Changes in Share Capital and Structure of Your Company Incorporated in Malaysia
Here we cover the relevant process and compliance requirements under Companies Act 2016 with regards to issuing new shares and transfer of shares
Changes in Share Capital and Structure of Your Company Incorporated in Malaysia
After you have incorporated your company initially at nominal capital of 1,000 at RM1,000 paid up capital, you may subsequently have plan to expand your business and increase your share capital or transfer your shares to someone else. Here we cover the relevant process and compliance requirements under Companies Act 2016 with regards to:
Issuing new shares
Generally for a private company (Sdn Bhd) in Malaysia, there are 2 types of shares:
- Ordinary shares - the most common form and main type of shares in a Company. The ordinary shareholders take the residual interest in the company (bear risks and rewards of the business) and have the voting powers in the running of the Company.
- Preference shares - The preference shares usually give benefit or preferential rights to the holder(s) over and above the rights of Ordinary shareholders. (e.g. preference in dividend and distribution in winding up). However, preference shareholders are usually only entitled to fixed return and limited upside
In your exciting business journey, capital is one of the key ingredients to scale and expand your business. The start up lifecycle above show you a typical funding stages of a start up company.
Here we simplify for you few things to consider when you are planning to issue new shares
What are the types and terms of shares to issue?
Under Section 69 of Companies Act 2016, the Company may define in its constitution, the shares in a company may
- be issued in different classes;
- be redeemable (in accordance with Section 72 – preference shares)
- confer preferential rights to distribution of capital or income;
- confer special, limited or conditional voting right; or
- not confer voting right
In deciding the type of the shares to be issued as well as the salient terms, you often need to consider the risk and reward allocation, the type of subscribers and their objective, the participation of the subscribers, the company’s capital requirements and cash flow projection and etc.
These are few types of shares commonly used- ordinary shares, Redeemable Convertible Preference Shares (“RCPS”), Irredeemable Convertible Preference Shares (“ICPS”), Non-convertible Redeemable Preference Shares (“NRPS”) and etc
Who can we issue the shares to?
Please note that under Section 43, a private company shall not offering shares for subscription or purchase to the public or any member of public or invite the public to deposit money with the company for fixed periods or payable at call, whether bearing interest.
If you wish to raise capital for your start up company from the others, you can consider using the services of the approved crowd-funding platforms by Securities Commission of Malaysia. They are licensed crowd-funding platform which assist early stage/start up companies to raise the capital.
- Crowdo
- Pitchin
- Mystartr
- and etc
Or, you may apply and pitch to angel investors or early stage micro VC to invest in your start up business.
How much capital to raise and how many shares to issue?
The amount of capital to raise typically depends on your business plan and cash flow projection. Depending on the amount of cash you need to achieve or deliver certain milestone. Of course it is often the more capital raised the better it is, it is realistically challenging for a new start up business without much track record to get huge capital in a sudden at the start. Investors may like to see milestone and achievement before willing to invest further. In addition, raising too much capital at the start may be disadvantageous to you, as that may result in too much dilution at the start when your business value is still low. For example, if your business equity value is RM1,000,000. With an additional capital injected of RM300,000, that will result in your shareholding being diluted to:
- Your existing portion = 1,000,000/1,300,000 = 76.92%
- New investor portion = 300,000/1,3000,000 = 23.08%
The process for the issuing of new shares will usually be as following manner:
1.You inform the company secretary on the request on issuing new shares (Name of subscriber/allottee, number of shares, issue price and amount)
2.Upon discussing with you on your share issue exercise and reviewing your constitution, the company secretary will then usually help to prepare the necessary documents for:
- Director resolution on issue and allotment of shares [to be signed by the directors]
- Member resolution on issue and allotment [to be signed by the shareholders]
- Share application letter
- Form Section 76
- Form Section 78 return
- Section 56
4. After the allotment is approved by SSM, you will receive a Section 78 on the return of allotment and the effective date of allotment
Subject to the constitution, usually the existing shareholder may have pre-emptive rights first to subscribe the new shares issue on pro-rata basis. Please get professional advice and help before you embark the journey of fund-raising.
Transfer of Shares
On the other hand, transfer of share may happen due to many possible reasons such as transfer of shares to your spouse/children as part succession planning, selling of your shares, giving your shares as a gift/token of appreciation to your long-serving employees and etc
When it comes to transfer of shares, you need to understand there will be 2 parties involved – transferor and transferee. Where the transferor is transferring the shares to the transferee in exchange of a consideration.
In 2020, The IRB has published on its website the technical guidelines, to provide guidance on the calculation of stamp duty on instruments of transfer of shares of unlisted company (including private company).
Stamp duty on transfer of shares will be calculated based the price or value whichever greater on that stamp duty of RM3 is to be imposed for every RM1,000 or fractional part of RM1,000 (which is effectively 0.3%). The technical guideline simplifying the stamp duty calculation to:
- Price- Purchase Consideration
- Value – Net tangible assets (Shareholders’ Funds/Issued Capital) or Par value
- Net loss for the year ( RM 2,275 )
- Issued share capital RM200,000
- Shareholders’ Funds RM181,950
A comparison between Par Value, “NTA” and sale consideration shows that the value of shares based on par value is the highest. The stamp duty payable is, therefore, calculated based on par value i.e. RM150,000.
Stamp duty payable = RM150,000 x RM3.00 RM1,000 = RM450.00
The process for the transfer of shares will usually be as following manner:
1. You inform the company secretary on the request on transfer of shares and the details on the transfer
2. Upon discussing with you on your share transfer, the company secretary will then usually help to prepare the necessary documents for:
- Director resolution on transfer of shares [to be signed by the directors]
- Sec 105 share transfer form
4. After the share transfer is approved by SSM, you will get a updated register of member and SSM profile from the company secretary
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