PREFERENCE SHARES

FROM ISSUANCE TO
REDEMPTION/CONVERSION
 What are preference shares?

Section 2 definition
A share by whatever name called, which does not
entitle the holder to :
- the right to vote on a resolution or

- to any right to participate beyond a specified

amount in any distribution :
 whether by way of dividend, or on redemption,
 in a winding up,
- or otherwise (meaning have right to vote or have right to
participate).
 Can a Company be incorporated
with preference shares only?

 Company cannot be formed with only preference

capital, as section 69 provides that the company
may only issue preference shares if provided in
the constitution.
 In the application to incorporate a company
under section 14, there is no provision for
adoption of a constitution. The constitution may
be adopted after the incorporation of the
company.
 Comparison between preference
shares and ordinary shares
Ordinary Shares Preference Shares
General Most common type of Preference shares can have both equity
shares issued and generally and debt characteristics depending on
regarded as equity the investors’ preference.
investments.
Constitution Issue of ordinary shares Issue of preference shares must be
need not be expressly set allowed in the Constitution including
out in the company’s the rights of the preference shares
constitution unless different
'classes' of ordinary shares
are to be created.
Type of Suitable for investors who Suitable for investors opting for priority
Investor wish to exert some control, and fixed returns in the form of
participate in earnings and dividends and time of repayment of
growth of the company. capital and do not wish to exert
control.
 Comparison between preference
shares and ordinary shares
Ordinary Shares Preference Shares
Voting Full voting rights that Constitution must either provide voting
rights enable the shareholder to rights or expressly provide no voting
participate in the decision- rights on preference shares. Generally,
making process of a preference shareholders are often not
company. given voting rights, but have
preferential rights in respect of its
entitlement to dividends and have
priority in being paid first compared to
ordinary shareholders.

Dividend Ordinary shareholders Preference shareholders receive their

Payment receive their dividends after dividends first in priority to ordinary
preference shareholders are shareholders.
paid.
 Comparison between preference
shares and ordinary shares
Ordinary Shares Preference Shares
Rate of Determined by the board of Constitution may confer on right
dividend directors but there is no obligation to be entitled to dividend on a
on the directors to recommend a cumulative basis even if there
declaration of dividends at a are no profits available.
general meeting.
Redemption Cannot be redeemed or Preference shares may be
repurchased by the company redeemed in the manner set out
(save for a public listed company in the Constitution and the
authorized by its Constitution). Companies Act 2016.
Conversion Ordinary shares are non- Where the Constitution allows for
convertible to preference shares conversion of preference shares
or a different class of shares to ordinary shares, the Directors
unless allowed in the Constitution may effect the conversion
and subject to shareholders’ accordingly.
consent.
 Comparison between preference
shares and ordinary shares
Ordinary Shares Preference Shares
Priority in The company must pay costs, wages, Preference shareholders are
payment statutory contributions and taxes first entitled to receive repayment
upon followed by its creditors. Any capital of capital after creditors of
winding up that remains after paying the the company have been paid,
creditors is then allocated to the and in priority to ordinary
shareholders with priority to shareholders.
preference shareholders.
Participation Entitled to participate in the surplus No right to participate in
in surplus assets of the company which remain surplus profits unless the right
assets upon after repayment of capital. to participate in surplus
winding up profits is expressly set out in
the Constitution.
 Types of Shares

Subject to the constitution, shares may S69

(a) be issued in different classes;

(b) be redeemable;

(c) confer preferential rights to distribution of capital or

income;
(d) confer special, limited or conditional voting rights; or

(e) not confer voting rights.

8
 Rights of preference shares – s90(4)

No company shall
- allot any preference shares or
- convert any issued shares into preference shares
unless provided by the constitution
and the constitution sets out the rights of the shareholders
with respect to
 repayment of capital,
 participation in surplus assets and profits,

 cumulative or non-cumulative dividends,

 voting, and
 priority of payment of capital and dividend

in relation to other shares or other classes of preference

shares.
 Right to allot preference shares

 Company can only allot preference shares if it is provided in

the constitution and the constitution sets out the rights of
the preference shareholders s90(4)
 Directors have power to issue preference shares by way of:
(a) a rights issue;
(b) a bonus issue;
(c) consideration shares for acquisition of shares or assets
by the company and the members have been notified
in writing and via advertisement of the intention in a
BM and English newspaper at least 14 days before the
issue. S75(2)
 Shareholders’ Mandate to issue shares

Lodge s76 notification Shareholder

to SSM within 14 days Mandate

General Specific

Public Co. Private Co.

Valid until next Valid for 12
AGM months
11
 ALLOTMENT OF SHARE

Sample EGM Resolution – general mandate

AUTHORITY TO ALLOT SHARES
THAT pursuant to Section 76 of the Companies Act 2016, the
Directors be and are hereby empowered to allot and issue
preference shares in the Company at any time upon such
terms and conditions and for such purposes as the Directors
may, in their absolute discretion, deem fit provided that such
authority shall continue in force until the conclusion of
- the next Annual General Meeting of the Company (public company)
- 12 months from date of approval of this resolution (private company).
12
 ALLOTMENT OF SHARE

Sample EGM Resolution – specific mandate

SPECIAL ISSUE
THAT pursuant to Section 76 of the Companies Act 2016,
the Directors be authorised and directed to issue and allot
500,000 new preference shares in the capital of the
Company at an issue price of RM2.50 each for cash to Mr
XYZ (“Special Issue”) AND THAT such new preference
shares shall, on allotment and issue rank pari passu in all
respects with the existing preference shares of the
Company AND THAT the Directors be authorised to give
effect to the aforesaid Special Issue.

