Introduction
As mentioned in our newsletter issue #80 previously, the new framework of beneficial ownership was established on 1 April 2024 as the new Companies (Amendment) Act 2024 took effect, thus introducing the new Division 8A of Part II in the Act. The Companies Commission of Malaysia (“CCM“) also launched the Electronic Beneficial Ownership System (“e-BOS System“) and updated the Guidelines for the Reporting Framework for Beneficial Ownership of Companies (“Revised Guideline“), making it compulsory for all companies to declare its beneficial owner(s).
In this article, we will explore the application of beneficial ownership on Government-Link and Government-Related Companies incorporated under the Companies Act 2016.[1]
Concept of Beneficial Ownership
(a) Definition of Beneficial Ownership
As the new Revised Guideline came into effect, it will supersede the old Guideline for the Reporting Framework for Beneficial Ownership of Legal Persons, issued by the CCM Registrar on 1 March 2020 (Revised 17 December 2020).[2] In particular, Section 60A of the Companies (Amendment) Act 2016 expands the definition of “Beneficial Owner” as below:
“Beneficial owner of company”
60A. (1) A person is a beneficial owner of a company if he is a natural person who ultimately owns or controls over a company and includes a person who exercises ultimate effective control over a company.
(2) The Registrar may issue guidelines for the purpose of identifying a beneficial owner of a company.
The phrase “ultimately owns or controls over a company” has a distinctive definition compared to “ultimate effective control over a company”, which are explained in the Revised Guideline in paragraphs 24 and 25. It could be concluded that an individual with the ultimate effective control is not necessarily someone who holds shares or has any position in the company.
(b) Six Criteria in Determining Beneficial Ownership
Under the new framework, there are six (6) criteria outlined in the Revised Guideline to assist companies in determining their beneficial owners:
(i) Criteria A – Holds directly or indirectly in not less than 20% of the shares of the company (At least 20%);
(ii) Criteria B – Holds directly or indirectly in not less than 20% of the voting shares of the company;
(iii) Criteria 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;
(iv) Criteria D – Has the right or power to directly or indirectly appoint or remove a director(s) who holds the majority of the voting rights at the meeting of directors;
(v) Criteria 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; and
(vi) Criteria F – Has less than 20% of shares or voting shares but exercises significant control or influence over the company.
An individual is identified as a beneficial owner if he or she fulfils any of the abovementioned criteria, which may be determined through company records such as the constitution, register of members, minutes and resolutions, and other documents suggesting control or influence.[3]
The Revised Guideline further distinguishes CLBS and CLBG. For CLBS, Criteria A – F applies. Meanwhile, for CLBG, Criteria C, D, and E apply.[4]
(c) Government/State-Owned Companies
Identifying beneficial ownership in private companies is generally more straightforward, as the beneficial owners are often the major shareholders with significant decision-making authority. In contrast, the situation is more complex for Government or State-owned companies, which typically feature intricate ownership structures.
In essence, a company will be deemed Government or State-Owned when the Government or State owns or controls a company.[5] In contrast to private companies or companies owned by individuals, Government/State-owned companies are not required to state the names of specific individual Government officials for the beneficial ownership reporting and are only required to declare the relevant office as the beneficial owner.[6]
The Application of Beneficial Ownership for Federal GLICs, GLCs, and GRCs
Government-Link Companies (“GLCs“) or Government-Related Companies (“GRCs“) are structured in CLBS or CLBG. In determining the framework of beneficial ownership for Government entities, it is important to first define the terms Government-Linked Investment Companies (“GLICs“), GLCs, and GRCs.
(a) Definition of GLIC, GLCs, and GRCs
GLIC is defined as Federal Government Linked Investment Companies that allocate some or all their funds to GLCs. The board members and senior management of these entities are appointed by the Federal Government, and these individuals report directly to the Federal Government. The entities’ funding for operations and/or capital (and some income) placed by unitholders/contributors may be guaranteed by the Federal Government.[7]
Examples of GLICs are the Minister of Finance (Incorporated) [MOF (Inc.)] Khazanah Nasional Berhad (Khazanah), and Permodalan Nasional Berhad (PNB).
On the other hand, GLCs are defined as companies with a primary commercial objective and in which the Malaysian Government has a direct controlling stake.[8] Controlling stake refers to the Government’s ability (not just percentage ownership) to appoint Board members, senior management, and/or make major decisions (e.g. contract awards, strategy, restructuring and financing, acquisitions and divestments) for GLCs, either directly or through GLICs.
