Trust Deeds and Powers of Attorney (POA) are often misunderstood or overlooked by Malaysian SME owners. Yet, they serve as powerful legal tools for safeguarding ownership rights, managing control in complex arrangements, and ensuring operational continuity during unforeseen events. When structured and executed correctly, these instruments provide clarity, security, and flexibility in an increasingly volatile business environment.
Benefits of getting it right:
- Preserves true ownership and control behind nominee or partnership arrangements
- Allows seamless business operations even if a director or shareholder is absent or incapacitated
- Protects SMEs from fraud, misappropriation, or disputes over authority
Severe consequences of getting it wrong:
- Shareholders losing effective control due to vague or missing documentation
- Disputes over signing authority during crucial transactions or litigation
- Exposure to tax, compliance, and fraud risks due to informal nominee setups
The legal cost of setting up a proper Trust Deed or POA is low and affordable compared to the financial and operational risk of not having one. For SMEs, it is not just a legal formality but a strategic necessity.
1. Protecting Beneficial Ownership Through Trust Deeds
In many Malaysian SMEs, nominee shareholding is common. This could arise when:
- Foreign investors appoint local nominees to hold shares
- Silent investors prefer to stay anonymous
- Founders temporarily transfer shares for strategic reasons
In these cases, a properly executed Trust Deed is vital. It establishes that the nominee holds shares on trust for the true (beneficial) owner, ensuring that legal title does not override equitable rights.
A Case in Point: In Low Ah Cheow v Ng Hock Guan & Ors [1995] 1 MLJ 339, the High Court upheld the beneficial owner’s rights based on a written trust arrangement. The nominee shareholder attempted to deny the trust, but the court found that the Trust Deed clearly established the true ownership, preserving the plaintiff’s rights.
A lot of people think that whoever appears in SSM records is the real owner of the shares. But actually, Malaysian courts do recognize beneficial ownership — especially when backed by a signed Trust Deed.
Legal Basis: Although no statute mandates the use of Trust Deeds for shareholding, they are governed by equity and trust principles, and enforceable under the Trustees Act 1949 and common law doctrines of constructive and resulting trusts.
Practical Importance: Without a trust deed, nominees may refuse to transfer shares or assert control. This risk is amplified if the relationship breaks down or if the nominee is influenced by third parties. A trust deed protects the founder or investor by documenting:
- Who the real owner is
- The nominee’s obligations (e.g., to vote as instructed)
- Limits on the nominee’s discretion
FAQ: Can a nominee deny the trust later and claim the shares as theirs? Not if a valid Trust Deed exists. Malaysian courts generally uphold written trust declarations, especially when there is supporting evidence such as payment trails or correspondence.
2. Enabling Legal Authority Through Power of Attorney
SMEs often operate with lean teams, where key people may be unavailable during critical moments. A Power of Attorney allows one party (the grantor) to authorize another (the attorney) to act legally on their behalf.
There are two types:
- General POA: Broad powers over legal and business matters
- Specific POA: Limited to particular transactions (e.g., signing a SPA or contract)
Illustrative Scenario: During the pandemic, a Johor-based founder was stuck overseas and couldn’t sign a crucial resolution to secure a bank loan. Thankfully, a POA granted earlier allowed her business partner to execute the documents on her behalf. The bank accepted the POA, and the loan was disbursed without delay.
Legal Framework:
- Governed by the Powers of Attorney Act 1949
- Must be stamped, and if it involves land or real property, must be registered at the High Court (Section 4)
- Automatically terminates upon the death or mental incapacity of the grantor (unless paired with a trust)
A lot of people think POAs are only for property or family matters. But actually, they are extremely useful in corporate contexts, including shareholder actions, contract signing, and board representation.
Risk Without POA: Without a POA, SMEs may be unable to act swiftly during emergencies, especially if documents require unanimous shareholder or director approval. A POA ensures continuity without delay.
FAQ: Can a POA be used to vote in a board meeting or sign shareholder resolutions? Yes, if the POA explicitly grants that authority. However, some company constitutions may require physical presence or formal delegation — so the POA should be drafted to align with the company’s constitution.
3. Structuring Nominee and Proxy Arrangements Safely
Many SMEs adopt informal arrangements where one party acts as the face of the company, holds shares, or signs documents on behalf of another. These arrangements are prone to abuse unless backed by legal instruments.
Case Scenario: A Johor-based investor placed shares under a nominee relative, expecting informal loyalty. Years later, the nominee refused to transfer the shares back. Without a trust deed or POA, the investor had no proof or legal remedy.
Combined Use of Trust Deed + POA: In nominee setups, both instruments should be used:
- Trust Deed = to confirm beneficial ownership
- POA = to give the beneficial owner signing power
This combination ensures that control and action remain with the rightful person, even if records show otherwise.
Legal Compliance:
- Section 56 of the Companies Act 2016 requires companies to maintain a register of beneficial owners and update the Registrar accordingly.
- Failure to do so may result in regulatory scrutiny or penalties.
Myth-Busting: A lot of people think nominee arrangements are always illegal. But actually, they are legal if properly documented and not used to hide illicit activities.
Practical Safeguards:
- Include dispute resolution clauses in the trust deed
- Set expiry or review periods for POAs
- Ensure alignment with your company’s constitution
- Maintain proper records with your company secretary
FAQ: Do I need to lodge the Trust Deed or POA with SSM or other authorities?
Trust Deeds are private agreements and are not lodged. POAs affecting property must be registered with the High Court. However, beneficial ownership over 20% must be declared internally and kept available for inspection under the Companies Act.
Conclusion
Trust Deeds and Powers of Attorney are not just legal formalities — they are strategic documents that preserve the rightful control and ownership of a business. For Malaysian SMEs navigating nominee structures, family holdings, or rapid-growth transitions, these tools are essential for clarity, security, and long-term resilience.
Getting them right is simple, affordable, and immensely valuable. Getting them wrong can cost you the very business you built.
