Sometimes, shareholders in a company’s register aren’t the company’s true owners.
Instead, they merely hold shares on trust as part of a nominee setup: Legally, they’re the face; economically, someone else pulls the strings.
Such nominee setups are both legal and common in Malaysia, especially when:
- foreign ownership is restricted;
- a party prefers to stay off the public record; or
- multiple investors consolidate shares under one name
A nominee can be anyone from a trusted business partner to a neutral third party appointed for convenience or confidentiality.
Regardless, the arrangement only works if everyone knows and adheres to their role, which is why nominee arrangements should always be well-documented.
That’s where a Nominee Shareholders’ Agreement comes in, and that’s what the guide below covers in detail.
Do you need a Nominee Shareholders’ Agreement?
Once there’s more than one beneficial owner, a Nominee Shareholders’ Agreement becomes essential due to the following:
- multiple parties pooling their interest behind a nominee (or nominees)
- you need to allocate rights (votes, dividends, exits)
- you want to avoid future disputes over control, instructions, or share value
- you want certain shareholder rights to be included contractually (tag-along rights, drag-along rights, pre-emptive right)
- you need to limit what a nominee can do unilaterally
A comprehensive Nominee Shareholders’ Agreement sets the ground rules: who decides, how instructions are given, and how everyone’s stake is protected.
Without it, the nominee is left to guess or worse, act on whoever shouts loudest.
However, if there’s only one beneficial owner behind a nominee, then a well-drafted trust deed, power of attorney and a call option agreement might be sufficient to define the relationship and control mechanics.
What if you proceed with no Nominee Shareholders’ Agreement?
Well, the beneficial owners would be in a grey zone with no statutory protections.
Under Section 101(1) the Companies Act 2016, only registered shareholders (i.e. those listed in the company’s share register) are legally recognised, unless there is evidence showing otherwise.
If you are not on that register, you don’t exist in the eyes of the Act, no matter how much you have invested.
Instead, the nominee is the one entitled to vote at general meetings, receive dividends, approve resolutions, and benefit from all other statutory rights.
Is nominee shareholding legal in Malaysia?
Yes, while the Companies Act 2016 does not define “nominee shareholder” directly, it recognises the concept:
- Section 2 defines “beneficial owner” as someone other than a nominee
- Section 56 allows companies to ask if registered shareholders hold their shares on trust as trustee
- Companies (Amendment) Act 2024 introduces a legal duty to identify and declare beneficial owners to SSM
Logically speaking, this new duty would not exist if nominee arrangements were not legally recognised, and such arrangements are valid as long as they’re not used for unlawful purposes like fraud or regulatory evasion.
Nominee Shareholders’ vs Shareholders’ Agreement
Outside of clauses found in a typical Shareholders’ Agreement, what sets a Nominee Shareholders’ Agreement apart is the incorporation of trust mechanics: Clarifying the nominee holds legal title but acts strictly on behalf of the beneficial owners.
A Nominee Shareholders’ Agreement blends a Shareholders’ Agreement with nominee-specific controls of a Trust Deed into one document.
Defining clauses in a Nominee Shareholders’ Agreement
Key clauses that should be documented include:
- Declaration of Trust: Confirms the nominee is holding shares on behalf of the beneficial owners and has no beneficial interest.
- Instruction Mechanism: Specifies how instructions must be given (usually in writing) and that nominee cannot act unilaterally.
- Voting & Consent: Clarifies how the nominee must vote, typically based on the beneficial owners’ instructions.
- Dividends & Proceeds: States that all financial returns belong to the beneficial owners, not the nominee.
- Transfer Restrictions: Prevents the nominee from transferring, pledging, or otherwise dealing with the shares without consent.
Can a nominee structure truly protect beneficial owners?
As long as the arrangement is properly documented, then yes, it can offer meaningful legal protection.
Even if the beneficial owner’s name does not appear on the company’s share register, their rights can still be enforced through contract law, provided the arrangement is clearly set out in writing.
When a nominee holds shares on trust, and this is declared in writing, the nominee becomes a trustee. This creates fiduciary duties under trust law, including the duty to act only based on instructions of beneficial owners and terms of the trust.
This means the nominee (or trustee) can be held legally accountable if they breach the trust arrangement, turning an informal trust into an enforceable obligation.
Tailor your Nominee Shareholders’ Agreement to your needs
Whether or not you adopt a nominee structure for your business, we’ve seen relationships break down because crucial arrangements weren’t documented.
If you would like to know what works best for your business arrangement, feel free to get in touch with us.
FAQs on Nominee Shareholders’ Agreements in Malaysia
Q: Can the nominee refuse to follow my instructions?
Only if the agreement allows them to. If the nominee shareholders’ agreement is clearly drafted, the nominee is legally bound to act on instructions and may be liable for breach if they fail to comply.
Q: Do I need to notify SSM if I am a beneficial owner?
Yes. Under current law, companies must identify and declare their beneficial owners to SSM.
Q: Can I just use a template for a nominee agreement?
It depends. Templates can be a helpful starting point, but they should always be tailored to fit your specific structure and commercial intent. There’s no such thing as a “standard” agreement.
Every nominee arrangement is different especially when multiple parties are involved: from who the nominee is, to how instructions are handled, to what happens on exit. Without proper customisation, the agreement may fall short when it matters most.
Q: What if there’s only one beneficial owner behind the nominee? Do I still need a full nominee shareholders’ agreement?
Not necessarily. If there’s only one beneficial owner, it’s similar to having a sole shareholder which usually makes a shareholder agreement redundant.
Instead, a trust deed (to document the ownership and trust relationship), a power of attorney (to empower the beneficial owner to act as the de facto shareholder/controller, if necessary) and a call option agreement (right to reclaim shares) are often sufficient.