13
 PAYMENT FOR PREFERENCE SHARES

CASH Monies
OTHERWISE
THAN CASH
Set-off against
received in amount owing
bank to shareholder
account
Value of asset given
Company issues 50,000 as consideration
Preference Shares at issue should be the same
price of RM1.50 each to Mr A as the value of the
for the transfer of his car with capital issued
market value of RM75,000
Others
14
 ALLOTMENT OTHERWISE THAN IN CASH S78

Documentary evidence Lodgment to SSM

Copy of contract certified in a manner

Contract or agreement
determined by SSM

Court approved Scheme of Copy of the Court Order in a manner

Arrangement under s366 determined by SSM

15
 ALLOTMENT OTHERWISE THAN IN CASH S78

Documentary evidence Lodgment to SSM

Contract not reduced to

writing (e.g. capitalization of
debt owing to director/ A statement containing such particulars
shareholder) as may be determined by SSM.
 SSM requires submission of copy of
Pursuant to provision in the
the directors’ resolution/members’
Constitution
resolution setting out the
Dividend in Specie (from consideration otherwise than in
profits) cash, duly certified by Company
Secretary
Bonus Issue (from capital
reserves) 16
 Right of conversion of issued ordinary
shares to preference shares

 Not a common practice as there are no prescribed

form/notification to notify SSM of the conversion.
 If all issued shares are converted to preference shares which
has no voting rights, the Company would be incapacitated as
there are no shareholders to vote and empower the Company
to acquire assets, etc
 Will constitute a variation of rights, so consent of the existing
ordinary shareholders are required and section 95 notification to
be lodged to SSM.
 In a situation where all ordinary shares are converted to
preference shares and the preference shares are subsequently
redeemed, the Company would be left without any members.
S465(1)(d) provides that the Court may order the winding up if
the Company has no member.
Right of conversion of issued ordinary
shares to preference shares
 Right to repayment of capital

 Preference shareholders are entitled to return of capital

(i) when the Company redeems the preference shares, or
(ii) when the Company winds up and there is surplus
assets after all creditors of the company have been
paid, and in priority to ordinary shareholders.
 The redemption price must be stated in the Constitution.
It may be a fixed price or at a price determined by
Directors.
 If the Constitution deals only with preferential dividend
and nothing mentioned on return of capital, the
preference shareholder has the same rights to a return of
capital as the other shareholders.
 Rights of voting

Section 2 Section 90(4)

A share … which does not entitle No company shall allot any preference
the holder thereof to the right to shares … unless the constitution sets
vote on a resolution … or out the rights …..with respect to
otherwise …voting
Can preference shares be issued with voting rights when
Section 2 defines preference share as not entitled to voting
rights?
Section 90(2) requires non-voting shares to have a descriptive
title of ‘non-voting’ and these words must appear on the
share certificate, prospectus or directors’ report.
Section 90(3) states that subsection (2) shall not apply to
shares that are described as preference shares. As such
preference shares can having voting rights if provided in the Constitution.
SSM FAQ
 Rights of Preference Shares

 Cumulative or Non-Cumulative Dividend

 Participating or Non-Participating rights
in surplus assets (on winding up) and
profits (additional dividend)
 Redeemable or Irredeemable
 Convertible or Non-convertible
 Cumulative Preference Shares

 Shares on which the right to a dividend, if not

paid in one year through lack of profits in that
year, accumulates until profits are sufficient.
 All preference are presumed to be cumulative
unless otherwise described
 Arrears of dividend accumulated year to year in
the statement of financial statements until
declared and paid out.
 No dividend to be paid to other classes until all
preference dividend accrued are paid.
 Cumulative Preference Shares

Co A issues 100,000 preference shares with cumulative dividend of 5 sen

per preference share.
Profit/(Loss) Solvency Pref. sh dividend
Year 1 RM5,000 √ RM5,000
Year 2 (RM3,000) -
Year 3 RM8,000 √ RM5,000(Y2) + RM3,000(Y3)
Year 4 RM10,000 √ RM2,000(Y3) + RM5,000(Y4)
balance RM3,000 can be
distributed to ordinary shholders
 Non-Cumulative Preference Shares

 Do not confer the accumulation right as

cumulative preference shares.
 “Lost” dividend is not made up in
subsequent years.
 Entitled to only specified rate of dividend
as declared eventhough the terms may
state a fixed rate.
 Non-Cumulative Preference Shares

Co A issues 100,000 preference shares with non-cumulative

dividend of 5 sen per preference share
Profit/(Loss) Solvency Pref. sh dividend
Year 1 RM5,000 √ RM5,000
Year 2 (RM3,000) -
Year 3 RM8,000 √ RM5,000
Year 4 RM4,000 Only up to RM3,000
RM3,000

Entitled to rate
declared only
and cannot
claim on balance
 Preference Shares – dividend

