Mandatory Disclosure of Beneficial Ownership (BO) of Companies

What is BO?

Companies Act 2016 [Act 777] (CA 2016) defines BO as “the ultimate owner of the shares and does not include a nominee of any description”, a clarification is required to ensure that a company is able to identify the natural persons who ultimately owns or have control over the company.

Why SSM want BO disclosure?

To assist legal persons to understand and comply with the requirements to obtain, keep and hold up-to date BO information, and to provide access in a timely manner for the purposes of BO reporting framework pursuant to the CA 2016 and LLPA 2012, as the case may be.

What is the criteria on BO?

Has interest, directly or indirectly, of not less than 20% of the shares of the company.
Holds, directly or indirectly, not less than 20% of the voting shares of the company.
Has the right to exercise ultimate effective control whether formal or informal over the company, or the directors or the management of the company.
Has the right or power to directly or indirectly appoint or remove a director(s) who holds a majority of the voting rights at the meeting of directors.
Is a member of the company and, under an agreement with another member of the company, controls alone or through the cumulative effect of the agreement a majority of the voting rights in the company.

Who is responsible for BO ?

A company or a limited liability partnership as the case may be, has the duty to obtain the BO information and to keep the information together with the supporting documents relating to the BO information.

1) In the case of a company, the roles and responsibilities of the various parties with regards to the BO information are as follows:

The board of directors is ultimately responsible in ensuring that the company has exercised its powers under subsection 56(1), (2) or (3) of the CA 2016 in obtaining the BO information.
Members of the company has received a notice issued under subsection 56(1) or (3) of the CA 2016
Any other person who has been given notice under subsection 56(2) If a person who is not a member of a company receives a notice from the company under subsection 56(2) of the CA 2016, the person has the obligation to inform the company whether he is the BO of the company as defined under the CA 2016 or has met at least one of the criteria stated under paragraph 27 of this guideline or as trustee.
Company secretary/Agent In line with the duty of a secretary under subsection 102(1) of the CA 2016 to properly keep and regularly maintain the register of members, the secretary must ensure that the BO information is entered into in accordance with the requirement set out under subsection 56(4). In addition, a secretary is also responsible to lodge the BO information to the Registrar in accordance with the provisions under subsection 56(6) or 51.

2) In the case of a limited liability partnership the roles and responsibilities of the various parties with regards to the BO information are as follows:

Each partner is responsible in providing the BO information by confirming whether or not he is the BO in respect to the capital contribution held by him or has met at least one of the criteria stated under paragraph 33 of this guideline.
Compliance officer Pursuant to the responsibilities under subsection 27(7) of the LLPA 2012, a compliance officer must ensure that the BO information is lodged with the Registrar accordingly.

When is due for BO compulsory disclosure?

The timeline of the obligation for companies and limited liability partnerships relating to obtaining and keeping the BO information accurate and up-to-date are as follows:

1 March - 31 December 2020

(Transitional Period)

Obtain, keep & update the BO information at entity’s level

1 January 2021 Onwards

(Post Transitional Period)

Obtain, keep & update the BO information & notify the Registrar

What are the 7 steps to comply BO ?

Identify: Take reasonable steps to identify the beneficial owner based on the criteria in the guideline.
Obtain: Obtain the beneficial ownership information through notices pursuant to section 56 of the CA 2016.
Verification: Receiver and verify the beneficial ownership information.
Enter: Enter the verified information into the register of beneficial owners.
Notify: Notify SSM of the beneficial ownership information.
Update: Keep accurate and up-to-date beneficial ownership information in the register of beneficial owners and to update SSM.
Access: Give access to the information to competition authorities, law enforcement agencies, the beneficial owner, and persons authorised by the beneficial owner

Reasonable measures to comply BO

Companies must take reasonable measures to identify the beneficial owners. Companies must take one or more of the following actions (see paragraph 24 of the guideline).

Consider all interests in the company which are held by individuals, corporate entities and/or trusts.
Review all documents and information available at the company level (e.g. register of members, shareholders’ agreements, the constitution, certificates of incorporation, etc).
Send out notices pursuant to section 56(1), (2) or (3) of the CA 2016. Further, companies must send out a notice under section 56(1) at least once in a calendar year for the submission of the annual return.
Consider any evidence that may show interests or rights held through a variety of means that may ultimately be controlled by the same person.
Have an appropriate internal policy on beneficial ownership reporting. I expand on this more below.
Any other actions that may be taken depending on the circumstances of each company.

What we are doing on BO in coming months?

In line with the duty of a secretary under subsection 102(1) of the CA 2016, THK need to properly keep and regularly maintain the register of members, the secretary must ensure that the BO information is entered into in accordance with the requirement set out under subsection 56(4). In addition, a secretary is also responsible to lodge the BO information to the Registrar in accordance with the provisions under subsection 56(6) or 51.
Share the Beneficial ownership needs and requirement to directors when they incorporate the company
To educate the existing client to comply with Beneficial ownership requirement.

What is the penalty on non compliance with BO?

Under section 56(7) of the CA 2016. There can be an offence by any person who contravenes a notice issued under section 56, or in purported compliance with such a notice, essentially, makes a false or reckless statement.

The general penalty provision under section 588 of the CA 2016 would then apply. Upon conviction, the penalty is a fine not exceeding RM50,000 or a maximum three-year jail term or both.

Under section 593 of the CA 2016, any false or misleading statement in the declaration on BO to SSM would carry a heavier penalty of a maximum 10-year jail term or a maximum RM3 million fine or both..

Reference:

https://www.ssm.com.my/Pages/Legal_Framework/Document/Guideline%20for%20BO%20Reporting%20Framework%20(27022020).pdf

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SecKtp KtpDecember 4, 2020BO, Benficial Ownership