Share Capital, Class Rights & Share Dealings under the Companies Act 2016

Pre-Emptive Rights to New Shares (Companies Act $2016$)

• Core statute: S $85$ CA $2016$ – subject to the constitution.- When a company issues shares ranking equally (same voting & distribution rights) with existing shares, it must first offer them to existing shareholders.

  • Purpose: allows each member to keep his proportional ownership, voting power, and distribution entitlements as the company grows.

• Mechanics of the offer (S $85(2)$):- Must be served by notice stating:

  • The exact number of shares offered to each member (mirrors their current percentage).

  • The time-frame in which the offer must be accepted.

  • If not accepted before expiry, the offer is deemed declined (S $85(2)$).

• Post-offer freedom (S $85(3)$): Directors may, after the time-frame, dispose of the unaccepted shares in any manner they think most beneficial to the company.

• No purchase obligation: Shareholders are never compelled to subscribe, but the company is compelled to offer first.

• Allotment disclosure (S $78$):- Lodge a Return of Allotment within $14$ days of the allotment.

  • The return must include a Statement of Capital containing:

  • (a) Number & amount of shares allotted.

  • (b) Amount paid / deemed paid / payable on each share.

  • (c) Class of each share where multiple classes exist.

  • (d) Full name & address of every allottee plus number & class allotted.

Classes of Shares & Identical-Rights Rule

• S $89(1)$: Shares are in the same class only if their attached rights are identical in all respects.

• S $89(2)$: Shares are not treated as different merely because they have differing dividend timing within the first $12$ months post-allotment.

• Practical advice: Constitutions should state classes & voting rights clearly to avoid confusion.

Statutory Power To Issue Different Classes (S $69$)

• Unless restricted by the constitution, a company may issue shares that:1. Are of different classes.

  2. Are redeemable (S $72$) – e.g. preference shares.

  3. Confer preferential rights as to capital/dividends.

  4. Confer special / limited / conditional voting rights.

  5. Confer no voting rights at all.

Ordinary (Equity) Shares

• Definition (S $71(1)$): Any share that is not a preference share.

• Minimum rights mandated by S $71(1)(a)$–$71(1)(e)$:1. Attend, participate & speak at meetings.

  2. Vote on a show of hands.

  3. $1$ vote per share on a poll.

  4. Equal share in surplus assets upon winding-up.

  5. Equal share in Board-authorised dividends.

• Voting flexibility: S $90(2)$–$90(3)$ allows issue of ordinary shares without voting rights.

Preference Shares

• Definition (S $2$): Share that lacks voting rights or participation beyond a fixed amount in distributions.

• Issue & redemption (S $72(1)$–$72(2)$): Permitted if authorised by constitution; can be liable to be redeemed.

• Additional protection (S $90(4)$): Company must set out rights on repayment of capital, surplus participation, cumulative/non-cumulative dividends, voting (if any) & priority.

• Equality issue: Under S $91(5)$, issuing new preference shares ranking equally is deemed a variation of existing preference rights unless previously authorised.

Blurred Distinction Post-$2016$ Act

• Ordinary shares may lose voting rights (S $90(2)$–$90(3)$).

• Preference shares may gain voting rights (S $90(4)$).

• Thus, constitution becomes the decisive document for classification (supported by S $69$ power).

Mandatory Disclosure for Different Classes (S $90$)

• S $90(1)$: Constitution must state prominently that share capital is divided into classes and list voting rights of each class.

• S $90(2)$: If a class cannot vote, its title must include the words "non-voting"; those words must appear legibly on every share certificate, prospectus & directors’ report.

• S $90(3)$: The "non-voting" labelling rule does not apply to preference shares (they are presumed non-voting).

• S $90(4)$: Constitution must also spell out rights on capital return, surplus participation, dividends priority, etc.

• Case example: Cumbrian Newspapers Group Ltd v Cumberland & Westmorland Herald – Special rights inserted for certain members constituted class rights & could not be altered without consent.

Variation of Class Rights

Common Law Test (Greenhalgh v Arderne Cinemas Ltd)

• A variation occurs only when the strict legal rights (e.g., right to vote, speak, attend) are changed.

• Merely reducing economic value (e.g., dilution) is not a variation if formal rights remain intact.

Malaysian Statutory Grounds

Variation exists where any of the following occur:

1. S $91(1)(a)$ – Rights varied not in accordance with constitution.

2. S $91(1)(b)$ – Rights varied without consent of the class.

3. S $339(6)(a)$ – Amendment of a constitutional provision governing class-rights.

4. S $339(6)(a)$ – Insertion of a new constitutional provision on variation.

5. S $96(1)$ & S $339(6)(b)$ – Abrogation of any existing right (e.g., removing voting rights).

6. S $91(5)$ – Issue of new preference shares equal in rank to existing ones (unless pre-authorised).

Required Consent (S $91(2)$)

• If constitution is silent, variation needs either:- Written consent of not less than $75\%$ of total voting rights in that class; or

  • A special resolution of the class.

Notice & Filing

• Notice to class members within $14$ days after variation (S $92(1)$).

• Lodge with Registrar within $30$ days after variation takes effect (S $95(1)$).

Statutory Court Protection (S $93$)

• Shareholders holding at least $10\%$ of voting rights in the class may apply to Court within $30$ days to have variation disallowed.

• Court outcomes (S $93(3)$):- (a) Disallow if variation unfairly prejudices applicants.

  • (b) Confirm if not unfairly prejudicial.

• Note: This remedy exists even after a $75\%$ consent / special resolution.

Register of Members & Evidence of Title

• Prima facie evidence: Entry of name in the register equals legal title (S $101$).

• Duty: Company secretary must maintain register properly (S $102(1)$).

• Share certificates:- Not required unless requested or constitution demands (S $97(1)$).

  • Application (S $98$) & delivery (S $99$) procedures apply if issued.

• Rectification (S $103$): An "aggrieved person" (omitted, wrongly entered, or ultimate beneficial owner) may seek:- (a) Rectification.

  • (b) Compensation.

  • (c) Both.

  • Case law guidance: Sabah Penang Development – summary remedy granted only where facts are clear & undisputed.

Transfer of Shares (Voluntary Disposition)

• Shares are movable personal property (S $70$; Sale of Goods Act $1957$ definition applied).

• Default right to transfer (Re Smith, Knight & Co).

• Instrument of transfer:- Must be executed & stamped, then lodged with company (S $105(1)$).

  • If certificates exist, original certificate must accompany (S $98(2)$).

• Registration duty (S $106(1)$): Company must enter transferee in register within $30$ days unless:- (a) The Act/constitution permits refusal or delay;

  • (b) Directors resolve to refuse/delay within $30$ days, giving full reasons;

  • (c) Notice of refusal/delay sent to both parties within $7$ days.

• Additional ground (S $106(2)$): Non-payment of amounts due on shares.

• Court remedy (S $107$): Transferor or transferee may apply; court may order registration if application is well-founded.

• Case: Lim Ow Goik – Directors’ refusal invalid where reasons fell outside constitutional power; shareholder’s right to transfer upheld.

Transmission of Shares (Automatic Devolution)

• Definition (Re LY. Swee & Co Ltd): Vesting of shares by operation of law (death, bankruptcy).

• Key contrast with transfer:- Transfer = voluntary act; requires instrument, transferor & transferee.

  • Transmission = automatic; no instrument; occurs on legally significant event.

  • Authority: JX Holdings Inc; United Renewable Energy Co – Malaysian & SG decisions confirm distinction.

• Registration (S $109$): Although automatic, company must still register