1. You can cite this information as follows :
In-text citation : Chang and Ng (2021)
Reference list : Chang, C.F. and Ng, M.Y. (2021) “Corporate Law of Malaysia : Share Capital and Capital Maintenance Rule for
Businesses Operating in Malaysia” Social Science Research Network, at http://ssrn.com/abstract=3797487
Note : These slides may provide extra information or illustration that are not found in the full article. This is to facilitate students’ learning.
Undang-undang syarikat 公司法
Corporate Law of Malaysia :
4. Share Capital & Capital
Maintenance
• A quick reference for Undergraduate Students
• With translation of key terms in “Bahasa” and “中文”
2. Topics in this Series (search SlideShare using this title) URL to the full Article
1 Boleh Law Introduction to Malaysian Company Law & Companies https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3779693
2 Boleh Law Incorporation of Companies https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3797479
3 Boleh Law Corporate Constitution https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3797482
4 Boleh Law Share Capital & Capital Maintenance https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3797487
5 Boleh Law Rights of Shareholders & Members https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3797485
6 Boleh Law Loan Capital https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3797494
7 Boleh Law Directors & Officers https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3806994
8 Boleh Law Accounting and Auditing of Corporate Accounts https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3830195
9 Boleh Law Anti-money laundering and anti-terrorist funding https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3830185
10 Boleh Law Taxation https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3830197
11 Boleh Law Meetings https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3830189
12 Boleh Law Rescuing a Company https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3830190
13 Boleh Law Winding-up a Company https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3830192
3. Fund raising method
by sale of Shares by issuing Debenture
• investor receive shares
• become shareholders.
• Enjoy rights as members (see Topic 5 –
Rights of Shareholders & Members)
• investor receive debt certificate
• become debenture holders.
• Enjoy rights as preferred creditors (see
Topic 6 –“Loan Capital)
Introduction
2 levels of fund raising :
1) Starting capital – needed at the inception of the company
2) Subsequent funding – raised during the lifetime of the company
4. Shares
• Redeemable shares (saham boleh ditebus ;可赎回股) and non-redeemable shares (saham
tidak boleh ditebus ; 不可赎回股)
• Some shares may come with preferential (keutamaan ; 优先) rights to vote, distribution of
income or capital redemption – depends on the class of shares held
• Shareholder’s general right :
receive dividend
participate in general meetings
vote for any resolution (keputusan ; 决议)
• In the event of liquidation or winding up :
Shareholder’s liabilities – share the company’s debt subject to ‘limited liability’ (see Topic 1
– Introduction to Malaysian Company Law & Companies)
Shareholder’s right – receive surplus assets, if there is any
5. Classes of Shares : Ordinary shares
• Also called “Equity shares”
• If the share does not bear voting rights, the shareholder cannot vote in a general meeting.
Example :
Share-
holder
Class of Shares & rights attached to it Holding Shareholder’s right
Ali Class A ord. shares : with voting right Ali holds 5 Class A ord. shares Ali has 1 vote
Brian Class B ord. shares : 1 vote for each ord. shares held Brian holds 5 Class B ord. shares Brian has 5 votes
Catty Class C ord. shares : no voting rights Catty holds 5 Class C ord. shares Catty has 0 votes
• Ordinary shares cannot be redeemed. Only preference shares can be issued as redeemable shares.
• Redemption means – pay cash to the shareholder in exchange of his shares. If he accepts, he will
cease to be a shareholder.
6. Classes of Shares : Preference shares
Pref. shareholders NOT entitle to…. Pref. shareholders entitle to….
1) General voting right 1) Vote in matter pertaining to change of class right
2) Ordinary dividend ( amount that fluctuates depending
on the annual profit of the company)
2) Preference dividend (fixed percentage/amount
disregard of the company’s level of profit or loss)
3) Surplus assets after the issuer is being wound-up 3) Prioritized capital repayment
Note : Read the full article for some discussion on some conflict in law pertaining to
preference shares.
7. Maintenance of Share Capital
• Purpose : to protect creditors’ interest by ensuring that capital raised is used for business and to
pay debts
• Capital maintenance rules :
a) Must obtain proper consideration (balasan ; 对价) for shares issued
b) Cannot redeem the shares unless in special circumstances
c) Subsidiary should not own shares of its holding company
d) Company cannot provide financial assistance to other to purchase its own shares (except
for employees, not including directors)
e) dividend must be paid out of distributable profit
f) meeting must be called to inform shareholders when company suffers major capital loss.
