Students Manuals Iqs Law c07
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ICSA IQS – Corporate Law 183
CHAPTER 7 MEMBERSHIP
Chapter objectives After the completion of this chapter you should be able to understand amongstother things:
• The significance of being a company member; • The qualification of membership;
• The importance attached to the register of members and the record of
• How and when an aggrieved person can apply to the court to rectify theregister of members;
• That the issued share certificate is evidence of title to shares and that
estoppel can be applied against the company in regards to the contents ofthe share certificate;
• The statutory requirements in respect to the issue of share certificates;
• That the company can incur liability for incorrect issue of share
• That shares are movable property and are therefore capable of beingtransferred to another;
• That the CA as well as the company’s articles regulate the transfer of
• That the company’s articles can empower the company directors to refuseto register a transfer of shares;
• How shares are transferred in scripless trading environment;
• That shares can also be transferred by operation of law;
• How membership in a company can be terminated; and
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THE SIGNIFICANCE OF BEING A MEMBER
1.1 The determination of whether someone is a member of a company is significant
for a number of reasons:
• Only members or their proxies are entitled to vote at general meetings: Art
54 Table A;
• Only members are entitled to receive dividends: Art 105 Table A;
• If the company is in the process of being wound up, the members may be
liable to contribute towards the payment of its debts: s 214. This
proposition is illustrated in Australian case of Re Clifton Springs Hotel
Ltd, Pask made an application for shares and forwarded payment to the
company. His name was entered in the register of members but no notice
of allotment or acceptance was sent to him. He denied receiving any
communication from the company other than notice of an extraordinary
meeting. The company subsequently went into liquidation and the
liquidator included Pask on a list of contributories as a holder of partly
paid shares even though there were no minutes recording an allotment of
shares to him. Pask applied to the court to have the register rectified by
removal of his name and an order for the return of the allotment money
paid by him. The court refused to make the requested orders and held that
Pask was a member of the company because his name was entered in the
• That the CA has enacted several provisions that require a shareholder/member
in certain circumstances to disclose his or her interest in company shares.
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• Members, as contributories, are generally entitled to share in the
company’s surplus assets on a winding up: s 247(2);
• Only a member may enforce the s 33(1) contract against the company or
against another member; and
• Apart from a debenture holder or the Minister, only a member can petition
the court for a remedy under s 181. In Owen Sim Liang Kim v Pisau
Jaya Sdn Bhd & Anor, the appellant applied to the court for a remedy
under s 181(2). In defence, the respondent company argued that the
appellant lacked standing as his name was no longer in the register of
members when he initiated action under s 181. Gopal Sri Ram JCA, who
delivered the judgment of the court, said among other things that:
A petitioner who applies under s 181 must be able to demonstrate that
his name appears on the company’s register of members at the date of
the petition; if he is unable to do so, then he has no standing to invoke
the jurisdiction conferred upon the court by the section.
Who qualifies to be a member of a company limited by shares?
1.2 The members of a company limited by shares are usually its shareholders. To
qualify as a member, the name of that shareholder must be inserted in the register
of members: s 16(6).
1.3 In Ayer Molek Rubber Co Bhd & Ors v Insas Bhd & Anor,
NH Chan JCA said that:
The process of becoming a member is incomplete until entry on the register.
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1.4 It should be pointed out that the above process as set out in 1.2 and 1.3 applies to
a person who becomes a shareholder of the company after the registration of the
1.5 A person may become a shareholder of the company because he or she has
entered into a contract to purchase the shares issued by the company. A person
may also become a shareholder of the company because or she may have acquired
shares from an existing member. A person may also become a shareholder of the
company because an existing shareholder has transferred the shares to him or her
1.6 On registration of the company it is the subscribers to the company’s
memorandum that shall be become members of the company: s 16(6). The
English case of Re London, Hamburgh & Continental Exchange Bank
(Evan’s Case) has held that a subscriber becomes a member as soon as the
company is incorporated even if the company does not allot the shares to her or
him or does not enter the name in the register of members.
1.7 A member of a company need not be natural person and as of such a corporation
can also be a member of a company.
