The scope and content of the amendment to the malaysian companies act 2016
The Malaysian Companies Act 2016 (Act A777) has recently been amended by a new regulation (Act A1701). This regulation modifies certain articles of the former, particularly those affecting beneficial owners (“Beneficial Owners (BO)”) of companies or the concept of these companies, through the incorporation of new articles: 60A, 60B, 60C, 60D, and 60E in the first case; and 573A in the second. It requires companies not only to take the initiative to identify their beneficial owners but also to maintain an updated register of them and report this to the Malaysian Companies Commission (SSM).
The incorporation of this new regulation into Malaysian law is similar, mutatis mutandis, to that previously carried out by Spain through the enactment of Law 10/2010 of April 25, on the prevention of money laundering and the financing of terrorism, amended by Royal Decree-Law 7/2021 of April 27, in accordance with the provisions of Directive 2015/849 (AMLD4) – now repealed by Directive 2024/1640 (AMLD6) – and Directive 2018/843 (AMLD5) of the European Union (EU), in order to reflect the most recent developments in this area globally.
The corporate definition of beneficial owners and ultimate beneficial owners
The objective of this Malaysian corporate reform is practically the same as the Spanish one, as it aims to complete the definition of beneficial owners (BOs) or ultimate beneficial owners (UBOs), establish the responsibilities related to the transmission of this information, and ultimately create a register of beneficial ownership. All of this aligns with what is provided in the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act (Act A2001), enacted to comply with the recommendations (specifically, number 24) of the Financial Action Task Force (FATF).
The new article 60A, when defining a beneficial owner of a company, expands its content by including not only the individual who “ultimately owns or controls a company” but also those who “exercise effective control” over it. Although the new Act A1701 does not establish the criteria that clarify what is meant by “effective control,” the “Guidelines for the Reporting Framework for Beneficial Ownership Companies” (Revised Guidelines), published by the Malaysian Companies Commission, do. They state that “effective control” exists when a person, even holding less than 20% of the shares or voting rights of the company, exerts significant influence or control over the directors or management.
It is important to note in this context that the concept of “beneficial owner” is limited to “natural persons.” But what happens when the “beneficial owner” is not a natural person but a legal entity? Could it be understood in this case, according to Spanish regulations (Article 4.2. b bis of the aforementioned Royal Decree), that the “beneficial owner” is the director? But if the director is also a legal entity, who ultimately is the true “beneficial owner”? In this regard, the previously mentioned Spanish regulations state: “When the director is a legal entity, it shall be understood that control is exercised by the natural person appointed by the director,” who would thus become the “beneficial owner.” Would this be applicable to Malaysian regulations?
In this respect, it should be clarified that although these “Guidelines” clearly confirm in rules 8, 23, and 27 that “a beneficial owner is a natural person who ultimately owns or controls a company,” in rule 43 they clarify that when a company has no beneficial owner, or when one cannot be identified, it must provide the details of the natural person holding the position of executive manager and consequently responsible for managing the company. Although this solution may not be exactly the same as that provided in Spanish regulations, it is quite similar to what it offers and is equally valid.
The communication to the Registry of information on beneficial owners and ultimate beneficial owners
Once this information is obtained and registered by the company within 60 days from the appointment of its corporate secretary, it must be communicated to the SSM through the Electronic Beneficial Ownership System (e-BOS System), which can be accessed via the SSM4U Portal. Additionally, it must be kept by the company for a period of seven years from the date the person in question ceases to be a beneficial owner, as is done under Spanish regulations, with the only difference being that in the Spanish case, this period is ten years instead of seven.
The companies affected by these obligations
These obligations affect all types of companies, whether Malaysian or foreign, as provided by the new article 573A, which specifies in its subsection (a) that any reference in the new Act to “company” should be interpreted to include “foreign company” as well. This concept, according to the Companies Act A777, encompasses all companies that, incorporated or registered in a foreign country, wish to do business in Malaysia, in which case they must register with the SSM, after which they can operate under the format of a branch, dependent in all respects on the parent company.
The penalties for non-compliance with these obligations
Non-compliance with the aforementioned obligations would result in a fine of 50,000 ringgit, which, in the event that the information provided is false or misleading, could reach up to 3,000,000 ringgit.
Antonio Viñal
Lawyer
AVCO Legal
madrid@avco.legal