8. Process of offering shares to the public
(2) Subscribed by investors
(3) Allotment
(1) Offering
(a) By prospectus (d) By tender
(b) By placement (e) By right issue
(c) By intermediaries offer
(4) Issuance
a) By prospectus – a public issue which
members of the public are invited to
subscribe for the company’s shares
b) By placement – a sale of shares
directly to identified subscribers
c) By intermediaries offer – an Issuing
house will subscribe for all the new
shares and subsequently resell it to
the public
d) By tender – the issuer fixes a
minimum price for public bidding
e) By right issue – new shares are
offered to existing shareholders first
9. Prospectus
• A formal document stating the background information of the issuer (the company that is raising
the capital)
• contains details such as :
‒ the offering price per share
‒ number of shares to be issued
‒ principal activities of the issuer
‒ The promoters, substantial shareholders, directors, key management team, auditors, financial
advisers and underwriters.
• Registrar may reject a prospectus if (Sec.156, CA 2016) :
a) It fail to comply with the law;
b) contains false or misleading information, omitted material information which will potentially
influence buyers’ decision (issuer may be liable for civil/criminal offence)
b) the issuer or its directors are not capable to make the offer
10. • refers to the act of allocation or appropriation of a company’s shares.
• a binding contract between the company and the allottee, where :
a) the agreed number of shares must be allocated to the allottee (the subscriber/investor)
b) the allottee must pay the price of the shares
• Shares will be allotted to the subscribers if :
a) At least 5% of the shares offered has been subscribed
b) The subscriber has paid for the subscription
• If the shares in not allotted within 4 months of the date of the prospectus, the offering company
must refund the monies to the subscribers.
Allotment
11. Issuance
• non-public listed companies – issuance of physical share certificate is optional – upon request
by shareholder. If requested, the company must deliver the certificate within 60 days.
• Public listed companies – no need for physical share certificate. Electronic record in the
Central Depository System (CDS)
Terms
• Issued capital : companies may issue as many shares as it like
• Subscribed capital : shares taken up by investors
• Called up capital : amount of which the investor is required to pay
• Uncalled capital : balance amount that is yet to be paid by the investor
• Paid up capital : amount actually paid by the investor
12. Transfer of Shares
• Transfer instrument – stamped (di bayar duti stem ; 已付印花税)
• Private company – limited ability to transfer share. May loss ‘private’ status
• Accepted transfer – enters into Register of Members
• Entry may be refused/delayed by ‘reason stated’ – Sec.106(1)(a) :
Re Smith and Fawcett Ltd [1942]
Charle Fort Investment Ltd v Amanda [1963]
Re Swaledale Cleaners Ltd (1968)
13. Solvency Test
• Solvency test (ujian kemampuan membayar hutang ; 债务偿还能力测试)
• Declaration that the company is financially sound
• Made before :
1) Capital reduction
2) Share buyback
3) Preference shares redemption
4) Provision of financial assistance to potential investors to acquire own share
5) Dividend distribution
• Cashflow test – assertion of healthy cash flow for the next 6–12 months after the exercise date
• Balance sheet test – assertion of sufficient asset portfolio to meet obligations
• Directors accountable – fine <RM500,000 and/or <5 years imprisonment
14. Capital reduction
• Generally prohibited
• Exceptions :
1) extinguish or reduce the liability on company’s shares in respect of unpaid share capital;
2) cancel any paid-up share capital which is lost or unrepresented by available assets; and/or
3) return any paid-up share capital which is no longer required to respective shareholders.
• Capital reduction by special resolution, without court order
15. Share buyback and preference share redemption
Share buyback
• a capital reduction exercise – Solvency test
• Doable if permitted by the company’s constitution.
• Director declare : (a) necessary ; (b) good faith and in company’s best interest
Redemption of preference shares
• not a capital reduction. But same procedure as share buyback
• Redemption out of : (1) Profit ; (2) issuance of new shares ; (3) Capital account
16. Dividend distribution
• Company must have sufficient profits – Solvency test
• Paying dividend when company is insolvent – directors bear criminal liability – fine
<RM3 mil and/or Imprisonment <5 years
• Company may recover dividend over-paid to shareholders
• Shareholder defense – dividend received in good faith and has no knowledge of the
company’s violation
17. Financial assistance to acquire shares
• provide interest bearing loans to its employees to acquire share in the company – not for
directors
• Private companies only
• Loan amount limit to <10% shareholders’ fund
• Special resolution
• Solvency test