REGISTER OF MEMBERS
2.1 All companies must keep a register of their members that must contain certain
information: s 158(1).
2.2 The contents of register of member encompasses:
• Names and addresses of the members, the number of shares held, the
distinguishing number of the shares and the amount paid up on the shares;
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• The date at which the name of the member was entered;
• The date at which any person ceased to be a member during the past seven
• The date of allotment and number of shares allotted to each member.
2.3 The register must be kept at the company’s registered office except if it is made
up at another office of the company within Malaysia, or if it is made up by
another person, at that person’s office if it is within Malaysia: s 159 (1) (a) and
2.4 The register of members is prima facie evidence of any matters inserted in that
register in accordance with the Act: s 158(4).
2.5 In Majujaya Holdings Sdn Bhd v Pens-Transteel Sdn Bhd, Mahadev Shankar
JCA, said that:
Contrary to the submission of the counsel for the respondents, there is no onus
on the registered shareholder to prove his ownership because the law presumes
he has a right to be on the register (presumably this presumption arises by way
of s 158(4)). In this case, the trial judge misdirected himself by reversing the
2.6 Non-compliance with the requirements of s 158 is an offence by the company and
any of its officers who are in default: s 158(7).
2.7 The members of the company or any other person may request the company to
furnish him or her with a copy of the register a: s 160(2). A company must
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comply with a request to furnish a copy of extracts of the register to any person: s
RECORD OF DEPOSITORS
3.1 The status of a member is now also accorded to those persons whose names
appear in the record of depositors that is maintained by the Central Depository
pursuant to s 35 of the Securities Industry (Central Depositories) Act 1991.
3.2 The CA provides that such persons shall be deemed to be members of the
company: s 107B (1).
3.3 Further, the CA also provides that with respect to those depositors whose names
are found in the record of depositors, the company will not be obliged to enter
their names into the register of members: s107B (2).
RECTIFICATION OF THE REGISTER OF MEMBERS: S162
4.1 Proving one is in fact a member of the company is crucial for asserting
membership rights and also for incurring liability as a member.
4.2 Litigated cases have shown that there are occasions where the name of a member
may purposely be omitted from the register of members so as to deny that
member membership rights. Further, there are also occasions where the company
may wrongly deny a prospective member his or her right to be registered as a
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4.3 The CA provides a remedy to an aggrieved person in such situations: s 162 CA.
4.4 Essentially s162 (1) empowers the court to summarily make an order for the
rectification of the register of members.
4.5 Further, the court is also empowered to order the company to pay damages to the
aggrieved person: Allied Properties Sdn Bhd v Semua Holdings Sdn Bhd &
4.6 In the past many applications have been made to the court under s 162.
4.7 The leading case on s 162 is Central Securities (Holding) Bhd v Haron bin
Mohamed Zaid. It was here that Raja Azlan Shah CJ (as he was then) said that:
We take the view that an application for rectification cannot be granted where
there are serious disputes regarding title and the issues cannot be properly
decided in summary proceedings under the section.
4.8 Further, he also pointed out that:
• The power to rectify the register under this section is a summary remedy;
• The court on an application under the section may decide any question of title of
any party to have his or her name entered or omitted from the register, whether
such question arises between members and alleged members or between such
persons and the company;
• Sometimes the summary procedure under this section is not an appropriate
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• Where complicated questions of law and fact arise it is only proper to refer the
parties to a suit, because rectification can also be had by a suit;
• Delay in applying for rectification will deny a remedy; and
• A company cannot take upon itself to rectify the register of member
AGGRIVED PERSON FOR THE PURPOSES OF S 162
5.1 In Allied Properties Sdn Bhd v Semua Holdings Sdn Bhd & Ors, the court
held that the ultimate beneficial owner of the shares is an aggrieved person for the
purposes of s 162 should the company refuse to register the shares in its name or
that of its nominee and can therefore make an application under s 162. Further,
the court also held that an agent on behalf of the ultimate beneficial owner could
make the application.
5.2 It should also be pointed that the court in Allied Properties Sdn Bhd v Semua
Holdings Sdn Bhd & Ors, appeared to suggest that the shares could registered in
the name of a nominee.
