Overview of SSM’s Guideline for the Reporting Framework for Beneficial Ownership of Legal Persons
Since the enforcement of the Companies Act 2016 (“CA 2016”) on 31st January 2017, companies have the obligation to notify and submit the beneficial ownership information (“BO information”) to the Registrar through the submission of annual return pursuant to section 68 of the CA 2016. Section 56 of the CA 2016 provides a general framework for companies to obtain the BO information from their shareholders. Once such information is obtained and recorded, companies have the obligation to notify the Registrar of the information and any changes thereto.
The concept of beneficial ownership (“BO”) of legal persons also applies to limited liability partnerships. Limited liability partnerships have the obligation to notify and submit the BO information to the Registrar through the submission of the annual declaration. Paragraph 10(2)(f) and subsection 17(1) of the Limited Liability Partnerships Act 2012 (“LLPA 2012”) provide a general framework for limited liability partnerships to submit BO information to the Registrar. Limited liability partnerships must submit the BO information during the registration process as part of the relevant information. Once such information is lodged, limited liability partnerships have the obligation to notify the Registrar of any change thereto.
In view thereof, Suruhanjaya Syarikat Malaysia (“SSM”) has issued the Guideline for the Reporting Framework for Beneficial Ownership of Legal Persons (“Guideline”) pursuant to section 20C of the Companies Commission of Malaysia Act 2001 which came into force on 1st March 2020 to provide a general guidance on beneficial ownership reporting framework (“BO reporting framework”) for all business entities registered under the respective laws governed by SSM whereby the Guideline must be read together with the relevant statutory provisions under the CA 2016 and LLPA 2012.
BO reporting framework encompasses the requirement in identifying and verifying the beneficial owners of a legal entity, keeping the BO information accurate and up-to-date and can be accessed in a timely manner, notifying the Registrar of the BO information including any changes thereof as well as providing access of the BO information to certain categories of persons.
The Guideline is applicable to all legal persons such as companies (local and foreign companies), limited liability partnerships (local and foreign limited liability partnerships) and business (sole proprietors and partnerships), unless otherwise stated, and serves as a guide to assist legal persons (companies, limited liability partnerships, sole proprietors and partnerships) 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.
As all business owners (sole proprietor and partnerships) registered under the Registration of Businesses Act 1956 must be an individual and citizen/permanent resident of Malaysia, it is deemed that the statutory lodgment of information relating to the ownership are deemed to have met the requirements of the Guideline.
However, the following four (4) types of companies are excluded from the BO reporting framework (paragraph 17 of the Guideline) and the exempted entities must make a declaration of their exempted status:-
(a) Companies which are licensed by Bank Negara Malaysia under the Financial Services Act 2013, Islamic Financial Services Act 2013, a prescribed development financial institution under the Development Financial Institutions Act 2002 or a licensed money services business under the Money Services Business Act 2001;
(b) Persons regulated under the securities laws such as (i) entity licensed or registered under the Capital Markets and Services Act 2007 (“CMSA”); (ii) stock exchange, derivatives exchange, clearing house and central depository approved under the securities laws; (iii) recognised self-regulatory organisation under the CMSA; and (iv) private retirement scheme administrator approved under the CMSA;
(c) Companies whose shares are quoted in a stock exchange, either local or foreign exchange;
(d) Companies whose shares are deposited in the central depository pursuant to the Securities Industry (Central Depositories) Act 1991. This exemption is only applicable if all the shares in a company remain deposited with the central depository.
(II) WHO ARE THE BENEFICIAL OWNERS?
Beneficial owners (BO) are always natural persons who ultimately own or control a legal entity or arrangement.
(A) Companies
There is different identifying criteria for a company limited by shares and that of a company limited by guarantee (paragraphs 27-30 of the Guideline):-
Company limited by shares
An individual (natural person) is deemed to be a BO of a company limited by share, if he meets any one or more of the following criteria:
(a) Has interest, directly or indirectly, in not less than 20% of the shares of the company;
(b) Holds, directly or indirectly, not less than 20% of the voting shares of the company;
(c) Has the right to exercise ultimate effective control whether formal or informal over the company; or the directors or the management of the company;
(d) 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; or
(e) Is a member of the company and, under an agreement with another member of the company, controls alone a majority of the voting rights in the company.
Company without share capital (company limited by guarantee)
An individual (natural person) is deemed to be a BO of a company limited by guarantee, if he meets any one or more of the following criteria:
(a) Has the right to exercise ultimate effective control whether formal or informal over the company; or the directors or the management of the company;
(b) Has the right or power to directly or indirectly appoint or remove a director(s); or
(c) Has the right to exercise, or actually exercises ultimate effective control over the company.
(B) Limited Liability Partnerships
An individual (natural person) is deemed to be a BO of a limited liability partnership, if he meets any one or more of the following criteria (paragraph 33 of the Guideline):
(a) Holds directly or indirectly a right to share in not less than 20% for the capital contribution of the limited liability partnership;
(b) Holds directly or indirectly not less than 20% of the rights to vote in the limited liability partnership;
(c) Has the right to exercise ultimate effective control whether formal or informal over the limited liability partnership; or the partners of the limited liability partnership; or
(d) Holds, directly or indirectly, the right to appoint or remove the majority of those involved in the management.
(III) HOW TO IDENTIFY BENEFICIAL OWNERS?
