Company Law Column Part 4: Types of Shares, Register of Members and / Share Certificates in Malaysia
2019/06/11
１．Meaning of Shares
When a Japanese company establishes a corporation and conducts business in Malaysia, it is common to take the form as a company limited by shares in which the liability of shareholders is limited to the amount unpaid on a share held by the shareholder.
Shareholders are the owner of the company, and the percentage of ownership is determined according to the number of shares held by each shareholder. In other words, it is possible to control the ownership of a company quantitatively with shares.
２．Value of Shares
Shares offer not only the rights to the company such as voting rights but also monetary values of the shares (i.e., how much shares can be bought and sold).
The previous Companies Act adopted the par value share system. The par value share is a per share value that appears on the constitution and share certificates and has the merit of being able to set the minimum value of a share. The new Companies Act has adopted a no- par value share system from the viewpoint of flexibility etc. (Companies Act Article 74).
The monetary value of a share under the no-par value share system is determined by the paid-in capital at the time of issuance of shares. The value of each share is usually based on the price at the time of issuance of shares (capital amount / number of issued shares). After the establishment of a company, the value of the shares is not determined uniquely. It requires more complicated process where Valuation is calculated by a specialist such as an accountant by using various calculation standards such as book value, comparable peer company analysis, DCF method (discounted cash flow method), etc.
３．Type of shares
（１）Classes of Shares
Under the Malaysian Companies Act, shares are mainly classified into Ordinary Share and Preference Share. Also, subject to the constitution (Article 90(1)), a company can issue shares of different classes such as shares with different level of redeemability, dividend, voting right (it is possible to issue a share with no-voting right) etc. (Article 69). If multiple shares are issued in the same company, each share is called a class share. It is also possible to change the rights attached to certain class of shares by taking certain procedures such as amendment procedures under the constitution (Article 91).
（２）Ordinary Share
Ordinary shares are shares other than preferred shares and generally do not have special rights or restrictions on the rights of shareholders. Under the Malaysian Companies Act, shareholders of ordinary shares have the right to attend, participate in and speak at a general meeting of shareholders, the right to vote on a show of hands on any resolution of the company, the right to vote on a poll on any resolution of the company, the right to an equal share in the distribution of the surplus assets of the company, and the right to an equal share in dividends (Article 71 (1)).
（３）Preference Share
Under the Malaysian Companies Act, preference shares generally refer to shares that differ in the right by way of voting rights, dividends, redemptions, surplus assets distribution etc. (see definition in Article 2). A company cannot allot any preference shares or convert any issued shares into preference shares unless provided by the constitution (Article 72 (1), Article 90 (4)). The companies Act sets out, as the rights of preferred shares, capital repayment, participation in surplus assets and profits, dividends (cumulative or non-cumulative), voting right, priority of payment of capital and dividend (Article 90 (4)).
In other words, it is possible to issue shares with or without granting various rights (e.g., shares with priority of payment of dividends and shares without voting rights) (Article 90(2) (a)).
Examples of preference shares include shares with priority of payment of dividends and surplus assets and shares that are redeemable and have no voting rights (Article 72 (2)).
4．Register of members
Register of members is a book that is required to be prepared by a company in order to record details on the name of the shareholders and the number of shares held (Article 50). The company secretary is obliged to keep the register of members properly (Article 102). The rights of a shareholder are proved by the entry in the register of members and, the registration in the register of members takes precedence over any matters inserted in the register (Article 50 (3)).
5．Shares certificate
Under the Malaysian Companies Act, a company is not required to issue a share certificate, and is obliged to issue only when a shareholder applies for an issuance or it is stipulated in the constitution(Article 97(1)). However, under the former Companies Act, a company was required to issue share certificates, and as a result, many companies still issue share certificates.
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