5.3 This view must be contrasted with that expressed by the Singapore Court of
Appeal in Sing Eng (Pte) Ltd v PIC Property Ltd that suggested that shares
cannot be registered in the name of the nominee as it is contrary to our Art 7
Table A and s 163(4). It should however be noted that in this Singaporean case
the applicant was not the ultimate beneficial holder of the shares as it has sold to
the shares to another and was going to hold that shares in trust for that other
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RECTIFICATION OF THE RECORD OF DEPOSITORS
6.1 As we have discussed above in 3.1 the name of a person who appears in the
record of depositors that is maintained by the central depository pursuant to s 35
of the Securities Industry (Central Depositories) Act 1991 is deemed to be a
member: s 107B.
6.2 The procedure and the law that is applicable for the purposes of rectification of
the register of members do not apply to rectification of the record of depositors: s
Prima facie evidence of title
7.1 A share certificate is prima facie evidence of the title of a member to the number
of shares specified in the certificate: s 100(1) and see also Kelapa Sawit (Teluk
Anson) Sdn Bhd v Yeoh Kim Leng & Ors.
7.2 The share certificate also enables the company to ascertain the identity of its
members, and as will be discussed below, a company will generally require
production of the share certificate before registering a transfer or transmission of
7.3 A share certificate must be under the common seal of the company, or in the case
of shares on a branch register, it may be under the common or official seal of the
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Contents of the share certificate
7.4 Further, the CA also provides that the share certificate shall state the:
• Name of the company and the authority under which it is constituted;
• Address of the registered office in Malaysia or if the certificate is issued at
a branch office, the address of that branch office; and
• Nominal value and the class of the shares and the extent to which the
shares are paid up: S 100(2).
Time frame for delivery of share certificate
7.5 A company is required by s 107(1) to complete and have ready for delivery, a
share certificate, within two months of an allotment of shares or within one month
after a transfer of shares is lodged with the company. Non-compliance with these
time frames is an offence against the CA: s 107(2).
7.6 Further, an application can be made to the court for an order compelling the
company to issue a share certificate in the event the company does not comply
with the time frame provided as discussed above in 7.5: s 107(3).
7.7 It should be pointed out that a company need not issue a share certificate where
the company can refuse to register a purported transfer and does in fact not
register the purported transfer in which case the time frame mentioned in 7.5 does
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LIABILITY OF THE COMPANY FOR INCORRECT ISSUE OF SHARE
Share certificate estoppel
8.1 As we have discussed above in 7.1 the CA provides that a share certificate is
prima facie evidence of the title of the member to the number of shares specified
in the certificate.
8.2 Therefore the company is liable at common law for any loss arising from an error
in the share certificate. Further, once the company has issued a share certificate
and someone changes his position in reliance on it, the company is estopped, or
prevented, from denying the truth of its contents: Re Bahia and San Francisco
8.3 Where a certificate states that a shareholder has fully paid shares when in fact
they are partly paid, the company is also estopped from denying that they are fully
paid. This means that the company is unable to make a call on the shares:
Burkinshaw v Nicholls.
8.4 It should be pointed out that estoppel arising from the issue of a share certificate
can only operate against a company provided that company has rightfully issued
the disputed share certificate and someone has changed his or her position in
reliance on the certificate: Kelapa Sawit (Teluk Anson) Sdn Bhd v Yeoh Kim
Leng & Ors. In this case no estoppel was applicable against the company as the
company was able to prove that the resolution authorizing the affixing of the seal
of the company to the certificate was not valid in that it was not done in
accordance to the company’s M&A and therefore the seal was affixed without
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8.5 While a company cannot deny the contents contained in a valid share certificate
the company is not liable if the certificate has been forged: Ruben v Great
TRASANFER OF SHARES
9.1 The CA provides that shares are a movable property and therefore shares are
capable of transfer: s 98
9.2 Transfer of shares occurs when an existing shareholder passes ownership of his or
her shares to another.
9.3 Transfer of ownership in shares can be result of a gift or by way of a contract.
9.4 This results in the transferee becoming a member of the company after the name
is entered in the register of members. The transferor ceases to be a member if the
entire shareholding is transferred.
