What is Beneficial Ownership and how does it affect the Company

All that you need to know on Beneficial Ownership

COMPANY SECRETARY DIGITAL SECRETARY DIRECTORS COMPANY SECRETARIAL SHAREHOLDERS BENEFICIAL OWNERSHIP EFFECTIVE CONTROL MALAYSIA COMPANIES ACT, 2016 SECRETARIAL FEES MALAYSIA DIGITAL SECRETARY MALAYSIA START COMPANY START BUSINESS INCORPORATE SDN BHD DIGITAL COMPANY SECRETARY COMPANY SECRETARY MALAYSIA REGISTER COMPANY ONLINE MALAYSIA COMPANY INCORPORATION SHARES

ALLPRO CONSULTANTS

7/6/2021 4 min read

Are you a Beneficial Owner?  To find out, you need to determine the following :

(1) Do you own or hold 20% or more of the shares / voting shares   in the Company directly or indirectly ?

(2) Are you able to direct the course of the business of the Company although you do not own any shares in the Company? Are you the one who makes the business decisions of the Company ? 

(3) Is there any form of arrangement or agreement in which you and one or more of the other shareholders agree to vote in the same way on any matter that involves the Company, and together you and the other person (s) hold 20% or more of the shares in the Company. 

If you answered 'yes' to all or any of the questions above, you are the beneficial owner of the shares in that Company directly or indirectly. 

Who is a Beneficial Owner and what is beneficial ownership under   Section 56

WHO IS A BENEFICIAL OWNER ? 

The Companies Act, 2016 defines a beneficial owner’ as the ultimate owner of the shares of a company and does not include a nominee of any description. Beneficial owners are natural persons (individuals)  who ultimately own or control an entity or  arrangement.
The Guideline on Beneficial Ownership Reporting Framework of Legal Persons as issued by the SSM seeks to clarify the phrase " ultimate owner of the shares" which  will cover both from the perspective of ownership and effective control. 
Section 56 of the Companies Act 2016 provides companies with the necessary powers in order to obtain the necessary information from its' shareholders / members. 
WHAT MUST A COMPANY DO TO ESTABLISH THE IDENTITY OF A BENEFICIAL OWNER?
Section 56(1) of the CA 2016 provides that the company may issue a notice in writing to any member of the company to provide confirmation whether the member holds any voting shares as a beneficial owner or a trustee. If the member is holding shares as a trustee, then they are required to disclose the identity and particulars of the beneficiary.
Section 56(2) of the CA 2016 states that the company may issue a notice in writing to any other person who has an interest in any of the voting shares in the company. The notice will require such persons to provide confirmation whether they hold the voting shares as a beneficial owner or as a trustee. Similarly, if this other person is holding it as trustee, they are required to disclose the identity and particulars of the beneficiary.

WHO CAN REQUEST FOR BO INFORMATION FROM A COMPANY ?
It is important to note that pursuant to Section 56(6), regulators such as SSM, the Stock Exchange  and the Securities Commission may exercise powers given under this section to issue a notice in writing to the company, for the company to invoke its powers under the said Sections 56(1) & (2) in order to provide them with the information obtained on beneficial ownership. 
Auditors of companies do not have the authority to request or obtain beneficial ownership information.

WHAT ARE THE RESPONSIBILITIES  OF THE COMPANY / OFFICERS OF THE COMPANY ?
Under the Guideline of  Beneficial Ownership (“BO”) reporting framework as issued by the SSM,  a company or a limited liability partnership (LLP)  is required to:- 
(a) take reasonable steps to identify, obtain and verify the BO information; 
(b) enter the BO information into the register of BO; 
(c) keep the BO information accurate and up-to-date and accessible in a timely manner; 
(d) update the BO information whenever there is a change to the particulars of the BO and then notify the Registrar; 
(e) maintain the BO information and supporting documents at the registered office or where the register of members/register of partners is being kept; and
(f) give access to competent authorities and law enforcement agencies, whose name has been entered in the register of BO and any other person authorized by the BO.
HAVE AN INTERNAL POLICY 
The Guideline recommends (Paragraph 24(e)) companies to have an internal policy on BO reporting. It also requires shareholders to notify the company, or partners to notify the limited liability partnership on the identity of the BO and when there are changes in the BO information. This policy may be reflected in the Constitution of the Company, if needed, in order to  ensure that the policy is properly documented for consistent compliance in future. 
WHAT ARE THE COMPANY'S SECRETARY'S DUTIES?
The SSM has made it a requirement for the Company Secretaries to lodge / submit  to SSM a declaration confirming that the facts and information in the document are true and to the best of their knowledge, and that all due diligence and vetting processes have been performed to obtain the relevant information. The Secretary will also need to update and maintain at entity level the Register of Beneficial Ownership.  The BO information will be lodged annually with the Annual Return. When invoked by the SSM (date yet to be announced), the BO information will have to be submitted within 14 days from the date the BO information or any changes thereof  are recorded in the Register of BO.
PENALTIES AND COMPOUNDS FOR NON-COMPLIANCE OR  MAKING  FALSE OR MISLEADING STATEMENTS
Under Section 591 of the CA 2016, it is an offence  to make or authorize the making of a statement that a person knows is false or misleading. The penalties include upon conviction,  imprisonment for a term not exceeding ten (10) years or to a fine not exceeding RM3 million or both.
GOOD CORPORATE GOVERNANCE PRACTISE
Do consider getting your beneficial ownership reporting in order for good corporate governance. Speak to your Company Secretary if you need help to understand your responsibilities, duties and rights as a director and / a shareholder and what you have to do.  If you wish to know more on Beneficial Ownership and how it affects you, do contact us or visit our website at www.allproconsultants.com
We will be glad to help you understand further your rights and responsibilities. 
Malaysia Beneficial ownership, reasonable measures to be taken by companies

The Guideline as issued by the SSM  highlights reasonable measures for a  company to take in identifying, obtaining and keeping the BO information accurate and up-to-date.