 Company may issue preference shares with

- no rights to dividends or
- allow directors to determine dividend rate from time
to time
- allow dividend to be paid upon meeting certain
condition, e.g. when retained profits exceed RM5
million
 Dividends declared must be paid within one year of
declaration date, otherwise the dividend amount will
become unclaimed monies and the Company has to
comply with the Unclaimed Moneys Act requirement.
 Preference Shares – dividend

 Directors must ensure that the Company is

solvent (able to pay debts within 12 months,
i.e. cashflow solvency test only) immediately
after the payment of the dividend s131(1).
 Directors do not need to sign section 113
Solvency Statement.
 Dividend
- Sample Resolution with cashflow projection

INTERIM DIVIDEND FOR PREFERENCE SHARES

WHEREAS:
(i) the Company’s cashflow projection for the period from April 2018 to
March 2019 (as attached) based on the assumptions stated indicates
the Company is able to meet all its debts as and when it fall due; and
(ii) having being satisfied that the Company has more than sufficient profit
as at the date hereof to declare the interim dividend of RM1.3 million
for the preference shares and the Company is solvent immediately
after the distribution.
RESOLVED THAT a Single Tier Interim Dividend of RM 1.3 million for the
preference shares be and is hereby declared for the financial year ending
31 December 2018 and that the same be payable to holders of the
preference shares registered in the Company’s books payable on 1 April
2018. 29
 Dividend
- Sample Resolution with liquid assets

INTERIM DIVIDEND FOR PREFERENCE SHARES

WHEREAS:
(i) as at 31 March 2019 the Company’s cash at bank balance is
RM15.5 million and the current liabilities are RM8.0 million;
(ii) there will be no changes to the business operations and the
Company has been promptly settling all debts due to creditors; and
(iii) having being satisfied that the Company has more than sufficient
profit as at the date hereof declare dividend of RM1.3 million and
the Company is solvent immediately after the distribution.
RESOLVED THAT a Single Tier Interim Dividend of RM 1.3 million for the
preference shares be and is hereby declared for the financial year
ending 31 December 2019 and that the same be payable to holders of
the preference shares registered in the Company’s books payable on 30
April 2019.
30
 Participating Preference Shares

 Entitled to participate with the ordinary shareholder

in any surplus assets and further distribution if there
remains any surplus of profits after the dividend at a
nominated rate has been paid to preference
shareholders.
 Preference shares are deemed non-participating
unless Constitution states otherwise
 If shares are given preferential dividend, they are
presumed to be non-participating in surplus assets
 Participating Preference Shares

Co A issues 100,000 preference shares with dividend of 3 sen

per preference share with participating rights to additional
dividend of 1 sen per preference share where there is excess
profit
Profit/(Loss) Pref. sh dividend
Year 1 RM3,000 RM3,000
Year 2 (RM3,000) -
Year 3 RM5,000 RM3,000 (Y2) + RM2,000 (Y3)
Year 4 RM10,000 RM1,000 (Y3) + RM3,000 (Y4)
+ RM1,000 (participating dividend)
 Participating Preference Shares

Co B has 100,000 ordinary shares (Mr A – 70% and Mr B – 30%) and

100,000 preference shares (Mr C) with participating rights to surplus
assets on winding up of the company.

Surplus assets RM1,500,000

Repayment of capital - preference shares 100,000
- ordinary shares 100,000 200,000
Balance surplus asset (distributed pro-rata to Mr A, Mr B & Mr C) RM1,300,000

Ordinary shareholder Mr A gets RM525,000 (70,000 + 455,000)

Ordinary shareholder Mr B gets RM225,000 (30,000 + 195,000)
Preference shareholder Mr C gets RM750,000 (100,000 + 650,000)
 Non-Participating Preference Shares

 These shares carry only a fixed rate of

dividend without any right to get additional
dividend and only entitled to receive
repayment of capital invested earlier for the
surplus assets on winding up of the company.
 Unless otherwise stated in the Constitution,
the preference shares are presumed non-
participating.
 Non-Participating Preference Shares

Co A has 100,000 ordinary shares (Mr A – 70% and Mr B – 30%) and

100,000 preference shares (Mr C) with no participating rights.

Surplus assets RM1,500,000

Repayment of capital - preference shares 100,000
- ordinary shares 100,000 200,000
Balance surplus asset (distributed pro-rata to Mr A and Mr B) RM1,300,000

Ordinary shareholder Mr A gets RM980,000 (70,000 + 910,000)

Ordinary shareholder Mr B gets RM420,000 (30,000 + 390,000)
Preference shareholder Mr C gets RM100,000
 Redeemable Preference Shares

 Section 72(2) provide that if authorized by its

Constitution, a company may issue preference
shares
 which are liable to be redeemed in accordance with
the Constitution (i.e. preference shareholder give
notice of redemption to company)
 which at the option of the company are to be liable
to be redeemed in accordance with the Constitution
(i.e. company gives notice of redemption to
preference shareholder)
 which are irredeemable.
 Redeemable Preference Shares