9.5 As a general rule, shares in a company are presumed to be freely transferable.
Restriction imposed by the CA on transfer of shares
9.6 The CA among other things provides that shares are transferable as provided by
the articles: s 98.
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9.7 As we have discussed have in Chapter titled ‘Companies Constitution’ the CA
requires that the constitution of a private company restrict the transfer of shares: s
15 (1) (a).
9.8 On the other hand public companies usually do not restrict the right of an existing
shareholder to transfer their shares and Chapter 7 of the MSEB LR prohibits a
listed public companies from including such restrictions in their articles.
Procedure for transfer of shares
Instrument of transfer
9.9 The CA prohibits a company, notwithstanding anything in its articles, from
registering a transfer unless a proper instrument of transfer in the prescribed form
has been delivered to the company: S 103(1). This requirement ensures that stamp
duty on transfers of shares will be paid in all cases and prohibits oral transfers on
which stamp duty is not payable.
9.10 The Court Appeal considered the application of s 103(1) indirectly in the case of
Ayer Molek Rubber Co Bhd & Ors v Insas Bhd & Anor. The Court of Appeal
held that a transfer of shares is not possible when there was no delivery of a
proper instrument of transfer of shares to the company as required by s 103(1).
9.11 The transferor must sign the instrument of transfer: Art 20 Table A. The seller
(transferor) delivers a signed transfer together with the share certificate to the
9.12 Then the instrument of transfer and the share certificate would have to be lodged
with the company before the transferee is registered as a member: Art 21 Table A.
The transferee usually does this.
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9.13 The transferor remains the holder of the shares and a member until the transfer is
registered and the name of the transferee is entered in the register of members: Art
20 Table A.
9.14 This is important where the shares are partly paid because the transferor remains
liable for calls until the transfer is registered. For this reason, provision is made by
s 104(1) for the transferor to require the company to register the transfer in the
same manner as if the transferee had made the application.
Certificate the instrument of transfer
9.15 The procedure for transfer of shares is relatively straightforward where all the
shares specified in the share certificate are sold to one buyer. A seller who is
selling only part of the shares will generally be reluctant to hand over the share
certificate to the buyer. In such cases, the transferor can forward the share
certificate to the company with the request that it certificate the instrument of
transfer. If this is done, the company notes on the instrument of transfer that it
holds the transferor’s share certificate. Under s 106(4) an instrument of transfer is
deemed to be certificated if it bears the words ‘certificate lodged’ or words to that
9.16 The certification constitutes a representation by the company to any person acting
on the faith of it that such documents as on the face of them show prima facie title
to the shares to the transferor named in the instrument of transfer, have been
produced to it: s 106(1). The certification is not, however, a representation that the
transferor has any title to the shares.
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The consequences of unregistered transfers
9.17 A problem arises where the transferor and transferee enter into a contract for sale
of shares but for some reason the share transfer is not registered by the company.
Relationship between the company and the unregistered transferee
9.18 As regards the company in the event the transfer is not registered by the company
directors the purported transfer is incomplete or incohate.
9.19 The CA also provides that the company need only recognize legal interests in
shares and is not affected by notice of any trusts. This is also usually set out in the
articles: Art 7 Table A.
9.20 The effect of this is that the company recognizes the transferor as holder of the
shares until her or his name is removed from the register and replaced by the
name of the transferee. This is important, if for example, the company makes a
call before the transfer is registered. In such a case the transferor is still liable.