A company or a limited liability partnership shall take reasonable measures to identify their BO(s) by employing at least one or more of the following actions (paragraph 24 of the Guideline):-
(a) Consider all interests in the company or limited liability partnership which are held by individuals, corporate entities and/or trusts;
(b) Review all documents and information available at the company’s level i.e. register of members, shareholders agreement, constitution etc;
(c) Send notices pursuant to subsection 56(1), (2) or (3) of the CA 2016 and companies are required to send a notice under subsection 56(1) at least once in a calendar year for the purposes of the submission of the annual return;
(d) Consider any evidence that may show interests or rights held through a variety of means that may ultimately be controlled by the same person;
(e) Have an appropriate internal policy on BO reporting and to require shareholders to notify the company on the identity of the BO and when there are changes in the BO information; and
(f) Any other actions that may have to be taken depending on the circumstances of each company.
Under the BO reporting framework, a company or a limited liability partnership is required to (paragraph 7 of the Guideline):-
(a) take reasonable steps to identify, obtain and verify the BO information;
(b) record the BO information into the register of BO;
(c) keep the BO information accurate and up-to-date and can be accessed 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) keep the BO information and supporting documents at the registered office or where the register of members/register of partners is being kept;
(f) give access to competent authorities, law enforcement agencies, the BO whose name has been entered in the register of BO and any other person authorised by the BO.
(IV) WHO ARE RESPONSIBLE FOR THE BO INFORMATION?
In the case of a company, the roles and responsibilities of the various parties with regards to the BO information are as follows (paragraph 13 of the Guideline):-
(a) Board of Directors
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. The obligation also extends to ensure that once such BO information is received, the information must be entered into a separate part of the register of members.
(b) Members of the Company
If a member of a company has received a notice issued under subsection 56(1) or (3) of the CA 2016, the member has an obligation to inform the company whether he is the BO as defined by the CA 2016 or has met at least one of the criteria stated under paragraph 27 of the Guideline, as a trustee or that the voting rights held by him is subject to an agreement or arrangement in which another person is entitled to exercise that voting rights. The obligations of a member under these subsections also extend to the need to provide the particulars of the persons for whom the member holds the voting shares or the parties to the agreements or arrangements, as the case may be, to the extent that such other persons can be identified.
(c) Any Other Person Given Notice under Section 56(2) of the CA 2016
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 the Guideline or as trustee. Similar to a member of the company, the obligations of such person also extend to the need to provide the particulars of the persons for whom the person holds the voting shares in his capacity as trustee to the extent that such other persons can be identified.
(d) 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.
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 (paragraph 14 of the Guideline):-
(a) Partners
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 the Guideline. The obligations of a partner also extend to the need to provide the particulars of the persons who meets any one of the criteria stated under paragraph 33 of the Guideline to the extent that such other persons can be identified. The partners also have the obligation to ensure that the BO information is recorded in a register of BO and to be kept at the registered office pursuant to the requirement under paragraph 19(1)(h) of the LLPA 2012.
(b) 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.
(V) WHAT BO INFORMATION IS REQUIRED?
Legal entities are required to obtain the following information relating to the BO (paragraph 37 of the Guideline):-
(a) Full name;
(b) Nationality;
(c) Residential address;
(d) Date of birth;
(e) NRIC/Passport No.;
(f) Type of BO (direct/indirect);
(g) Criteria of BO (including percentage of ownership or capital contribution, if any);
(h) Date of becoming/ ceasing to be a BO;
(i) Whenever the BO information is received by a company pursuant to notices under subsection 56(1), (2) or (3) of the CA 2016 – the date of the notices and the date the BO information was received; and
(j) Email address, where possible.
In identifying and verifying a BO, a company or a limited liability partnership must rely on sufficient information or documentation as a basis upon which the BO is identified and verified. Such supporting documents may include, but are not limited to, certified copies of a national identification card, passport or other similar documents, founding documents and agreements regulating the power to bind the company or the limited liability partnership. The supporting documents must be kept by the company or the limited liability partnership at the same location with the register of BO to show that reasonable steps have been taken in identifying the BO.
(VI) WHEN TO ENTER THE BO INFORMATION?
The entry points of the BO information relating to companies and foreign companies are as follows (paragraph 21 of the Guideline):-
The entry points of BO information relating to limited liability partnerships and foreign limited liability partnerships are as follows (paragraph 23 of the Guideline):-
For the transitional period ending 31st December 2020, existing companies and limited liability partnerships are required to obtain and keep the BO information accurate and up-to-date at the companies and limited liability partnerships’ level. After the transitional period, the Registrar will invoke section 56(6) of the CA 2016 and the companies will have the obligation to submit the BO information to the Registrar within 14 days after the transitional period ends or such further extended time frame as the Registrar may determine. For limited liability partnerships, the limited liability partnerships will have the obligation to notify the Registrar if any change to the BO information is made or occurs in the registered particulars of the limited liability partnerships within 14 days after the transitional period ends or such further extended time frame as the Registrar may determine.
Any person or company who fails to comply with a notice issued under section 56 or has provided a false information or has made a statement recklessly or has failed to notify the Registrar of the change in the registered particulars commits an offence as stated under subsection 56(7) of the CA 2016 or subsection 17(5) of the LLPA 2012, as the case maybe.
The companies or limited liabilities partnerships must ensure that the BO information and the supporting documents to verify the BO information are in order and kept either at the registered office or at the same place the register of members or the register of partners is kept.
DISCLAIMER: THE CONTENTS HEREIN ARE INTENDED FOR GENERAL INFORMATION ONLY AND NOT TO BE CONSTRUED AS LEGAL ADVICE. SHOULD YOU HAVE FURTHER QUERIES AND/OR WOULD LIKE TO HAVE THE FULL ARTICLE, KINDLY CONTACT US.
Comentarios