Tracing the Beneficial Owners Through the Register of Nominee Shareholders

The Companies and Limited Liability Partnerships (Miscellaneous Amendments) Act (the “Act”) aims to increase transparency in tracing the beneficial ownership of companies and foreign companies. The Act was passed in Parliament on 2 July 2024 and comes at an opportune time when there are discussions concerning the tightening of anti-money laundering regulations in Singapore.

In this article, we explore the potential changes that the Act seeks to implement, and the impact that such changes could have on companies or foreign companies operating in Singapore.

Expanded Scope of “Nominee Shareholders”

The Act seeks to expand the scope of persons that count as a “nominee shareholder” under Section 386ALB(7) of the Companies Act 1967 of Singapore (the "Companies Act”). Under the proposed amendments, a shareholder who fulfils either or both of the following criteria would be a nominee shareholder:

1. the shareholder is accustomed or under an obligation whether formal or informal to vote, in respect of shares in the company or foreign company of which the shareholder is the registered holder, in accordance with the directions, instructions or wishes of any other person; and/or
2. the shareholder receives dividends, in respect of shares in the company or foreign company of which the shareholder is the registered holder, on behalf of any other person.

On the contrary, the current iteration of the Companies Act provides that a person is a nominee shareholder only if such person fulfils both of the abovementioned criteria.

The revised criteria are meant to catch intermediate holding companies in a group structure as such companies are likely to receive dividends from downstream operating companies on behalf of the ultimate beneficial owner, thereby fulfilling criterion 2 above, even though they may not fulfil criterion 1 if the ultimate beneficial owner directly instructs the immediate shareholder of the operating company (instead of the intermediate holding companies) on how such immediate shareholder should exercise its voting rights in the operating company. Groups of companies are likely to incur increased compliance costs if more of their intermediate holding companies are caught by the updated definition of a “nominee shareholder” since Section 386ALB of the Companies Act imposes certain notification obligations on nominee shareholders.

Central Register of Nominee Shareholders

The Act proposes to include an obligation for the registrar of companies, the Accounting and Corporate Regulatory Authority of Singapore (“ACRA”), to keep a central register of nominee shareholders which contains the particulars of nominee shareholders provided by the companies or foreign companies. Currently, the company or foreign company is only required to maintain a register of nominee shareholders at its office but does not need to submit such information to ACRA.

Under the new regime, the company or foreign company must lodge with ACRA all particulars contained in its register of nominee shareholders and any updates thereto in the prescribed form and manner within the prescribed time, failing which the company or foreign company and every officer thereof who is in default shall each be guilty of an offence and shall each be liable on conviction to a fine not exceeding S$25,000.

For Singapore-incorporated companies, ACRA will then update its public databases to reflect which shareholders are holding their shares as nominees, but the identity of the nominator will not be disclosed to the public. However, ACRA may disclose the identity of the nominator to prescribed persons under prescribed circumstances. We understand that such persons include government agencies that require access to the relevant information for the administration or enforcement of the law.

This new requirement for companies and foreign companies to lodge the register of nominee shareholders with ACRA within the prescribed timeframes could result in increased costs.

Increase in Penalties for Non-Compliance

In addition, the Act proposes to increase the penalties for a company’s or foreign company’s failure to maintain or update its register of nominee shareholders set out in Section 386ALA of the Companies Act to S$25,000. The current penalty is S$5,000.

Conclusion

The Act seeks to increase the transparency of beneficial ownership in companies and foreign companies. While this is a step by the authorities in the correct direction given the recent high-profile money laundering scandals, this will almost certainly result in additional compliance costs for companies and foreign companies operating in Singapore.

This article is produced by our Singapore office, Bird & Bird ATMD LLP. It does not constitute legal advice and is intended to provide general information only. Information in this article is accurate as of 8 July 2024.