Relationship between the transferor and the unregistered transferee
9.21 As regards the transferor and transferee, property in the shares passes to the
transferee at the time the transferor hands over the signed transfer and share
9.22 It may even be said that the transferee becomes the beneficial owner as soon as
the contract is made. From this time on, the seller holds the shares as trustee for
the buyer. The buyer is said to have an equitable interest. Thus the seller must
account to the buyer for any dividends the company may pay to her or him and
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the buyer must indemnify the seller for any obligations incurred after the contract
Refusal to register transfer of shares
9.23 As we have discussed above in 9.18 a transfer of shares is not effective until the
directors have registered the transfer of shares. The company’s articles may set
out instances when the company directors can refuse to register a transfer of
9.24 Typically the company’s articles will usually provide that the company directors
can refuse to register a transfer of shares, where:
• The shares transferred are not fully paid up;
• The transfer of shares is in breach of a pre-emption clause. A pre-emption
clause is a clause that gives the existing members of the company first
right to take up the shares in the event an existing member wishes to
dispose his or her shares. This clause is usually inserted in the articles of a
private company as the CA requires the private company’s constitution to
among other things restrict the transfer of its shares;
9.25 Further, the company’s articles may also include the following provision:
That the directors may in their absolute discretion without assigning any
reason refuse to register any transfer of shares to a person of whom they
shall not approve and may also refuse to register the transfer of shares on
which the company has a lien.
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9.26 Where the articles confer a discretion on directors to refuse to register a transfer
as set out in the above 9.25, the directors are only required to exercise this power
bona fide in the interests of the company and not for any collateral purpose:
Kesar Singh v Sepang Omnibus Co and Allied Properties Sdn Bhd v Semua
Holdings Sdn Bhd & Ors.
9.27 Further, the directors need disclose their grounds or reasons, for refusing to
register the transfer of shares.
9.28 Where a reason is in fact given the court can evaluate the sufficiency of the reason
given and when doing so the court will adopt a cautious approach in questioning
the sufficiency of the reason given especially where there is an absence bad faith
on the part of the company directors: Kwality Textiles (Malaysia) Sdn Bhd v
Arunchalam (Supreme Court).
NOTICE OF REFUSAL TO TRANSFER
10.1 The CA provides that where the company refuses to register a transfer of shares,
the company shall within one month after the date on which the transfer was
lodged send to the transferor and transferee notice of such refusal: S105 (1).
10.2 Contravention of this provision shall result in the company and every officer in
default to commit an offence against the CA: s 105(2).
10.3 Further, it should be noted that the notification given pursuant to s 105 does not
require the directors to state their reasons for refusal.
10.4 It is therefore submitted, in light of the above decision, that the time frame
specified in s 105 is not a mandatory requirement but merely a directory one and
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need not be complied with strictly where a good reason can be advanced for its
non compliance: David Hey v New Kok Ann Realty Sdn Bhd (Federal Court).
TRANSFER OF SHARES IN A SCRIPLESS TRADING ENVIROMENT
11.1 Effective as of 1 December 1998, Division 6A of the CA became effective. The
insertion of this new division has resulted in the enactment of ss 107A, 107B,
107C, 107D, 107E and 107F of the CA.
11.2 We have discussed above in 3.2 s 107B, in relation to status of membership being
accorded to those person whose names appear in the record of depositors. Further,
we discussed above in 6.2 s 107D, in relation to rectification of the record of
11.3 Section 107C, provides among other things, that in respect to transfer of any
securities or class of securities of a company whose securities have been
deposited with the Central Depository, transfer will be by way of book entry by
the Central Depository in accordance with the rules of the central depository and
this is so notwithstanding ss 103 and 104 CA.
11.4 Transfer of securities or securities of a class that a company has deposited with
the Central Depository, is therefore governed by the rules provided for by the
Securities Industry (Central Depositories) Act 1991(herein after referred to as
11.5 Currently, shares listed and traded on the KLSE are deposited with the Central
Depository. The central depository referred to here, refers to the Central
Depository System (‘CDS’) that is established and managed by ‘Malaysian
Central Depository Sdn Bhd’ (hereinafter referred to as ‘MCD’).
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11.6 MCD is a subsidiary company of MSEB and has received the required approval
from the Minister of Finance to establish and operate CDS as provided for by s 5
11.7 SICDA is responsible for providing the legal framework and safeguards for users
and participants of CDS.
11.8 The CDS is a system by which ‘dealings’ in shares that have been deposited with
the central depository, is affected by means of entries in securities accounts (s
107C, as discussed above, refers to this as book entries) without physical delivery
11.9 SICDA, defines ‘scrip’ as any document that is, or is a document of title to, a
security, whilst ‘security’ is defined to include shares: s 2 SICDA.