 Redemption shall be effected only on such

terms and in such manner as provided by the
Constitution.
 Gives the holder the right to be repaid their
capital at a specified date or alternatively give
the company the right to repay the capital after
a specified time or within a specified period.
 Notice of redemption must be lodged with SSM
within 14 days. [Section 72(7)]
 Redeemable Preference Shares
Equity or Liability?
 Redemption of Preference shares are usually at the option
of the Company since there needs to be profits available or
new shares are to be issued for the redemption or out of
capital of the company. Under the accounting standards,
such preference shares will be treated as equity.
 Redemption of Preference shares at the option of the
holders will be treated as liability under the accounting
standards.
 Above is merely for presentation of the financial
statements and does not affect the obligation of the
company to comply with the Companies Act requirement
on allotment and redemption.
 Redeemable Preference Shares
Equity or Liability?
Questions If answer is YES If answer is NO
 Are the shares The preference shares The preference shares
redeemable at a fixed would be classified as would be classified as an
date? a financial liability, equity as there is no
 Are the shares because it would seem mandatory payment
redeemable at the that the issuer lacks clause and the Company
option of the holder? the unconditional right only needs to repay
 Is the issuer obliged to avoid delivering upon liquidation.
to make payments in cash or another There is no contractual
the form of dividends? financial asset to settle obligation to deliver cash
 Do the terms and an obligation. or another financial
conditions oblige the asset.
issuer to distribute a
specific percentage of Above are for presentation of
profits? financial statements only.
Redeemable Preference Shares
Equity or Liability?
 PREFERENCE SHARES – Redeemable Rights

Section 72(4)
Subject to subsection (5) and (6), the preference shares shall
be redeemable only if
 the shares are fully paid and
 the redemption shall be out of :
(a) profits (retained),
(b) fresh issue of shares; or
(c) capital of the company.

To note:
1. Subject to the Constitution, Directors are to decide on which of the 3
redemption method is in the best interest of the Company.
2. Redemption is a return of capital, so such company will not meet the
criteria for striking off application.
 PREFERENCE SHARES – Redemption Method
10,000 Preference Shares issued
Preference shares at RM1.50 each and paid up to
not fully paid RM1.00 each
CANNOT be redeemed
1. Preference shareholder to pay
the balance RM0.50 each.
2. Company redeem and repay
preference shareholder
Call up on balance of RM1.50 each.
issue price and then
redeem 1. Ordinary shareholders
approve the capitalisation of
the balance RM0.50 each
Capitalise unpaid
from profits or reserve.
portion and then
2. Company redeem and repay
redeem
preference shareholder
RM1.50 each.
 PREFERENCE SHARES – Repayment Method
10,000 Preference Shares issued
Preference shares at RM1.50 each and paid up to
not fully paid RM1.00 each
CANNOT be redeemed

1. Ordinary shareholders
approve the capital reduction
of the preference shares.
Selective Capital 2. Company repay preference
Reduction shareholder RM1.00 each.
s116 or s117
NOT REDEMPTION
 PREFERENCE SHARES
– Redeemable Rights
 Redemption shall not be taken as reducing the
amount of share capital S72(3)
 this means the Company do not need to follow the
procedures in section 116 and section 117 on capital
reduction when Company redeems the preference
shares.
 PREFERENCE SHARES
– Redemption out of profits
 Where the preference shares are redeemed out of profit
which would otherwise have been available for dividend,
there shall be transferred into the share capital accounts
of the company, a sum equal to the amount of the shares
redeemed. S72(5) Companies Amendment Act 2019
 To redeem the preference shares out of profit, the Company
must have sufficient retained profits for the redemption.
 If the Company is redeeming 10,000 preference shares at
RM2.50 each, then the amount of RM25,000 is to be
transferred from retained profits to the share capital account
of the Company.
 Redemption of 10 Preference share
out of profits at redemption amount of RM100

Existing After Redemption

RM RM
Share Capital Share Capital
2 ordinary shares 2 2 ordinary shares 102
10 pref shares 100
Retained Profits 300 Retained Profits 200
----- -----
Shareholders’ Funds 402 Shareholders’ Funds 302
=== ===
Cash 402 Cash 302
=== ===
1. DR Profits RM100
CR Share Capital RM100
2. DR Preference Share Capital RM100
CR Cash RM100 46
 Section 72
NOTICE OF REDEMPTION OF PREFERENCE SHARES
XYZ SDN BHD
To the Registrar of Companies,
XYZ Sdn Bhd Registration No. 201801028028(138156-X) hereby gives
notice that on the 15th day of September, 2019 , 10 redeemable preference
shares, pursuant to a resolution passed on the 1st day of September, 2019
were -
(Please tick where applicable)

√ redeemed out of profits and the amount of RM100 has been transferred to
the share capital;
redeemed out of the proceeds of a fresh issue of shares;
redeemed out of capital of the company; or
redeemed and converted to fresh issue of shares comprising of *…………...
^ordinary shares.
# The preference shares redeemed were the shares comprised in share certificate(s)
numbered ** P020.
# All the directors have made a solvency statement dated ………………… under section 113
of Companies Act 2016 in relation to redemption of shares out of capital and the copy of
the solvency statement has been lodged with the Registrar on ……………...
47
:
 PREFERENCE SHARES
– Redemption out of new issue of shares

