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LAI KOR FOONG 26 APRIL 2011 CORPORATE ROOM, LEVEL 13, MENARA SSM@SENTRAL
Course Content Introduction to Company Law Classification of Companies Incorporations and Its Effects Constitution and Articles of Companies Membership Share Capital Maintenance of Capital Accounts and Audit Charges The Law of Meetings Directors, Auditors and Company Secretaries Corporate Governance Corporate Insolvency
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CONVERSION OF SHARES INTO SHARES (S.62(1)(C) AND ARTICLE 36 ) Must be authorized by A.A and approved by G.M Shares must be fully paid before conversion On conversion, register of members need not be amended unless if the N.V of shares is not RM1
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SHARE CAPITAL
CLASSES OF SHARES
1) DEFINITION: i) Equity share - Any share which is not a preference share ii) Preference share - No voting right at GM, no right to receive more than a specified amount of dividend or capital repayment on redemption or in a winding up. 2) CLASSES OF SHARES: a) Ordinary shares
often referred as equity shares carry voting rights at general meeting have no fixed rate of dividend entitled to residue of profit and surplus assets in a winding-up
SHARE CAPITAL
CLASSES OF SHARES
b) Preference shares rights to be set out in M&A (S66) no voting rights at general meeting carry fixed rate of dividends Cumulative/ Non cumulative Redeemable / Irredeemable(S61) Deferred or Founders shares. held by promoters of the company usually rank behind ordinary shares in payment of dividends and return of capital in a winding up.
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c)
SHARE CAPITAL
ISSUE AND ALLOTMENT OF SHARES Allotment of shares Issue of shares and share certificates S107) Issue of shares at a discount (S59) Issue of shares at a premium (S60)
SHARE CAPITAL
AUTHORIZED AND ISSUED CAPITAL Authorized capital Issued capital: i) Called-up capital ii) Paid-up capital iii) Calls in arrears Unissued capital
SHARE CAPITAL
SHARES ISSUED AT A DISCOUNT/ PREMIUM Shares issued at a discount (S59) Shares issued at a premium (S60) - A share premium account - Application of the share premium account: i) issue bonus shares ii) write off preliminary expenses iii) write off expenses, commission paid, discount on issue of shares.
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SHARE CAPITAL
ALTERATION OF CAPITAL If authorized by Articles and approved by GM (S 62), a company may: i) increase its share capital ( lodgment of form 28 and 11 within 14 days of GM) ii) consolidate and divide its shares into larger amount. iii) convert paid up shares into stock or vice versa iv) Subdivide its shares into smaller amount( share split) v) Cancel any shares that have not been taken by any person.
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SHARE CAPITAL
VALIDATION OF SHARES IMPROPERLY ISSUED
Validation requires a Court Order (S63) which may be made if the Court is satisfied that it is just and equitable to do so. Shares deemed to have been validly issued or allotted upon a copy of the Court Order being lodged with the Registrar.
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SHARE CAPITAL
REDUCTION OF SHARE CAPITAL
1) Conditions to be satisfied(S64): i) Authorized by Articles ii) Court order iii) Special Resolution 2) Purposes of the capital reduction: i) extinguish or reduce liabilities on any shares not paid up. ii) cancel paid up capital lost or unrepresented by assets. iii) pay off any paid up share capital in excess of needs
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SHARE CAPITAL
VARIATION OF RIGHTS ATTACHED TO THE SHARES
A co. may have different classes of shares with different rights, benefits or obligations. Variation of class rights may be carried out if authorized by memorandum or articles. Protection for minority shareholders: If variation of class rights is made in accordance with provisions of M&A, holders with 10% of the issued shares of that class may apply to Court to cancel resolution passed for the variation or abrogation(S65)
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SHARE CAPITAL
PROHIBITION ON DEALING BY A COMPANY IN ITS OWN SHARES
A company cannot give , whether directly or indirectly: i) loan, ii) guarantee iii) provide security or iv) any financial assistance for the purchase, subscription or lend money on its own shares( S67)
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Course Content Introduction to Company Law Classification of Companies Incorporations and Its Effects Constitution and Articles of Companies Membership Share Capital Maintenance of Capital Charges Accounts and Audit The Law of Meetings Directors, Auditors and Company Secretaries Corporate Governance Corporate Insolvency
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MAINTENANCE OF CAPITAL
It is originated from common law principle established in the English case of Trevor v. Whitworth. Lord Herschell held that: what is the meaning of the distinction drawn between a company without limit on the liability of its members and a company where the liability is limited, but in the latter case, to assure to those dealing with the company that the whole of the subscribed capital, unless diminished by expenditure upon the objects defined by the memorandum, shall remain available for the discharge of its liability. The capital may no doubt be diminished by expenditure upon and reasonably incidental to all the objects specified. A part of it may be lost in carrying on the business operations authorized. Of this all persons trusting the company are aware and take the risk. But I think they have a right to rely and were intended by the legislature to have a right to rely on the capital remaining undiminished by any expenditure outside these limit or by the return of any part of it to the shareholders
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MAINTENANCE OF CAPITAL
The common law principle that a company limited by shares must maintain its paid up share capital has be given statutory effect. The Companies Act embody the principle of capital maintenance in the following sections : Section 64; Section 67; and Section 365
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MAINTENANCE OF CAPITAL
AUTHORISED REDUCTION OF PAID UP CAPITAL : S.64
