How Much Should I Capitalise My Company – At Rm2 Or Rm100,000?

Author:Mr Shawn Ho
Profession:Donovan & Ho
 
FREE EXCERPT

In considering which business vehicle to use in Malaysia, the feature of a limited liability in a private limited company (Sendirian Berhad or 'Sdn. Bhd.') appeals to many. It allows the founder/shareholder to sleep better at night knowing that his personal wealth is not at stake if the company is, for whatever reason, sued or liquidated. However, the rules and restrictions applicable to a company's authorized share capital, issued share capital, par value, share premiums, discounting, share buy backs, financial assistance etc., as set out in the Malaysia Companies Act 1965 ('MCA') may be confusing. In this article, we explore various ways to structure a company's share capital.

On a side note, the MCA is due for a major reform. The move towards a 'no par value' regime will mean that concepts of 'authorized share capital', 'par value', 'share premium', 'issuing at a discount' will no longer be relevant. As such, some parts of this article will need to be revisited upon such reforms being introduced.

FREQUENTLY ASKED QUESTIONS

Will a shareholder be financially liable if his company gets sued?

No, the company is a separate legal entity. A shareholder will not be personally liable for the company's debts or obligations. However, there are instances where a shareholder may be held financially accountable for debts of the company:

If the shareholder owns shares which are unpaid or partly paid up, the shareholder will be liable to the company for the unpaid portion. The courts have 'pierced the corporate veil' of separate legal liability and held shareholders liable for the company's debt (eg: where the shareholders were found to circumvent or evade the law, to frustrate its enforcement or to abuse the limited liability feature resulting in injustice). Where the company borrows from a bank and the shareholder gives a personal guarantee, the bank may enforce the debt against the shareholder personally. In many startups / SMEs, the shareholders will also hold office as directors. Directors, including 'sleeping directors', may be personally liable for the wrongdoings of the company and for breaching the numerous directors' duties set out in the MCA and other legislation. Why would anyone want to capitalize the company beyond RM2?

There could be several reasons:

Credibility - a higher paid up capital may give the first impression of establishment and security (although not necessarily true) to customers, suppliers and third parties. Specific...

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