of the terms of your employment is that you are not permitted to set up another business, whether or not this new business competes with your current employer.
Alternatively, you may want to start up or incorporate a new company after resigning from your job, but your non-compete period may still be in progress. Again, the nominee shareholder arrangement may allow you to proceed with your plans and incorporate your new company.
When Should You Appoint A Nominee Shareholder?
You can choose to have a nominee shareholder right from the point of incorporating your company. Once you have opted to have nominee shareholders from this juncture, the name of this individual or legal entity will appear on the incorporation documents for your company under the category of shareholder details.
On the other hand, you may opt to have nominee shareholders after your business has already been incorporated and registered. If you decide on this option, you will be required to update the Companies House with any new shareholder information by filing an Annual Return.
The Risks of Using Nominee Shareholders
The real risk associated with the nominee shareholder arrangement is where proper documentation is not provided when setting up this arrangement. Without proper advice and proper documentation, then you open yourself to some of the following risks:
- The nominee could treat your shares as a gift and go ahead and claim that he or she is the actual owner of the company shares.
- The nominee could turn around and demand more payment than agreed on and hold your shares as a ransom.
- The nominee dies, and his representatives refuse to honour the nominee shareholder arrangement and instead treat the shares as though they are the property of the deceased nominee.
- The nominee divulges this arrangement to other persons and parties.
- It becomes impossible to contact the nominee.
FAQs
- A nominee shareholder in Malaysia refers to the registered owner of a company’s shares.
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- A declaration of trust
- A declaration by the beneficial owner
- An indemnity letter to the Nominees
- A transfer of shares
- Terms and conditions
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- The nominee could treat your shares as a gift and go ahead and claim that he or she is the actual owner of the company shares.
- The nominee could turn around and demand more payment than agreed on and hold your shares as a ransom.
- The nominee dies, and his representatives refuse to honour the nominee shareholder arrangement and instead treat the shares as though they are the property of the deceased nominee.
- The nominee divulges this arrangement to other persons and parties.
- It becomes impossible to contact the nominee.
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