11.10 The immobilization of physical transfer of scrip/share certificates as discussed
above have therefore created a scripless trading environment traded on the
Exchange and has also reduced the risk of share certificate fraud.
TRANSMISSION OF SHARES
12.1 The CA provides that a share is a movable property: s 98
12.2 The company’s articles among other things usually provide that:
Any person becoming entitled to a share in consequence of the death or
bankruptcy of a member may, upon such evidence being produced as may from
time to time be required by the directors and subject as herein provided, elect
either to be registered himself as holder of the share or to have some person
nominated by him registered as the transferee thereof, but the directors shall, in
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either case, have the same right to decline or suspend registration as they would
have in the case of a transfer of the share by that member before his death or
bankruptcy: Art 25 Table A.
12.3 Where the shareholder dies leaving a will, the executor named in the will becomes
the deceased’s personal representative. If there is no will, the shares vest in the
Public Trustee and on the granting of a letter administration they vest in the
administrator who is usually the deceased’s next of kin. The personal
representative thereby becomes legal owner of the shares even though not
registered as a member.
12.4 This transfer of ownership of shares from the deceased shareholder to the
deceased’s personal representative is referred to as transmission of shares. Here
the transfer of shares is affected by operation of law. Other instances where shares
can be transferred to another by operation of law is where the shareholder
becomes incapable through mental or physical incapacity or becomes a bankrupt
12.5 The CA requires that proof of the personal representative’s status must be
furnished to the company. Sufficient evidence of this is a document evidencing a
grant of probate or letters of administration: s 103(3).
12.6 In Gan Tuck Meng & Ors v Ngan Yin Groundnut Factory Sdn Bhd & Anor,
the issue before the High Court was whether due compliance with s 103(3) was a
mandatory or a directory requirement of the law. The court took the view that it
was merely directory requirement of the law provided no fraud is alleged.
12.7 Upon the production of such evidence that shares have been transferred to the
personal representative that personal representative shall be entitled to enjoy the
same rights that was enjoyed by the deceased member in regards to those shares
transferred even though the personal representative is not registered as a member:
Art 27 Table A.
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12.8 A personal representative may choose not to be registered as a member and
merely execute a transfer to another.
12.9 Section 103(2) allows the personal representative to do this even though he or she
has not been registered as a member. This right is also provided for to the
personal representative in the company’s articles: Art 25 Table A.
12.10 Further, the articles can also provide that that if the personal representative elects
to have another person registered he or she shall testify his or her election by
executing to that person a transfer of shares and this transfer is subject to any
restrictions or limitations regulating the right to transfer and the registration of
shares if that transfer was made by the deceased member himself or herself: Art
26 Table A
CESSATION OF MEMBERSHIP
13.1 We have indirectly looked at some ways by which a person ceases to be a
member. Where shares are transferred and the transfer is duly registered, the
transferor ceases to be a member. The death of a member also results in cessation
of membership. The deceased’s shares are transmitted to her or his personal
13.2 Cessation of membership can also result from a forfeiture of partly paid shares by
the company: Art 28 Table A
13.3 A forfeiture of shares is really a reduction of capital but is allowed as long as the
forfeiture is as a result of non-payment of a call. Further, as in Table A, art 31,
articles usually allow a company to sell forfeited shares. This is an exception to
the prohibition on a company dealing in its own shares.
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13.4 Cessation of membership can also result from a valid surrender of shares. It has
been submitted that a valid surrender of shares may only occur where they are
liable to be validly forfeited and the surrender of shares does not involve any
payment out of the funds of the company: Trevor v Whitworth.
DISCLOSURE OF INTEREST IN SHARES
Disclosure of trust in shares
14.1 A member of a company may hold shares in the capacity of trustee for a particular
beneficiary. This may be done as part of a scheme to reduce taxation or to conceal
the real identity of a shareholder.
14.2 The CA provides that, except as provided in the CA, no notice of any trust
expressed, implied or constructive shall be entered in a register or branch register
and the corporation concerned shall not be affected with notice of any such trust: s
163(4). Refer also to Art 7 Table A.
