TUNKU ABDUL RAHMAN UNIVERSIYTY COLLEGE

BBBL2113 INVESTMENT INDUSTRY LAW

TUTORIAL 7

ISSUANCE OF SHARES, TYPES OF CAPITAL, METHOD OF RAISING CAPITAL,

DIFFERENT TYPES OF SHARES

1. J&J Bhd. is a public listed company. Recently their R&D Department have invented a
new smart home remote control device. They need a huge amount of capital to market
their invention to the public. They intend to raise RM100 million of capital from the public
for the production and marketing of the new invention. Advise J&J Bhd. on the various
methods of raising share capital that would be available for their company.

There are four methods for J&J Bhd to raise RM100 million of capital from the public.

The first method is direct invitation to the public. J&J Berhad can issue its securities
directly to members of the public who have applied in response to its prospectus.

Secondly, there are 2 methods of indirect invitation that can be made through an offer for
sale. The first method is when a private company eeks to "go public", a portion of the
shares held by the existing shareholders may be offered for purchase by members of the
public. The second methods is J&J Berhad may allot shares to an issuing house which
then will offer them for sale to the public.

Besides that, private placement which is placing is an arrangement by which a financial

institution agrees with the company to find a number of its clients to whom securities
may be issued in larger parcels or quantities than individual members of the public
generally would subscribe to. The placement is often made with a slight discount to the
current market price of the shares.

Lastly, restricted invitation through a rights issue. A rights issue is an offer to the existing
members in proportion to their shareholdings at the time of offer. It is usually priced at a
slight discount to the current market price. If the issue is renounceable, the member to
whom the shares are offered may renounce his right to buy the shares and the company
may offer the shares to the public. If it is non-renounceable, then the existing member
must exercise the right itself or the right will lapse.

2. What are the rights of the holder of equity shares?

Under Section 71(1) Companies Act 2016, the rights of the ordinary shareholder,
a) The right to attend, participate and speak at a meeting
b) The right to vote on a show of hands on any resolution of the company
c) The right to one vote for each share on a poll on any resolution of the company.
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BBBL2113 INVESTMENT INDUSTRY LAW

d) The right to an equal share in the distribution of the surplus assets of the company.
e) The right to an equal share in dividends authorised by the board of directors.

3. Discuss the advantages and disadvantages of equity shares and preference shares from
the perspective of the company and the shareholders.

Equity share (Ordinary Share)

Company Shareholders

Advantages
- The primary benefit of equity
investments is the increase in the value of
the initial amount invested in the
business. Companies have less risk using
equity investment to finance your
business because they don’t have to take
loans or use debt financing to attain the
necessary funds needed for a company’s
growth. This helps to increase the capital
base without accumulating credit
problems. On the other hand, debt
financing could incur severe penalties for
start-ups if they fail to meet up on the
payments. Whereas equity financing
offers no risk.
Advantages
- Common shareholders can participate in
internal corporate governance through
voting. Ordinary shares provide a small
degree of ownership in the issuing
company. Stockholders have a certain
amount of say in how the company is run
and are allowed to vote on important
decisions, such as the appointment of a
board of directors. For each share of
common stock owned, the stockholder
gets one vote, so the stockholder's
opinion becomes weightier when they
own more shares.

- The burden of loans can be very - Equity stockholders' rights include

detrimental to the growth of the
business. One of the main advantages of
equity investments is that the start-up
owner does not have to be burdened by
the repayment of loans. The business
owner secures lesser risks through equity
investments. Start-ups can benefit greatly
from this because the first few months
may not experience positive cash flows.
limited liability, which means that
common shareholders are protected
against the financial obligations of the
corporation and are only liable for their
shares' value. They also gain preemptive
rights. Shareholders with preemptive
rights gain access to new share issues
before the rest of the investing public,
often at a discount.

Disadvantages Disadvantages
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BBBL2113 INVESTMENT INDUSTRY LAW

- More ordinary shares give more people

the right to share with the existing
owners in the company profits.
- Dividends payable to ordinary
shareholders are not deductible as an
expense for the purpose of corporation
tax but debenture interest is deductible.

