Raising the Capital You Need for Your Business by Issuing Ordinary Shares
Issuing ordinary shares is another way of obtaining the funding needed to start a business. In Malaysia, there are a few ordinary share options to consider.
What It Takes to Run a Successful Business
Successful businesses have a few fundamental necessities that they make sure they fulfil. One of which is ensuring they have enough funding for both running their business and for future growth. This applies to businesses both big and small.
At 3E Accounting Malaysia, our Malaysia Incorporation Services can help you launch your business on a strong foothold. However, obtaining enough funding still must be the number one priority. Getting bank loans or finding a willing lender is among the most common methods used by entrepreneurs to get the capital they need. Issuing ordinary shares is another.
Issuing Ordinary Shares in Malaysia
Malaysia’s Companies Act 2016 outlines some notable requirements and procedures to obtain these shares. The Act has no clear definition of what “ordinary shares” are. Therefore, an ordinary share generally gives the shareholder a few rights within the company. These rights include the following:
- The right to attend meetings.
- Right to speak up at the meetings.
- Right to cast a vote on resolutions.
- The right to partake in any surplus or dividends when it comes to assets and profits.
The main objective here is to raise the capital you need. You have two types of shares to choose from:
- Bonus Shares – New shares are issued under this option. However, the cost is absorbed by the company. This is done through capitalisation, and this means if you are the shareholder, you don’t have to pay anything. Capitalisation takes place through some of the company’s profits or reserves. No new capital is given through this option.
- Rights Issue Shares – This option fulfils the business’s objective to get the necessary capital it needs. An existing shareholder of the business can subscribe to the company’s new shares under this option. It will be in direct proportion to their existing shareholding. Alternatively, they have the option of selling their rights to new or full shareholders.
Per the Companies Act (Section 69) a company is within its rights to issue different classes of shares. For example, a business can issue shares that have non-identical rights. This means a company when issuing ordinary shares, can choose to have a combination. The business could issue a combination of multiple votes, no votes, or one vote per share.
Stating Your Rights Clearly When Issuing Ordinary Shares
Per section 90 of the Companies Act, a business must have the voting rights clearly stated. These rights must be attached to each type of share class. If the shareholders are not allowed to vote, this must be indicated very clearly with the words “non-voting” in the description. This must be prominent on share certificates and director’s reports or prospectus from the company.
What Documents You Need
For the issuing of ordinary shares, you will need some key legal documents. These must be kept separately from the Corporate Secretarial documents your business is also required to keep. These key documents will be used whenever you need to raise capital through the issuing of ordinary shares.
The documents that must be available are:
- Term sheets that outline the basic terms and conditions. Investors must be clear about what they are getting into, and that is the purpose of this document.
- Subscription agreements that clearly outline the issuance of the shares.
- Shareholder agreements that outline the terms and conditions of the ongoing relationship between the company and the shareholder after subscribing to the shares.
- Constitution document, a document that is optional for private companies.
If you would like more information about the issuing of ordinary shares in Malaysia and our Malaysia Incorporation Services, reach out to our team anytime. We’re always here to serve you.