 The fresh issue of shares can be any class of

shares.
 This manner of redemption is used when the
Company has insufficient profits to do the
redemption.
 The Company must first allot the new shares
and use the proceeds of the fresh issue to
redeem the preference shares.
 Redemption of 10 Preference share out of new issue
of shares at redemption amount of RM100
Existing After new issue of shares After Redemption
RM RM RM
Share Capital Share Capital Share Capital
2 ordinary shares 2 102 ordinary shares 102 102 ordinary shares 102
10 pref shares 100 10 pref shares 100
Retained Profits 10 Retained Profits 10 Retained Profits 10
----- ----- -----
Shareholders’ Funds 112 Shareholders’ Funds 212 Shareholders’ Funds 112
=== === ===

Cash 12 Cash 112 Cash 12

Trade debtor 100 Trade debtor 100 Trade debtor 100
----- ----- -----
112 212 112
=== === ===

1. DR Cash RM100 File S72

CR Share Capital RM100 File notification
2. DR Preference Share Capital RM100
CR Cash RM100
ROA 49
 Section 72
NOTICE OF REDEMPTION OF PREFERENCE SHARES
XYZ SDN BHD
To the Registrar of Companies,
XYZ Sdn Bhd Registration No. 201801028028(138156-X) hereby gives
notice that on the 15th day of September, 2019 , 10 redeemable preference
shares, pursuant to a resolution passed on the 1st day of September, 2019
were -
(Please tick where applicable)

redeemed out of profits and the amount of --- has been transferred to the
share capital;
√ redeemed out of the proceeds of a fresh issue of shares;
redeemed out of capital of the company; or
redeemed and converted to fresh issue of shares comprising of *…………...
^ordinary shares.
# The preference shares redeemed were the shares comprised in share certificate(s)
numbered ** P020.
# All the directors have made a solvency statement dated ………………… under section 113
of Companies Act 2016 in relation to redemption of shares out of capital and the copy of
the solvency statement has been lodged with the Registrar on ……………...
50
:
 PREFERENCE SHARES
– Redemption out of capital
 The redemption of preference shares out of
capital shall be subject to the following:
a) all the directors make a solvency statement
under section 113 in relation to such redemption;
and
b) the company has lodged a copy of the solvency
statement with SSM S72(6) within 30 days S611
Redemption of 10 Preference share (shown as equity)
out of capital at redemption amount of RM100
Existing After Redemption
RM RM
Share Capital Share Capital
2 ordinary shares 2 2 ordinary shares 2
10 pref shares 100
Retained Profits 10 Retained Profits 10
----- -----
Shareholders’ Funds 112 Shareholders’ Funds 12
=== ===

Cash 112 Cash 12

1. DR Preference Share Capital RM100 File Solvency

CR Cash RM100 File s72
Statement
After
Before
Redemption
redemption
52
Redemption of 10 Preference share (shown as liability)
out of capital at redemption amount of RM100
Existing After Redemption
RM RM
Share Capital Share Capital
2 ordinary shares 2 2 ordinary shares 2
Retained Profits 10 Retained Profits 10
----- -----
Shareholders’ Funds 12 Shareholders’ Funds 12
=== ===
Asset
Cash 112 Cash 12
Non-current Liabilities
Preference share 100
-----
12
=== File Solvency
File s72
Statement
After
1. DR Preference Share RM100
Before
CR Cash RM100 Redemption
redemption
53
 Section 72
NOTICE OF REDEMPTION OF PREFERENCE SHARES
XYZ SDN BHD
To the Registrar of Companies,
XYZ Sdn Bhd Registration No. 201801028028(138156-X) hereby gives
notice that on the 15th day of September, 2019 , 10 redeemable preference
shares, pursuant to a resolution passed on the 1st day of September, 2019
were -
(Please tick where applicable)

redeemed out of profits and the amount of --- has been transferred to the
share capital;
redeemed out of the proceeds of a fresh issue of shares; Must be earlier
than the date of
√ redeemed out of capital of the company; or Redemption.
redeemed and converted to fresh issue of shares comprising of *…………...
^ordinary shares.
# The preference shares redeemed were the shares comprised in share certificate(s)
numbered ** P020.
# All the directors have made a solvency statement dated 1st September 2019 under
section 113 of Companies Act 2016 in relation to redemption of shares out of capital and
the copy of the solvency statement has been lodged with the Registrar on 10th
September 2019. 54
 Irredeemable Preference Shares

 The preference shares issued do not carry the right

for redemption.
 Capital is repaid/returned when the Company goes
for a capital reduction to repay the preference
capital or when the Company winds up and capital
is returned.
 The irredeemable term may be changed to
‘redeemable’ if allowed by holders of ordinary
shares (for amendment to Constitution and holders
of preference shares (for variation of rights).
 Convertible Preference Shares

 The Constitution must have provisions for the conversion of

Preference shares into any other shares of the Company.
 Conversion can be done :
 during a specified period of time
“The RCPS shall be convertible at any time during the Conversion
Period.”
 after a specified period of time
“The RCPS shall be convertible at any time after the second
anniversary of the date of issuance up to the Expiry Date.”
 on occurrence of a defined event
“The RCPS shall be convertible upon the receipt of approval from
the authorities for the listing of the Company or on Maturity
Date, whichever if the earlier.”
 Rules of Preference Shares

