After setting up a company in Malaysia, it is often during the lifetime of the company that shareholders deem it necessary or advantageous for them to sell off their shares. It is important to understand the repercussions and impact on such a decision that before such a share transfer happens for the private limited company (Sdn. Bhd.).
To find out more about what is a private limited company (Sdn. Bhd.), you can read more here. This article will outline the periods where share transfer in Malaysia will be beneficial and how this procedure is done.
There are various reasons for shareholders within a Private Limited Company (Sdn. Bhd.) to plan or initiate a share transfer either to existing shareholders or to potential new investor, such as:
To raise new capital from potential new investors
As the business grows, the board of directors may suggest to the Company shareholders to raise the capital in order to expand the business further. From this suggestion, the existing shareholders might find it beneficial for them to:
- Invest more capital injection in the Company; or
- Sell off their shares to existing shareholders or new investors who offers a high consideration sum in return
For shareholders who wish to step down from being a shareholder within a Company, the consideration sum offered to purchase the shares will be deemed as an income if the price is higher than the value, they initially injected.
For example: The share initially injected by Ali is MYR 10,000 during incorporation stage. After 2 years of business operation, the business has decided to expand and there is an offer from a potential investor by the name Michael to purchase the share with consideration amount of MYR 30,000. After much consideration, Ali has decided to sell and transfer partial of his shares amounting MYR 5,000 to Michael with a consideration sum of MYR 15,000. Michael agreed and the share transfer takes place.
To re-organise the Company structure
When a Company did not manage to achieve its target revenue after a few years of operating, the board of directors and members may think it is necessary to re-organise its structure and rewrite its business plan and goals.
In this situation, the board of directors and members may plan to sell off the business or offer merging between two or more corporations to become one corporation. This way, the merged business may share their existing clients and secure more potential clients to ensure the corporation generate revenue.
In terms of shareholders, some shareholders might decide to step down from being a shareholder by selling off their shares to the new investor. It might also occur where the existing shareholder within a corporation purchases those shares at a considerable amount, hence making him the biggest shareholder within the merged corporation.
For example: ABCD Sdn. Bhd. has decided to merge with WXYZ Sdn. Bhd. due to the pandemic. Ali, one of the major shareholders in ABCD Sdn. Bhd. has offered Michael, the sole shareholder in WXYZ Sdn. Bhd. to purchase his shares of 1,000 units at MYR 2,000. After consideration and estimating the value of his Company, Michael decided that it is best to sell off his shares fully to Ali while it is still worth it. Michael is not willing to bargain there are another potential investor willing to offer such amount so long as the pandemic is still around.
To attract new investor with specialised skills or fresh ideas
This situation is the combination of scenarios one and two stated above. Normally, a Company that has run for the last 5 years will normally plan to expand their business and at the same time attract new investors to keep the business fresh with new ideas and purpose. The board of directors either plan to restructure or increase capital injection via new investors.
By restructuring, the board of directors may scout for potential Companies who are unable to survive in these times, but has the potential to bloom with the right planning. Hence, buying off the Company over and merge it with their Company is the best way to do so.
By planning an increase of capital, the board of directors may suggest:
The one who can execute the share transfer is the appointed Company Secretary. However, there are several steps for the shareholders to take before the share transfer occur:
The Members of the Company may request for the board of Directors to carry out a meeting for them to inform such information to relevant parties of the decision made. If there is a new shareholder, then the existing shareholder will need the stakeholder approval before such action is taken. A director has the right to reject such proposal as it is part of their rights as enacted in the Company Act 2016.
Once the board of directors and members agree of the proposal, then the appointed Company Secretary must be notified for him to prepare the resolutions and documentations accordingly to file with SSM. Documents needed are:
Once the documents above are signed and ready, the appointed Company Secretary will then lodge the share transfer via MyCoid and retrieve the latest Section 51 – Register of Member.
Next, the Company Secretary will then need to submit the documents above to Inland Revenue Board (LHDN) for validation purposes. Within 1 to 3 weeks’ time, LHDN will then issue how much stamp duty must the shareholder pay before they can issue the notice of assessment (NOA).
Once a notice of assessment (NOA) and stamp certificate is generated by LHDN, the share transfer is deemed successful and completed. The Company Secretary can now issue a new share certificate and update the Company’s register book for the new shareholder.
Once a share transfer is done, the Company Secretary will be able to furnish these documents as proof the share transfer is done and successful:
There are no restrictions regarding the ownership of shares by someone who has previously owned the same shares of the same Sdn Bhd company. Therefore, shares of a Sdn Bhd company can be transferred to a previous owner of those same shares. Of course, the final outcome of such a share transfer, as is the case with any other share transfer, is dependent on the consent of the existing owner of the share.
In Malaysia, certain restrictions regarding who is allowed to receive Sdn Bhd company shares which have been transferred exist. The first of these is that the person who is to transfer any shares is to inform the company in writing. After the company has been informed of this matter, the company has two months to find a member who is willing to purchase the shares. If this member accepts the shares and purchases them, the transfer of the shares in question will proceed. However, if the company is not able to find a purchasing member within the aforementioned two-month period, the person who is transferring the shares will have the right to sell and transfer the shares in question to any person and for any price.
A shareholder cannot transfer an unlimited number of shares. This is because there must be a limit to how many shares are available to be purchased. When any company in Malaysia first commences its business operations, it will issue a certain number of shares. Therefore, the number of shares transferred by the shareholder can exceed neither the number of shares held by the individual who is transferring the shares or the company.
First of all thank you for well explained information.
For your information my company would like t to invite new shareholders.
We have 2 options
First option is using the same company in which existing shareholders need to give up a certain percentage
Second option is to create new subsidiary under the existing company as parent. In which the shareholders will be between the parent company and the new investor.
I would like to know what is the pro and cons of both option?
Highly appreciate your support.
For option 1, the process will be less tedious as corporate shareholders generally require a lot more paper and admin work. However, you will need gauge whether your existing shareholders are willing to give up their percentage and control in order to bring in new shareholders.
For option 2, it is a quick process but opening up a company with corporate shareholder is rather expensive. The pros would be that the new investor will not be able to be as involved in the parent company as compared to in option 1.
If your aim is to ensure a veil between your company and the new investor, option 2 is best. If you want to be cost-efficient, option 1 is best.
Reach out to us via WhatsApp if you’d like to setup your company – we can discuss further: https://wa.me/6584833084
Is there any stamp duty exemption on shares transferred between parent and children?
You only need to pay half of the stamp duty on property transfers between parents and children.
Hope this helps!
can a preference shares be transferred to another person ?
Your question has been answered under our forum.
Feel free to interact with us in the forum if you need further clarification. We will be happy to assist.