While GLCs and GRCs are interchangeably used, GLCs are typically referred to as entities where the Government owns an effective controlling interest (usually more than 50%); meanwhile, GRCs could be defined as companies where Government ownership or influence is less direct but still significant.[9] They may involve cases where the Government holds a substantial minority stake or exerts influence through regulations, contracts, or strategic partnerships.[10]
(b) Determination of Beneficial Owners for GLICs, GLCs and GRCs.
According to paragraph 59 of the Revised Guideline, beneficial ownership information is not publicly accessible.[11] However, the Minister has the discretion to designate specific individuals or classes of individuals who may access the register of beneficial owners and related information, as outlined in section 60B(9)(a) of the CA 2016. Consequently, we cannot provide a real-life example of determining beneficial ownership for these entities. Nonetheless, conclusions can be drawn from the shareholding structures of several GLICs, GLCs, or GRCs, which often feature complex ownership arrangements with multiple layers of shareholders involving both government and private interests.
As mentioned, where the Government or State owns or controls a company, the company is deemed Government or State-Owned.[12] The case studies and illustrations issued by the CCM also provided an example for this situation, i.e., the beneficial owner of MOF Inc. is the Minister of Finance; therefore, they are required to declare the relevant information of the Minister of Finance for beneficial ownership reporting.[13]
Thus, in the context of GLICs, GLCs, and GRCs, the beneficial owner is typically a government entity or investment arm that exerts control over the company. For example, as Malaysia’s sovereign wealth fund, all the share capital of Khazanah is owned by the MOF Inc., except for one share owned by the Federal Lands Commissioner (Incorporated)[14]. Khazanah also holds significant stakes in various strategic companies across different sectors. Therefore, for companies where Khazanah holds a majority or controlling interest, the beneficial ownership disclosure might reflect the Government’s ultimate control through this investment arm.
For instance, the beneficial owner of Tenaga Nasional Berhad (“TNB“), where 20.74% of its stakes are owned by Khazanah[15] (with other government-linked entities like the Employees Provident Fund (EPF) also holding substantial shares) could be pointed to the Government of Malaysia. Therefore, as previously mentioned, TNB must submit and declare the relevant office as the company’s beneficial owner. This requirement may also extend to other entities invested in by Khazanah, such as CIMB Group Holdings Berhad[16] and Telekom Malaysia Berhad[17].
However, the disclosure may be more detailed in situations where the Government owns a minority stake in the company, capturing the interplay of private shareholders and government entities.
Apart from identifying the relevant office as the beneficial owner, the GLICs, GLCs, and GRCs must also determine the type and criteria of the beneficial owner. As mentioned above, GLCs or GRCs can be categorised into CLBS or CLBG, with Criteria A – F applies to CLBS; and Criteria C, D, E for CLBG.[18] However, with the complex structure existing in these entities, it is not a straightforward application.
In essence, determining beneficial ownership in GLCs and GRCs is not straightforward, as these entities often have complex ownership structures involving multiple stakeholders. Nevertheless, ascertaining beneficial ownership is crucial due to its economic significance, ensuring transparency and accountability.
(c) Impact of Implementation
In short, implementing beneficial ownership reporting would foster strong economic growth by enhancing transparency and accountability, particularly for GLICs, GLCs and GRCs. While companies may face challenges such as bureaucratic complexity and concerns about political influence, aligning with international best practices would strengthen the competitive position of GLICs, GLCs, and GRCs in the global marketplace, making them more attractive to foreign investors and partners.
The drive for transparency also aligns with the Anti-Money Laundering & Countering Financing of Terrorism regime by complementing the goals of preventing illicit financial activities and promoting accountability in the corporate sector. This is particularly important as these companies are steered for the benefit of the public, making it vital to ascertain their beneficial ownership to ensure transparency and accountability due to their economic importance.
By mandating the disclosure of individuals who ultimately own or control these companies, issues such as corruption, nepotism, and mismanagement, which have historically plagued the corporate sector, could be tackled. This transparency would create a more attractive investment climate and promote sustainable economic growth in Malaysia. Additionally, a robust framework would enhance the country’s reputation as a trustworthy investment destination, further supporting sustainable economic development.