Section 64 provides that before a company limited by shares can reduce its paid up share capital the company must ensure that the following conditions are satisfied : the companys constitution includes a provision that allows the company to reduce its issued capital; its proposed exercise to reduce capital must have received the prior approval of the general meeting by way of special resolution ; and before the company implements its proposed capital reduction exercise the company has obtained the courts approval to that exercise. The Companies (Reduction of Capital) Rules 1972 sets out the procedures and the necessary forms that must be lodged with the court to obtain the courts approval
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MAINTENANCE OF CAPITAL
MANNER IN WHICH THE COMPANY CAN REDUCE ITS PAID UP SHARE CAPITAL
a company can reduce its issued capital by : S.64(1)(a) - extinguishing or reducing the liability on any of its shares in respect of share capital not paid up; S. 64(1(b) cancelling any paid up share capital that is lost or is no longer represented by available asserts; and S. 64(1)(c) paying off any paid up share capital that in excess of the company needs
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MAINTENANCE OF CAPITAL
FINANCIAL ASSISTANCE PROHIBITION S.67
S.67(1) impose 5 distinct prohibitions upon a company limited by shares. A company limited by shares cannot: provide direct or indirect financial assistance to anyone who purchases or subscribes to the companys shares; if it is a holding company, give direct or indirect financial assistance to its subsidiary in order to enable the subsidiary to purchase or subscribe to its shares; deal with its own shares; purchase its own shares (self-purchase); or Lend money on the security of its own shares
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MAINTENANCE OF CAPITAL
EXCEPTIONS TO THE FINANCIAL ASSISTANCE PROHIBITION
S. 67(2) provides 3 exceptions to the financial assistance prohibition. They include: the lending of money by a company whose ordinary business is to lend money and the lending is in the ordinary course of its business; the company making a provision of money for the purchase of or subscription for fully paid shares in the company or holding company in accordance with a share employee purchase scheme, by trustee of that scheme for shares to be held by or for the employees benefit; and The giving of financial assistance by a company to its employees, other than company directors , to enable them to purchase fully paid shares in the company or holding company to be held by themselves by way of beneficial ownership
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MAINTENANCE OF CAPITAL
EFFECT CONTRAVENING S. 67(1)
a company that contravenes S. 67 (1) is not guilty of an offence. however, each company officer in default is guilty of an offence punishable with imprisonment of up to 5 years or a fine of up to RM100,000. the court can order the convicted officer to pay compensation to the company or any other person who has suffered loss as a result of the officer having committed an offence refer S.67(3) and S.67(4)
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MAINTENANCE OF CAPITAL
EXCEPTION TO THE SELF PURCHASE PROHIBITION
The Companies Act provides four exceptions to self-purchase prohibition. These are: redeeming redeemable preference shares in accordance to S.61; shares purchase in accordance with S.67A share buy-back by listed companies; Redeeming shares for purpose of cancellation under S.64 (1)(b); and Shares purchased in accordance with S181(2)(c)
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MAINTENANCE OF CAPITAL
REDEEMABLE PREFERENCE SHARES
S.61 provides that a company having a share capital, if authorized by its articles can issue redeemable preference shares which the company may later redeem in the manner set out by articles A company can only redeem its redeemable preference shares if the shares are fully paid up the funds for its redemption must be derived must be derived from; Profit available for dividends; or The proceed of a fresh issues of shares made for the purpose of the redemption
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MAINTENANCE OF CAPITAL
SHARE BUY-BACK BY LISTED COMPANIES
S.67A allows the public companies with share capital to purchase their own shares S.67A(2) imposes certain conditions when effecting share buy-back; The public company must be solvent at the date of the purchase and will not become insolvent by incurring the debts involved in the obligation to pay for the shares so purchased; The purchase is made through the stock exchange on which the shares of the public company are quoted and in accordance with the relevant rules of the stock exchange; and the purchase is made in good faith and in the interest of the public company
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MAINTENANCE OF CAPITAL
DIVIDENDS S.365 Paid out of profits or pursuant to S.60 Dividend must be paid out of profits of the company not group level Dividend cannot be paid if it results in the companys assets being insufficient to pay it debts. Dividend cannot be paid out of borrowings unless the company has divisible profits available
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MAINTENANCE OF CAPITAL
READING MATERIALS
Ben Chan Chong Choon, Philip Koh Tong Ngee, Peter SW Ling, Chan & Koh on Malaysian Company Law, Principles & Practice, 2nd Edition, 2006, Sweet & Maxwell Asia, Chapter 11, page 413 430; Shanty Rachagan, Janin Pascoe and Anil Joshi, Concise Principles of Company Law in Malaysia,2005, Malayan Law Journal, Chapter 4, page 60- 79; Aiman Nariman Mohd Sulaiman, Aishah Bidin, Commercial Applications of Company Law in Malaysia, 2002, CCH, Chapter 9, page 156-171;
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Course Content Introduction to Company Law Classification of Companies Incorporations and Its Effects Constitution and Articles of Companies Membership Share Capital Maintenance of Capital Accounts and Audit Charges The Law of Meetings Directors, Auditors and Company Secretaries Corporate Governance Corporate Insolvency
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MEANING OF ACCOUNT
S.4(1) means profit and loss accounts and balance sheets and includes notes or statements required by this Act (other than auditors reports or directors reports) and attached or intended to be read with profit and loss accounts or balance sheets
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Ben Chan Chong Choon, Philip Koh Tong Ngee, Peter SW Ling, Chan & Koh on Malaysian Company Law, Principles & Practice, 2nd Edition, 2006, Sweet & Maxwell Asia, Chapter 20; Shanty Rachagan, Janin Pascoe and Anil Joshi, Concise Principles of Company Law in Malaysia,2005, Malayan Law Journal, Chapter 15;
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THANK YOU!
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