1. If Articles provide for preferential dividends, the dividends

are presumed to be cumulative unless indicated that
dividend is to be payable only “out of yearly profits” or
“out of the net profits of each year.”
2. Prima facie, the rights of preference shares as set out in
the Constitution are exhaustive and shares given
preferential dividend are presumed to be non-
participating in surplus asset.
3. Preference shareholder are not entitled to be paid
dividend until it is declared.
 Rules of Preference Shares

5. Once winding up commences, preferential dividend cannot

be declared.
6. Detail of rights of preference shareholders with respect to
the repayment of capital need not be set out in the
Constitution. Redemption date or rate of dividend can be
specified in other document.
7. The power to issue redeemable preference shares does
not confer right to the company to convert an existing
class of shares which were issued into redeemable
preference shares unless the Constitution allows it.
 Status of Preference Shares if
Constitution is silent

Preference shares will be presumed to be:

 Cumulative if a fixed dividend rate is stated;
 Non-Participating;

 Redeemable; and

 Non-Convertible.
 Failure to set out rights in Constitution

 Failure to comply – fine not exceeding

RM500,000 imposed on company and
officer in default
 Failure to include the rights in the
Constitution does not invalidate the
rights that are stated in another
document, e.g. subscription agreement.
 Rights and powers attached to
shares s71
A share in a company, other than preference shares, confers on the
holder—
(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;
(d) the right to an equal share in the distribution of the surplus
assets of the company; or
(e) the right to an equal share in dividends authorized by the Board
(right to dividends as specified therein may be negated, altered
or added to by the constitution of the company or in accordance
with the terms on which the share is issued). 61
 Preference Shareholder’s right

 Right to transfer preference shares in same

manner as set out in Section 105-107 or the
Constitution on transfer of ordinary shares.
 Right to receive notice of general meeting
[Section 321(1)] including Audited Accounts
[Section 257(1a)].
 Right to inspect the Minutes of General
Meeting and Registers without charge.
 Right to attend meetings & vote

 The Constitution may suspend the right of the

preference shareholder to attend any general
meeting and to speak and vote on any
resolution.
 If the Constitution provides for a suspension to
attend and vote, the suspension is uplifted when
preference shareholders’ rights are varied or as
allowed in the Constitution.
 Variation of rights S91(5)

The issue of new preference shares ranking pari-

passu with existing preference shares shall be
deemed to be a variation of rights attached to
existing preference shares UNLESS
 the issue of the new preference shares was
authorised by the terms of issue of the existing
preference shares OR
 the issue of the new preference shares was
authorised by the Constitution at the time the
existing preference shares were issued
 Variation of rights S91(5)

 The provisions in the Constitution on variation of

rights has no application to a cancellation of
preference shares on a reduction of capital.
 A reduction of capital by return to ordinary
shareholders only although not affecting the
rights of preference shareholders is prima facie
unfair if it is made otherwise than in accordance
with priorities in a winding up.
 Variation of rights

In accordance • To follow the provisions in the

Constitution for the variation of
with rights
Constitution

No provision • written consent of not less than

75% of total voting rights, or
in • Special resolution (75% of those
Constitution present and voting)
Variation of terms of Preference Shares

Submit s36 to
SSM within 30
Special days of passing
Resolution of resolution
Ordinary Amendment to
Shareholders Constitution

Submit s95 to
SSM within 30
Consent/Special days of passing of
Resolution resolution
Variation of terms Written notice of
Preference
of Preference variation to each
Shareholders
Shares preference
shareholders
within 14 days
 Transfer of Preference Shares – s70

A share or other interest of a member in a

company is personal property and transferrable in
accordance with section 105.

Similar to ordinary shares, if the Constitution has

conditions for transfer (e.g. pre-emptive rights, no
transfer to minor), the same will apply to the preference
shares unless specifically excluded in the Constitution.

68
 Transfer Of Shares s105
 Holder may transfer the shares of a private
company/unlisted public company by a duly
executed and stamped instrument of transfer and
shall lodge the transfer with the Company.
 Duty of Secretary to register the transfer within
30 days from receipt of the transfer form.
 Secretary who fails to register transfer liable to a
fine of RM10,000 and a further fine of RM500 per
day for continuing offence
 Transfer Of Shares s105

 Name of transferee entered in Register of Members unless

(i) constitution expressly permit directors to refuse or delay
registration for reasons stated;
(ii) directors pass a resolution to refuse the transfer (with
reasons provided) within 30 days from receipt of transfer
form; and the said resolution is sent to the transferor and
transferee within 7 days of passing of the resolution.
 Register of Members (ROM) shall be prima facie evidence as
to legal title to shares.
 Duty of secretary to update the changes to ROM and notify
SSM within 14 days of transfer.
 Transfer of Preference Shares –s106
Illustration 1
Event Date
Board approves transfer of shares 8.7.2018
subject to stamping of transfer form
Transfer form signed 19.8.2018
Transfer form stamped 3.9.2018
Transfer form lodged with company 15.9.2018
Transfer date entered in ROM (within Earliest 15.9.2018
30 days of receipt of transfer form) Latest 15.10.2018
Secretary to notify SSM (within 14
days of transfer)
Example Update MyCoID
Transfer date in ROM 15.9.2018 Latest by 29.9.2018
Transfer date in ROM 3.10.2018 Latest by 17.10.2018
71
 Transfer of Preference Shares –s106
Illustration 2