14.3 However, shares in a corporation registered in a register or branch register kept in
Malaysia and held by a trustee in respect of a particular trust may, with the
consent of the corporation, be marked in the register or branch register in such a
way as to identify them as being held in trust: s 163(3).
14.4 Under s 163(1) any trustee, executor or administrator of the estate of any deceased
person who was registered in a register or branch register kept in Malaysia as a
shareholder in a corporation may be registered as the holder of that share as
trustee, executor or administrator. Similarly, any trustee, executor or administrator
of the estate of any deceased person who was beneficially entitled to such a share
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may, with the consent of the corporation concerned and of the registered holder
become registered as shareholder as trustee, executor or administrator: s 163(2).
15.1 The substantial shareholder provisions are contained in Div 3A of Pt IV of the
15.2 A person who is a substantial shareholder in a company within the meaning of s
69B(2) must give notice to the company disclosing shareholding details of the
nature of the interest in the shares and the circumstances in which that interest
was acquired: s 69E(1).
15.3 A company within the meaning of s 69B(2) includes:
• A company whose shares are listed for quotation on the official list of the
stock exchange: s 69B(2)(a);
• A public company: s 69B(2)(b).
• A body corporate incorporated in Malaysia that is declared by the Minister
to be a company for the purposes of Division 3 A: S 69B (2) (c); and
• A body not being a body corporate incorporated in Malaysia that is
declared by the Minister to be a company for the purposes of Division 3
A: S 69B (2) (d);
15.4 A substantial shareholder is a person who has an interest in one or more voting
shares in the company and the nominal amount of that share or the aggregate of
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the nominal amounts of those shares is not less than five per cent of the aggregate
amount of all voting shares in the company: s 69D(1).
Purpose of disclosing substantial shareholding in the company
15.5 The purpose of the substantial shareholding provisions is to enable directors and
shareholders of companies defined in s 69B(2) to ascertain the identity of holders
of large numbers of shares and the extent of their shareholdings.
15.6 The Jenkins Committee provided two reasons why such disclosure is important:
Those who take this view believe that that the directors, other shareholders and
indeed the employees of a company, all of whom may be materially affected,
ought to be able to ascertain the identity of any substantial shareholder of the
company’s share; this is of particular importance in cases where there is reason
to suppose that someone may be in the process of buying for control. Even
where a holder of a substantial number of shares is not actually buying with
this intention it may be of interest to the others concerned to know whether, for
example someone is in the position to veto a special resolution of the company,
and who that person is.
15.7 Consequently, for the purposes of the substantial shareholder provisions in Div
3A of Pt IV of the Act, only interests in ‘voting shares’ are required to be
15.8 The CA provides that a ‘voting share’, in relation to a body corporate means an
issued share of the body corporate, but excludes a share to which there is no right
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of vote attached or a share entitling the holder to vote only in the following
• During a period in which a dividend or part thereof is in arrears;
• Upon a proposal to reduce the share capital of the body corporate;
• Upon a proposal affecting the rights attached to the share;
• Upon a proposal to wind up the body corporate;
• Upon a proposal for the disposal of the whole of the property, business
and undertaking of the body corporate; and
• During the winding up of the body corporate: s 4(1).
Interest in voting share
15.9 Crucial to the fulfillment of the statutory duty imposed by Division 3A of Pt IV of
the CA, is the issue as to what constitutes ‘interest’ in voting shares.
15.10 For this purpose reference must be made to ss 6A(2)-(10).
15.11 The following interests in shares may be identified:
• Section 6A(2): Trusts — this subsection provides that a person who knows
or has reasonable grounds for believing that he has an interest in shares
held on trust is deemed to have an interest in those shares;
• Section 6A(3): Rights — a right is not an interest in a share if it is within
the definition of ‘interest’ in s 84, Div 5 and:
It was issued or offered to the public for subscription or purchase;
The public was invited to subscribe for or purchase such a right
and the right was so subscribed or purchased; or
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Such right is held by the management company and was issued for
the purpose of an offer to the public within the meaning of s 84.
