The Companies Act of 2016 brought about a significant transformation in Malaysia’s corporate landscape, introducing substantial changes to share par value, share capital increment, and the allotment of shares. This article provides a comprehensive analysis of these key aspects, offering a detailed overview of the current legal framework and its practical implications for businesses in Malaysia.
Share Par Value in Malaysia
Companies Act 2016: Section 74
Before the Companies Act of 2016, companies in Malaysia were obligated to assign a par value, also known as nominal value, to their shares. This par value represented the minimum price at which companies could issue shares. However, this concept was often perceived as misleading and created unnecessary accounting complexities1.
The Companies Act of 2016 introduced a significant shift by transitioning Malaysia to a no-par value regime for all shares. This applies to all companies, regardless of whether they were incorporated under the old or new Act2. Under this new regime, shares no longer have a designated par value, and their monetary value is determined by the paid-in capital at the time of issuance3. This change aligns with international accounting practices4 and simplifies company accounts by removing the misleading implications of the par value system5.
This shift to a no-par value regime offers several potential benefits for companies. It provides greater flexibility in pricing shares, making it easier to attract investors and raise capital. It also simplifies the accounting process and reduces the administrative burden associated with maintaining a par value system5. Additionally, the Companies Act of 2016 removed the mandatory share certificate requirement6. This further streamlines the process of share issuance and reduces administrative complexities for companies.
Increment of Share Capital in Malaysia
Companies Act 2016: Section 106(4)
The Companies Act of 2016 provides a framework for companies to increase their share capital. While there is no general minimum share capital requirement, specific requirements apply to companies employing foreign workers, depending on the nationality of the equity holders7. These requirements are as follows:
• If all shareholders are local, the minimum required paid-up capital is RM 250,000.
• If a company is formed in a joint-venture mode between local and foreigners, the minimum required paid-up capital is RM 350,000.
• If all shareholders are foreigners, the minimum paid-up capital is RM 500,000.
To increase share capital, companies must adhere to the procedures outlined in the Act. This includes passing a resolution authorizing the increase and lodging a notice of the increase with the Registrar within fourteen days8. Companies must also provide proof that they have received the relevant funds from shareholders, typically through bank-in slips, to ensure compliance and avoid potential penalties9.
The process of increasing paid-up capital involves several steps. First, the company needs to deposit the amount of money representing the increase into its bank account and generate a bank-in slip as proof of the transaction. The company secretary then prepares the necessary documents, including board and member resolutions, which must be signed by all directors and shareholders. Finally, the company secretary files a return on the allotment of shares with the SSM to register the increase in paid-up capital10.
While increasing share capital can be beneficial for companies seeking to expand their operations or fund new projects, it’s essential to be aware of the potential risks. Increasing share capital can dilute the ownership of existing shareholders, potentially leading to a loss of control or influence within the company11. It’s crucial for companies to carefully consider these implications and ensure that any increase in share capital aligns with their long-term goals and the interests of their shareholders.
Allotment Based on Any Value in Malaysia
Companies Act 2016: Section 75, 85
The Companies Act of 2016 allows for the allotment of shares based on any value. This includes non-monetary considerations such as assets, services, or any other form of value that benefits the company13. This flexibility allows companies to raise capital and compensate contributors in various ways, adapting to different business needs and circumstances.
When allotting shares, companies must adhere to the provisions of the Companies Act and their company constitution, if any. These may include restrictions on allotment or pre-emptive rights for existing shareholders12. Pre-emptive rights give existing shareholders the first opportunity to purchase newly issued shares, protecting their ownership stake and preventing dilution13.
The Companies Act also recognizes crowdfunding as a method of share allotment in Malaysia12. Crowdfunding involves raising capital from a large number of individuals, typically through online platforms. This can be a viable option for companies seeking alternative funding sources, especially startups and small businesses.
It’s essential for companies to ensure that the allotment of shares is conducted in a fair and transparent manner, with proper documentation and adherence to legal requirements. Seeking professional advice from company secretaries or legal advisors is crucial to navigate the complexities of share allotment and ensure compliance with the Companies Act and other relevant regulations13.