Event Date
Transfer form signed 19.8.2018
Transfer form stamped 3.9.2018
Transfer form lodged with company 15.9.2018
Board approves transfer of shares 28.9.2018
Transfer date entered in ROM (within Earliest 28.9.2018
30 days of receipt of transfer form) Latest 15.10.2018
Secretary to notify SSM (within 14
days of transfer)
Example Update MyCoID
Transfer date in ROM 28.9.2018 Latest 12.10.2018
Transfer date in ROM 3.10.2018 Latest 17.10.2018
72
 TRANSFER OF SHARES
DCR Date 8.7.2019
Transfer form date 19.8.2019 MyCoID ROM
Stamping date 3.9.2019 (key in changes within 14 days,
i.e. by 17.10.2019)
Cannot be Lodged with Co 15.9.2019
more than
30 days Transfer Date 3.10.2019

Company ROM
3 OCTOBER 2019
Shares Acquired
No. of Shares Allotment or Consideration
Date Folio No. of Shares
Certificate Transfer No.
25.01.2019 Subscriber's Share 60,000 Cash

Shares Transferred
Balance of
Date Transfer No. Folio No. of Shares Consideration
Shares

3.10.2019 T1 3 50,000 Cash 10,000

73
Copyrights Reserved Companies Commission of Malaysia
 Procedures to issue Preference Shares

1. Check that Constitution allows Company to issue Preference

Shares and rights of preference Shares are clearly stated.
2. Share application forms and consideration received from
Preference Shareholders.
3. Company to submit Section 78 Return of Allotment within 14
days of allotment.
4. Update Register of Member and Secretary to notify SSM of
changes analysis of shareholders in MyCoID ROM within 14
days.
5. Issue preference share certificates, if required by
Constitution.
 Procedures for Redemption
(at option of the Company)

1. Directors’ Resolution to fix redemption date, manner (out of

profit/new share issue), redemption price and number of preference
shares to redeem.
2. Lodge ROA for issuance of new shares
3. Send Notice of redemption to Preference Shareholder and request for
return of preference share certificate for cancellation.
4. On receipt of returned certificate to send cheques to preference
shareholder.
5. Lodge Section 72 Notice of Redemption with SSM within 14 days of
redemption date together with copy of cancelled certificate.
6. Update Register of Member and Secretary to notify SSM of changes
analysis of shareholders in MyCoID ROM within 14 days.
 Procedures for Redemption
(at option of the Preference shareholder)

1. Preference shareholder sends redemption notice to Company stating

the number of preference shares to be redeemed and return of
preference share certificate for cancellation.
2. Directors’ Resolution to determine manner of redemption (out of
profit/new share issue).
3. Lodge ROA for issuance of new shares
4. Cancel preference share certificate and send cheques to preference
shareholder.
5. Company to lodge Section 72 Notice of Redemption with SSM within
14 days of redemption date together with copy of cancelled
certificate.
6. Update Register of Member and Secretary to notify SSM of changes
analysis of shareholders in MyCoID ROM within 14 days.
 BOARD RESOLUTION FOR REDEMPTION
OUT OF PROFITS

“THAT the Company do hereby redeem 100,000

Redeemable Convertible Non-Cumulative Preference
Shares held by ABC Sdn Bhd at RM1.00 each out of the
profits of the Company.
THAT the Share Certificate for the Redeemable
Convertible Non-Cumulative Preference Share No. P01
be cancelled upon redemption.”

77
 BOARD RESOLUTION FOR REDEMPTION
OUT OF FRESH ISSUE OF SHARES

“THAT the Company do hereby redeem 100,000

Redeemable Convertible Non-Cumulative Preference
Shares held by ABC Sdn Bhd at RM1.00 each out of the
proceeds of the fresh issue of 100,000 Ordinary Shares
at the issue price of RM1.00 each in the capital of the
Company.
THAT the Share Certificate for the Redeemable
Convertible Non-Cumulative Preference Share No. P01 be
cancelled upon redemption.”

