Malaysia Companies Financial Assistance for Share Acquisition-Company Formation_Trademark Registration_Tax Service - Hong Kong CPA

KNOWLEDGE

Hot Labels

hong kong company singapore company u.s. business bank account hong kong catering business

Service Scope KAIZEN CPA provides Audit , Accounting, Tax Advisory, Hong Kong Company Formation, Offshore Company Registration, China Company Formation, Trademark Registration, Tax Service.

Malaysia Companies Financial Assistance for Share Acquisition

【Font：L M S】

Malaysia Companies Financial Assistance for Share Acquisition

In corporate transactions, it is common for parties to explore different financing structures for the acquisition of shares in a company. A key legal requirement under Malaysia’s Companies Act 2016 (CA 2016) is that a company is prohibited from giving financial assistance, whether directly or indirectly, to any party for the purpose of acquiring its own shares or the shares of its holding company. This restriction is aimed at protecting the company’s capital and creditors’ interests, and ensuring that share acquisitions are funded by genuine external investment rather than the company’s own resources.

The General Prohibition

Section 123 of the Companies Act 2016 sets out that a company shall not provide, whether directly or indirectly, any financial assistance for the purpose of acquiring or subscribing to shares in the company or its holding company.

“Financial assistance” is interpreted broadly, and may include:

(1)	Loans or advances.
(2)	Guarantees, indemnities or security for borrowings.
(3)	Gifts or financial benefits.
(4)	Any other arrangements that have the effect of assisting in share acquisition.

The prohibition is meant to avoid the risk of a company’s assets being used to fund the purchase of its own shares, which could prejudice creditors and minority shareholders.

Exceptions to the Rule

Despite the general prohibition, the CA 2016 provides several exceptions where financial assistance may be permissible. However, pursuant to Section 126(1), these exceptions do not apply to a company whose shares are quoted on a stock exchange, unless the company’s constitution expressly authorises such assistance as stated in Section 127(1).

The exceptions as stated in Section 125 include the following:

(1)	Employee Share Schemes Financial assistance given under an employee share scheme, or to enable employees (including directors holding salaried employment) to acquire shares in the company or its holding company, is allowed if approved in accordance with CA 2016.
(2)	Principal Purpose / No Material Prejudice Test Financial assistance is permitted if: (a) The giving of financial assistance is incidental to a larger purpose of the company. (b) The assistance is given in good faith and in the best interests of the company.
(3)	Whitewash Procedure (Non-Listed Companies) For a non-listed company, the whitewash procedure allows financial assistance if it is: (a) Approved by all shareholders; and (b) The directors make a statutory solvency declaration confirming that the company is solvent and able to meet its debts after providing the financial assistance.
(4)	Other Exemptions Lending money in the ordinary course of business (e.g. by licensed banks or finance companies).

Directors’ Declaration Prior to Giving Financial Assistance

Pursuant to Section 126(2) of the CA 2016, before providing any financial assistance, the directors of the company must make a solvency declaration confirming that the company is financially capable of doing so. The declaration must state the following:

(1)	The directors have formed the opinion that, after giving the financial assistance, the company will be able to pay its debts as and when they become due.
(2)	The directors reasonably believe that the company will remain solvent and able to meet all its liabilities for a period of at least twelve (12) months after providing the financial assistance.
(3)	The directors are satisfied that the terms and conditions of the proposed financial assistance are fair and reasonable to the company and are in the best interests of the company and its shareholders as a whole.

Procedures to be Performed by the Company After Giving Financial Assistance

Within fourteen (14) days after providing financial assistance, the company must send a copy of the solvency statement to each member of the company. The statement shall include the following details:

(1)	The class and number of shares in respect of which the assistance was given;
(2)	The consideration paid or payable for those shares;
(3)	The name of the person receiving the financial assistance and, if different, the name of the beneficial owner of those shares; and
(4)	The nature, terms, and, if quantifiable, the amount of the financial assistance.

Consequences of Breach

If a company breaches the prohibition on financial assistance, the transaction may be deemed void, and the company as well as its officers involved may face penalties. Under the CA 2016, penalties may include fines of up to RM3 million or imprisonment of up to 5 years, or both.
Conclusion

Malaysia’s financial assistance rules under the Companies Act 2016 are designed to safeguard a company’s capital and protect stakeholders. While the general rule prohibits a company from funding the purchase of its own shares or those of its holding company, certain exceptions and procedures provide flexibility where there is no material prejudice to the company. Proper planning and compliance are essential to ensure that share acquisitions are structured lawfully and effectively.

Kaizen, together with its associate firms in Malaysia, can help the clients to perform these compliances formalities so as to maintain the Malaysia company in good standing. Please call and talk to our professionals in Kaizen for further clarification.

Disclaimer

All information in this article is only for the purpose of information sharing, instead of professional suggestion. Kaizen will not assume any responsibility for loss or damage.

If you wish to obtain more information or assistance, please visit the official website of Kaizen CPA Limited at www.kaizencpa.com or contact us through the following and talk to our professionals:
Email: info@kaizencpa.com
Tel: +852 2341 1444
Mobile : +852 5616 4140, +86 152 1943 4614
WhatsApp/ Line/ WeChat: +852 5616 4140
Skype: kaizencpa

KNOWLEDGE

Hot Labels

SHARE

Malaysia Companies Financial Assistance for Share Acquisition

Related Articles