Securities Commission Malaysia Regulations
The Securities Commission Malaysia (SC) plays a vital role in regulating the Malaysian capital market, ensuring fair and orderly market operations, protecting investors, and maintaining the integrity of the market14. The SC’s regulatory functions extend to matters related to share capital and allotment, particularly for public offerings and companies listed on the stock exchange.
The SC’s Equity Guidelines provide a framework for various corporate actions, including:
• Issues and offerings of equity securities
• Listings of corporations and quotations of securities on the Main Market of Bursa Malaysia
• Proposals that result in a significant change in the business direction or policy of listed corporations18
These guidelines aim to ensure that companies meet specific standards of corporate governance, financial reporting, and investor protection. They also provide guidance on procedures for share issuance, allotment, and other capital market activities.
In addition to the general listing guidelines, the SC has released specific guidelines and additional listing requirements for certain sectors. For example, stockbroking companies seeking listing on Bursa Malaysia are encouraged to list their holding companies rather than pursuing direct listing. These companies must also meet specific shareholder funds requirements and public shareholding spread requirements [25].
The SC’s regulations on share capital and allotment are designed to promote transparency, accountability, and investor confidence in the Malaysian capital market. Companies must comply with these regulations to ensure they operate within the legal framework and maintain the integrity of their corporate actions.
Tax Implications of Share Capital Increment and Allotment
Income Tax Act 1967: Section 4(aa)
The introduction of capital gains tax (CGT) in Malaysia has implications for share capital increment and allotment. While increasing share capital itself may not directly trigger CGT, any subsequent disposal of those shares could be subject to CGT. Similarly, if shares are allotted in exchange for assets, the disposal of those assets might trigger CGT. Additionally, if the shares allotted are subsequently disposed of, CGT may apply to the gains from that disposal15.
The CGT rate applicable to the disposal of unlisted shares in Malaysian companies depends on the acquisition date of the shares19. For shares acquired before 1 January 2024, an optional CGT rate of 2% on the gross disposal price is available16. This provides some flexibility for companies in managing their CGT liabilities.
Companies need to carefully consider the potential CGT implications when making decisions related to share capital increment and allotment. Seeking professional tax advice is crucial to ensure compliance with CGT regulations and optimize tax outcomes.
Impact on Ownership Structure and Control
Changes in share capital and allotment can significantly impact a company’s ownership structure and control. Increasing share capital through the issuance of new shares can dilute the ownership of existing shareholders, potentially reducing their voting power and influence within the company17.
Similarly, allotting shares to new investors can alter the balance of power within the company. Depending on the number of shares allotted and the rights attached to those shares, new investors may gain significant control over the company’s decisions and direction.
An increase in the proportion of insider ownership, such as shares held by managers or directors, can have a complex impact on company performance. While it may enhance performance due to a closer alignment of interests between insiders and external shareholders, it can also lead to conflicts of interest if managers prioritize their own benefits over those of the shareholders at large17.
Companies must carefully consider the potential consequences of share capital increment and allotment on their ownership structure and control. Understanding the legal and regulatory framework, along with seeking professional advice, is essential to navigate these changes effectively and ensure alignment with the company’s long-term goals.
Conclusion
The Companies Act of 2016 has brought about significant changes to the Malaysian corporate landscape, particularly in the areas of share par value, share capital increment, and allotment. The shift to a no-par value regime simplifies accounting, provides greater flexibility for companies, and aligns with international best practices.
However, companies must navigate these changes carefully, considering the legal and regulatory requirements, potential tax implications, and the impact on ownership structure and control. By understanding these aspects and seeking professional advice, companies can effectively utilize share capital and allotment mechanisms to achieve their business objectives and contribute to the growth of the Malaysian economy.
It’s crucial for companies to stay informed about evolving regulations and seek professional guidance to make informed decisions regarding share capital and allotment. This proactive approach will ensure compliance, mitigate risks, and promote sustainable growth in the dynamic Malaysian business environment.
Works cited
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