78
 Procedures for Redemption out of
capital (at option of the Company)
1. Directors’ Resolution to fix redemption date for redemption out of
capital, redemption price and number of preference shares to redeem.
2. Send Notice of redemption to Preference Shareholder and request for
return of preference share certificate for cancellation.
3. On receipt of returned certificate, Directors to sign the solvency
statement and Company to lodge Section 113 – Solvency Statement
to SSM.
4. After lodgement of solvency statement, the redemption takes place
and Company send cheques to preference shareholder.
5. Company then submits Section 72 Notice of Redemption with SSM
within 14 days of redemption date together with copy of cancelled
certificate.
6. Update Register of Member and Secretary to notify SSM of changes
analysis of shareholders in MyCoID ROM within 14 days.
 BOARD RESOLUTION FOR REDEMPTION
OUT OF CAPITAL
“WHEREAS the Directors intend to propose that the Company
redeem100,000 Redeemable Convertible Non-Cumulative Preference Shares
held by ABC Sdn Bhd out of capital of the Company on 15 November 2021
and pursuant to Section 72(6) of the Companies Act 2016 (“Act”) the
Company must meet the solvency requirements.
RESOLVED THAT the Directors having considered all aspects and made due
enquiries into the Company’s affairs and having reviewed and considered
the Company’s projected financial position as at 15 November 2021 and 15
November 2022 and the cashflow projections for the 12 months ended 15
November 2022 and affirm there are no further contingent liabilities to be
taken into account; do form the opinion that the Company is solvent and
there are reasonable grounds to believe that the Company will be able to pay
its debts as and when they become due and payable during the period of
twelve (12) months immediately following the date of the redemption of the
preference shares and the assets of the Company is more than the liability of
the Company as at the date of the redemption. 80
 BOARD RESOLUTION FOR REDEMPTION
OUT OF CAPITAL
THAT having satisfied the solvency test as required under Section
112 of the Act the Directors do hereby make a declaration to that
effect and shall execute the Solvency Statement in relation to such
redemption as attached.
THAT the Secretary be authorized to lodge the Solvency Statement
to the Registrar of Companies.
THAT subject to the lodgment of the Solvency Statement, the
Company do hereby redeem 100,000 Redeemable Convertible
Non-Cumulative Preference Shares held by ABC Sdn Bhd at
RM1.00 each on 15 November 2021, out of the capital of the
Company.
THAT the Share Certificate for the Redeemable Convertible Non-
Cumulative Preference Share No. P01 be cancelled upon
redemption.” 81
 PREFERENCE SHARES NOT REDEEMED

If company has no funds:

 then it is not in default

 preference shareholders cannot sue for damages

or proceed to wind up the company.

If the company has funds:

 Preference shareholders could wind up the

company
82
 CONVERTIBLE PREFERENCE SHARES

 Constitution must provide a right to conversion.

 This is a change of the preferential rights to
ordinary rights and does not constitute an
allotment of new ordinary shares, so there is no
filing of section 78 notification (ROA) but section
72 notification is to be filed.

83
 CONVERSION PROCEDURE

1. Directors’ Resolution to fix conversion date and number of

preference shares to be converted.
2. Formal Notice of Conversion to be given to preference
shareholder advising on conversion date, price and number of
preference shares to be converted and request for return of
preference share certificate for cancellation.
3. Ordinary share certificate issued to shareholder.
4. Submit s72 notice of redemption to SSM within 14 days of
conversion date together with copy of cancelled certificate
5. Update Register of Preference Shareholder and Ordinary
Shareholder and Secretary to notify SSM of changes in analysis
of shareholders in MyCoID ROM within 14 days.
84
 Section 72
NOTICE OF REDEMPTION OF PREFERENCE SHARES
XYZ SDN BHD
To the Registrar of Companies,
XYZ Sdn Bhd Registration No. 201801028028(138156-X) hereby gives
notice that on the 15th day of September, 2019 , 10 redeemable preference
shares, pursuant to a resolution passed on the 1st day of September, 2019
were -
(Please tick where applicable)

redeemed out of profits and the amount of ___ has been transferred to the
share capital;
redeemed out of the proceeds of a fresh issue of shares;
redeemed out of capital of the company; or

√
redeemed and converted to fresh issue of shares comprising of 10 ordinary
shares.
# The preference shares redeemed were the shares comprised in share certificate(s)
numbered ** P020.
# All the directors have made a solvency statement dated ………………… under section 113
of Companies Act 2016 in relation to redemption of shares out of capital and the copy of
the solvency statement has been lodged with the Registrar on ……………...
85
:
Conversion of 10 Preference share (shown as equity)
into 10 Ordinary Shares
Existing After Conversion
RM RM
Share Capital Share Capital
2 ordinary shares 2 12 ordinary shares 102
10 pref shares 100
Retained Profits 10 Retained Profits 10
----- -----
Shareholders’ Funds 112 Shareholders’ Funds 112
=== ===

Cash 112 Cash 112

1. DR Preference Share Capital RM100

CR Ordinary Share Capital RM100 File s72
After
Conversion 86
 Conversion of 10 Preference share (shown as
liability) into 10 Ordinary Shares
Existing After Redemption
RM RM
Share Capital Share Capital
2 ordinary shares 2 12 ordinary shares 102
Retained Profits 10 Retained Profits 10
----- -----
Shareholders’ Funds 12 Shareholders’ Funds 112
=== ===
Asset
Cash 112 Cash 112
Non-current Liabilities
Preference share 100
-----
12
=== File s72
1. DR Preference Share Capital RM100 After
CR Ordinary Share Capital RM100 Conversion
87
 CONVERSION PROCEDURE
Sample Board Resolution
“THAT the Company do hereby convert 100,000 Redeemable
Convertible Non-Cumulative Preference Shares of RM1.00
each held by ABC Sdn Bhd into 100,000 Ordinary Shares of
RM1.00 each in the capital of the Company.
THAT the Share Certificate for the Redeemable Convertible
Non-Cumulative Preference Share No. P01 be cancelled upon
conversion AND THAT the Common Seal of the Company be
authorised to be affixed onto the new share certificate(s) to
be issued for the new Ordinary Shares to be issued thereto
in accordance with the Articles of Association of the
Company.” 88
For further enquiry contact [email protected]