Preference Shares

Company Shareholders

Advantages
- The aforementioned lack of voter
rights for preference shareholders
places the company in a strength
position by letting it retain more
control.
Advantages
- Shareholders have a fixed dividend. The
shareholders have priority to get
dividends.
- Shareholders have a prior claim on
business assets when the company
decides to file for bankruptcy or
liquidates.

Disadvantages
- The Company has to pay higher rates of
dividends to the preference shareholders
as compared to the common
shareholders. Thus the cost of capital of
the company is also increased.
Disadvantages
- The main disadvantage of owning
preference shares is that the investors
in these vehicles don't enjoy the same
voting rights as common shareholders.

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BBBL2113 INVESTMENT INDUSTRY LAW

4. Sabri has just recently acquired 3% of the total voting shares in Syarikat Megamall Bhd
and another 8% of the total voting shares in Syarikat Microstall Sdn Bhd. Having
acquired those shares, Sabri wishes to know:
a) If he is now deemed to be a substantial shareholder under the Companies Act 2016
of the 2 companies; and
Sabri is not deemed to be a substantial shareholder to these two companies. Based on
S134(2) CA 2016 states that substantial shareholders are only applicable to public
companies. Syarikat Microstall Sdn Bhd is a private company, so there are no
substantial shareholders.

S136 (1) CA2016 defines a substantial shareholder as a person who has an interest not
more than 5% of voting shares in a public company. Syarikat Megamall Bhd is a
public company, it is fulfilled with S134(2) CA 2016, but Sabri is just having a 3% of
total voting shares. Since Sabri does not hold more than 5% in MegaMall Bhd, he is
not classified as a substantial shareholder of Syarikat Megamall Bhd.

b) The duties that are imposed on substantial shareholders by the Companies Act
2016.
Substantial shareholders need to give notice in writing to the company within 3 days for
listed company or within 5 days for not listed company.

Based on
S137 CA2016: After the person become substantial shareholder
S138 CA 2016: After there is a change of his interest in voting shares in the company.
Whenever, there are any changes to a person's shareholdings in a public listed
company.
S139 CA2016: After he ceases to be a substantial shareholder.

S141 CA2016: Notice of the SSH’s status must also be given to the Registrar.

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BBBL2113 INVESTMENT INDUSTRY LAW

5. Following Q 4 above, Sabri would like to know what are the documents evidencing his
ownership in the above two companies.

Syarikat Microstall Sdn Bhd

I. Register of Member

According to section 50 CA 2016 , every company shall keep a register of members. The ROM
records the members’ particulars, statement of shares held, certificate number(if any), amount
paid or agreed to paid, date become member, date ceased to be member(keep for 7 years),
date of allotment and number of shares allotted.

Section 101 CA 2016 - entry of name in the ROM is prima facie evidence legal title to the share
is vested in that person.

II. The changes in the register of members.

According to section 51 CA 2016 , a company (other than listed company) shall notify the
Registrar of the changes in the particulars and changes in the register of members within 14
days from the date (a) of the change of any shareholder contained in the register.

If the company has more than 50 members, shall keep an index of the name of the members.
This can only be seen for public companies, which means only in Sabri’s Syarikat Megamall
Berhad.

III. Share certificate （ no applicable any more)

According to section 97(1) CA 2016 , a company shall not be required to issue a share
certificate unless an application by a shareholder for a certificate relating to the shareholder's
shares in a company has been received or otherwise provided by its constitution.

If the company is listed on Bursa Malaysia (Syarikat Megamall Berhad )

Under Section 147(1) CA 2016, depositors name will appears in the record of Central
Depository System(CDS) is a shareholder.

Under Section 147(2) CA 2016, all rights, benefits, powers and privileges are subject to all
liabilities, duties and obligations in the CA and constitution.
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Under Section 147(3) CA 2016, companies have an obligation to keep ROM but no need to
include the depositors’ name in the ROM.

Under Section 147(4) CA 2016, only if the name of the depositor appears on the record of
depositors 3 days before a general meeting will they be entitled to attend, vote and speak in the
meeting.

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