Equity Fundraising for a Private Limited Company in Malaysia


Equity fundraising is a method that can be used by Private Limited Companies (known as Sendirian Berhad or Sdn. Bhd.) in Malaysia to raise funds from potential investors for the purpose of the company’s expansion or survival. Through equity fundraising, a company will issue new shares, whether ordinary or redeemable/convertible preference shares for investors to subscribe. In comparison to relying on bank loans to finance the expansion or fulfil capital requirements of a company, equity fundraising carries no monthly repayment obligations and interests for the company to bear except dividend repayment which depends on the company’s profitability. In addition to that, in a case where there is an issue with the company’s creditworthiness, equity fundraising can serve as an alternative to bank loans.

Based on the above, clearly, equity fundraising has its own merits in providing injections of funds to the company’s expansion or survival. In order to ensure that a company and its investors understand their relationship, a Shares Subscription Agreement must be prepared and executed by the company and its investors.


Shares Subscription Agreement

Share Subscription Agreement (“SSA”) is an agreement that governs the terms and conditions that have been agreed upon by both the company and its investors. Such terms may include the number and class of shares to be issued by the company, the amount to be paid by the investors as well as the time period within which the amount is required to be paid. The SSA shall also contain general rights and obligations of the parties, warranties and indemnities as well as other terms that the parties may agree upon.

When investors invest in the company, the investors will be known as subscribers. Subscribers who have agreed to subscribe to the shares in a company will obtain a portion of the shares in the company based on the SSA that will be known as subscription shares. Subscription shares can be classified as Ordinary or Preference Shares. The funds deposited by the subscribers for the subscription shares according to the SSA will be channelled directly into the company’s account and not to the existing shareholder.


Ordinary Shares

Ordinary Shares also refer to common shares that are usually owned by the company’s owner/founder in a private limited company. When Ordinary Shares are owned by the subscribers, the subscribers shall have the right to vote at meetings and to receive dividends similar to the company’s owner/founder. In addition to that, if subscribers are subscribed to Ordinary Shares, the company is not required to distribute dividends when it is not doing financially well (insolvent). However, Ordinary Shares have a disadvantage in the priority of distribution of dividends as Preference Shares (if exist) shall have priority when dividends are distributed.


Preference Shares

Preference Shares have priority in the distribution of dividends as they are commonly treated as fixed-income securities due to the common nature of having fixed dividends and no voting rights attached to them as compared to Ordinary Shares. Preference Shares also have preference over dividends regardless of the company’s business operation or its solvency/liquidity.

Depending on the structure and mechanics implemented in the SSA, there are several types of Preference Shares that can be offered by a company but the most common ones are:-

  • Redeemable Preference Shares

Redeemable Preference Shares refer to the shares subscribed that contain the rights of repossession by the company after the lapse of a period of time as stipulated in the SSA. The subscribers will be compensated according to the fixed compensation as the case may be and as agreed upon in the SSA. Thereafter, the subscribers will no longer be considered as the shareholders of the company.

  • Convertible Preference Shares

Convertible Preference Shares allow the subscribers to convert the Preference Shares into Ordinary Shares within a specified period stipulated in the SSA entered into by the parties. When subscribers convert their Convertible Preference Shares into Ordinary Shares, the subscribers shall have the right to vote in meetings and decide on the future of the company.


Pre-Share Subscription Agreement – Matters to be considered by Company

Having said the above, it remains crucial for a company to ensure that its existing obligations and agreements have been taken into account prior to carrying out equity fundraising. As such, we have taken the time to lay down two of the matters that should be considered by a company.

  • Exhaustion of First Right of Refusal

Prior to conducting equity fundraising for the company, the company must review the Shareholder Agreement in the company and its constitution (if any). This is to ensure that the issuance of new shares to the subscribers will not in any way breach the Shareholder Agreement as there are instances where a Shareholder Agreement contains the right of first refusal that need to be exhausted before allowing the subscribers to enter into the SSA.

A right of first refusal is a contractual right for the existing shareholder in the company to be offered to purchase the newly issued shares before the shares are offered to a third party that is not a shareholder of the Company. A right of refusal is a right that is commonly used in a Shareholder Agreement to ensure that the shareholders in a company acted in good faith and ensure that the control of the company, especially when the share transactions involved are Ordinary Shares are well protected.

The clause in the Shareholder Agreement which contains the right of first refusal has laid down the details on how the right should be exhausted, the time period for the existing shareholder to buy the newly issued shares, the price per share, as well as the procedures to complete the buying of the shares by the existing shareholder. In a situation where the newly issued shares have been offered and refused by the existing shareholders, the newly issued shares can now be offered to the investors.

In managing the risks in subscribing to equity in a company, it is advisable for the subscribers to conduct legal and forensic due diligence to determine the legal and financial position of the company.

  • Loss of ownership and operational control

It must be understood by company owners that issuing newly allotted shares to be subscribed by the investor, will affect the ownership of the company and the possibility of dilution of control. If the company becomes profitable (solvent) in the future, a certain percentage of the company’s profits must be given to its shareholders in the form of dividends. As such, company owners must be aware of the consequences and be willing to bear the loss of sole ownership of the company.


Post-Share Subscription Agreement – Registration of Shares

Upon the SSA being executed by the parties, the company shall then proceed with the stamping of the SSA and inform its company secretary to prepare the relevant documents and forms such as resolutions and Form 24 (Return of Allotment of Shares) to be lodged with the Companies Commission of Malaysia (“CCM”). Upon registration, the subscribers are now the registered shareholders of the company.



Equity fundraising through SSA is an alternative for a company that is looking forward to its expansion as it allows the company to generate more capital while ensuring that the direction and its capability for the repayment of any existing debts the company can be satisfied. It is essential that the SSA is carefully drafted and negotiated to reflect the intention of the parties and to ensure that there is no ambiguity especially on the class of shares, considerations, warranties and indemnities as well as the rights and obligations of the parties in the SSA. As such, companies interested in equity fundraising are encouraged to appoint solicitors to ensure that the rights and interests of the existing shareholder are protected through a review of the legal documents and as for the investors, to conduct due diligence on the target company.