Conclusion
Since Government influence may exist through various channels, the process of identifying the actual beneficial owners, or the natural persons who ultimately control or benefit from these companies, can be complex and often involve multiple layers of ownership and control. Hence, in keeping with the worldwide trend towards corporate transparency, Malaysia’s evolving regulatory landscape may incorporate a more comprehensive and refined regulatory framework, providing detailed guidance on intricate ownership structures, particularly for Government/ State-owned companies.
For further information, please contact:
Mohd. Shah Bin Hashim, Azmi & Associates
mohd.shah@azmilaw.com
- Companies Act 2016, s 2(1).
- Companies Commission of Malaysia, ‘Guidelines for the Reporting Framework for Beneficial Ownership of Companies’ para 67 <https://www.ssm.com.my/Pages/Legal_Framework/Document/01_Guideline%20BO%20(Post%20T%26P)%20Final%20Uploaded%20Version.pdf> accessed 25 October 2024.
- FAQ CA (Amendment) 2024, para 26.
- Companies Commission of Malaysia, ‘Guidelines for the Reporting Framework for Beneficial Ownership of Companies’ paras 27–30.
- Companies Commission of Malaysia, ‘Guidelines for the Reporting Framework for Beneficial Ownership of Companies’ para 40.
- Companies Commission of Malaysia, ‘Guidelines for the Reporting Framework for Beneficial Ownership of Companies’ paras 35 and 41.
- Ministry of Finance, ‘Principles of Good Governance for Government Linked Investment Companies’ (Ministry of Finance Malaysia, 2022) <https://www.mof.gov.my/portal/pdf/pgg/Booklet-PGG-2022-en.pdf> accessed 25 October 2024.
- Putrajaya Committee on GLC High Performance (PCG), ‘FAQs Government-Linked Companies (GLC) Transformation Programme (2005–2015)’ <https://www.pcg.gov.my/faqs/#:~:text=What%20are%20GLC%20and%20GLIC,has%20a%20direct%20controlling%20stake> accessed 25 October 2024.
- Indraah Kolandaisamy, Maran Marimuthu, and Rohail Hassan, ‘Government Linked-Companies: Impact of Gearing and Boardsize on Firm Performance’ (Journal of Advanced Research in Dynamical and Control Systems, November 2017) <https://www.researchgate.net/publication/321767778_Government_Linked-Companies_Impact_of_Gearing_and_Boardsize_on_Firm_Performance> accessed 25 October 2024.
- Hanafiah Hasin, Azlina Rahim, Enylina Nordin, Wan Shafizah Hussain, and Nor Ashikin Alias, ‘An Ethical Leader and Corporate Integrity Practices: Lessons Learnt from a Government-Related Company’(International Journal of Academic Research in Business & Social Sciences,10 October 2021) <https://hrmars.com/papers_submitted/11024/an-ethical-leader-and-corporate-integrity-practices-lessons-learnt-from-a-government-related-company.pdf> accessed 25 October 2024.
- Registrar of the Companies Commission of Malaysia, ‘Guidelines for the Reporting Framework for Beneficial Ownership of Companies’ (Companies Commission of Malaysia) para 4 <https://www.ssm.com.my/Pages/Legal_Framework/Document/01_Guideline%20BO%20(Post%20T%26P)%20Final%20Uploaded%20Version.pdf> accessed 25 October 2024.
- Guidelines for the Reporting Framework for Beneficial Ownership of Companies, paragraph 40-42.
- Companies Commission of Malaysia, ‘Case Studies and Illustrations of the Guidelines for the Reporting Framework for Beneficial Ownership of Companies’ 22–23.
- Khazanah Nasional, ‘Who We Are’ <https://www.khazanah.com.my/who-we-are/about-us/> accessed 25 October 2024.
- TNB, ‘Financial Info for Top 30 shareholders’ <https://www.tnb.com.my/suppliers-investors-media-relations/financial-info/top-30-shareholders> accessed 25 October 2024.
- CIMB Group Holdings Berhad, ‘Shareholding Information’ <https://www.cimb.com/en/investor-relations/shareholding-information.html> accessed 25 October 2024.
- Telekom Malaysia Berhad, ‘Capital Structure’ <https://www.tm.com.my/corporate/structure#capital-structure> accessed 25 October 2024.
- Guidelines for the Reporting Framework for Beneficial Ownership of Companies, paragraph 27 – 30.
