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Share Capital - Coggle Diagram
Share Capital
Capital Maintenance
Shareholders liability is limited by shares
Capital has to be maintained, bcos creditors depend on those funds in event of liquidation
Share capital represents a guarantee fund for creditors
S123(1)(b) Prohibition for co purchasing own shares (Shares buy back)
Exception
Purchase of redeemable preference shares
When shares are forfeited
Order of court (when minority make application to court)
Public listed companies （during economic crisis)
Conditions to fulfilled
before buy back exercise
Constitution must specifically authorize that
Co must be solvent & will not become insolvent by incurring debts to pay for the shares
Co must remain solvent after 6 months
In addition to solvency test, capital shouldn't be impaired (Value of assets less than aggregate amount of all shares of co) after share buy back
Purchase is made through Stock Exchange
Co must appoint stockbroker & open a "share buy back a/c" with stockbroker & notice of appointment must lodged with Bursa Malaysia
Purchase is made in good faith of company
Purchase must be authorized by shareholders by ordinary resolution (>50%)
Co must be a listed
After buy back exercise
Directors shall decide to
Cancel shares purchase
Retain shares as treasury shares (TS)
Retain part of shares as TS and cancel remainder
Treasury shares
S127(8)
Rights attached to them are suspended
Shall not be taken into a/c in calculating numbers/ percentage of shares in co for any purposes
S127(7)
Directors may
Distribute them as dividends [Share dividends]
Resell on market of Stock Exchange
Transfer the shares under Employee Share Scheme
Transfer shares as purchase consideration
Cancel shares
Sell, transfer, use shares for other purposes as Minister may by order prescribe
Specific procedures for
Reduction of share capital
Advertise notice of reduction in one widely circulated newpaper in Malaysia in National Language & English Language, within 7 days from resolution date
May reduce share capital by
special resolution followed by
Solvency statement
Creation &
inspection
Public co:
Statement should be made within 21 days from dare of resolution
Statement should be made available for inspection by members & creditors for 6 weeks from date of resolution
Private co:
Statement should be made within 14 days from date of resolution
Statement should be made available for inspection by members & creditors for 6 weeks from date of resolution
Pass special resolution
Send notice to DG IRB & ROC within 7 days of resolution date
All directors make solvency statement & meet solvency requirement
Lodge a copy of solvency statement to ROC within 7 days
Solvency
Requirement
Company need not meet requirements if reduction of shares is by way of cancellation of any paid-up share capital which is no longer backed by assets
Solvency requirement :
Company has no ground to be found to be unable to pay its debt
Able to pay debt which is due within 12 months
Asset more than liability
Speedier
& less expensive
Directors sign solvency statement,
if it's false, get fined/ imprisonment
Court order
Returning shareholders any paid-up share capital
which is in excess of co's needs
Court would allow exemption to the inquiry
after considering any special circumstances
that the interest of creditors aren't prejudiced
Court would require an inquiry as to the co's creditor
Reducing liability of unpaid share capital
Write off capital which no longer
represented by assets
Offset accumulated losses
with share capital
Any creditor may apply to the court for the resolution to be cancelled
Provisions to safeguard
S123 - Prohibition in giving financial
assistance for acquiring own shares
Financial assistance includes giving loan, guarantee, or security for the loan
Subsidiary can't give financial assistance
to acquire shares in its holding co
Contravention of S123
Officer who are in default will be subject to penalty:
Imprisonment not exceeding 5yrs, or Fine not exceeding RM3 million, or both
Co is not guilty since the wrongdoing is
committed by officers & not company
If co or another person has suffered loss/ damage due to the contravention, convicted person need to pay compensation
Co may recover the amount of any loans made in contravention
Exception to S123
Granting of loans is co's main business
No prohibition on co lending money to employee (including full time director) to enable them to purchase shares in accordance with "employee share scheme"
When co offers financial assistance to person bona fide in employment of company (other than director)
Relaxation on S123
Company whose shares aren't quoted on stock exchange may give financial assistance to acquire shares in co/ holding co, by a special resolution
Board resolution needs to be obtained, providing that:
Company may give assistance
It is in best interest of co
T&C are just & reasonable to the co
Directors who voted in board resolution must make a solvency statement
Aggregate amount of assistance given :
should not exceed 10% of the aggregate amount received by the company in respect of issue of shares and the reserves of the company
must not be more than 12 months after solvency statement date