• Section 6A(4): Interests held by body corporate — this subsection
prescribes that a person shall be deemed to have an interest in a share
where a body corporate has an interest in a share and:
The body corporate is or its directors are accustomed or under
obligation to act in accordance with the directions, instructions or
wishes of that person in relation to that share;
That person has a controlling interest in the body corporate; or
That person and/or associates of that person are entitled to exercise
or control the exercise of not less than 15 per cent of the votes
attached to the voting shares in the body corporate.
15.12 Further, s 6A(5) provides that for the purpose of s 6A(4)(c), a person is an
associate of another person if the first-mentioned person is:
A corporation which is a related corporation. Section 6 specifies the
circumstances under which corporations are deemed to be related to each
A person who is accustomed or under obligation to act in accordance with
the directions, instructions or wishes of that other person in relation to the
share referred to in subsection (4);
A person who is accustomed or under obligation to act in accordance with
the directions, instructions or wishes of that other person in relation to that
A body corporate which is or its directors are accustomed or under
obligation to act in accordance with the directions, instructions or wishes
of that other person in relation to that share; or
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A body corporate in accordance with the directions, instructions or wishes
of which or the directors of which that other person is accustomed or
under obligation to act in relation to that share.
Deemed interest in voting share
15.13 Section 6A(6) provides for ‘deemed interests’. Accordingly, it provides that:
A person is deemed to have an interest in a share if he or she:
Has entered into a contract to purchase a share;
Has a right (other than a right under a trust) to have a share transferred to
himself or to his order (whether such right is exercisable presently or in
the future and whether on fulfillment of a condition or not);
Has a right to acquire a share or an interest therein, under an option
(whether the right is exercisable presently or in the future and whether on
fulfillment of a condition or not); or
Is entitled (otherwise than as a proxy or representative to vote at a meeting
of members of a corporation or of a class of members) to exercise or
control the exercise of a right attached to a share of which he is not the
15.14 Under s 6A(7) a person is also deemed to have an interest in a share if that share
is held jointly with another person.
15.15 Further, an interest in a share shall not to be disregarded by reason only of:
• Its remoteness;
• The manner in which it arose;
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• The fact that the exercise of a right conferred by the interest is, or is
capable of being made subject to restraint or restriction; or
• The fact that it is held by, or in the name of, a central depository or its
nominee company pursuant to the SIDCA.
Interest in shares that are not recognized for the purposes of Division 3 A
15.16 The following interests are to be disregarded for the purposes of Division 3 A:
• An interest in a share where the person holds the share as a bare trustee;
• An interest in a share of a person whose ordinary business includes the
lending of money if the interest is held only by way of security in a
transaction entered into in the ordinary course of business of lending
• An interest of a person in a share held by virtue of a prescribed office; and
• A prescribed interest in a share being an interest of such person or of the
persons included in such class of persons as is prescribed.
Substantial shareholder’s statutory duty to disclose to the company
15.17 Substantial shareholders, as well as being required to notify the company of their
interest: s 69E(1), must also notify the company of a change in their interest: s
69F. A change in interest or interests is deemed to have occurred when substantial
shareholders acquire or dispose of their voting shares. They must also notify the
company, within seven days that, they have ceased to be substantial shareholders:
15.18 Further where a notice is given to a company under the ss 69 E, 69F and 69G, a
copy of that notice must also be served on the Exchange and the SC: s69 I.
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15.19 The substantial shareholding provisions extend to all natural persons whether
resident in Malaysia or not and whether Malaysian citizens or not and to all
bodies corporate whether incorporated or carrying on business in Malaysia or not:
s 69C(l). The provisions also extend to acts done or omitted to be done outside
Malaysia: s 69C(2).
15.20 The CA also provides that a person who holds voting shares in which a non-
resident has an interest must:
• Give to the non-resident a notice in the prescribed form as to the
requirements of Div 3A of Pt IV; or
• Where that person knows or has reasonable grounds to believe that the
non-resident is holding the interest on behalf of another person, give the
non-resident a notice in the prescribed form and direct the non-resident to
give the notice or a copy of the notice to that other person: ss 69J(l)(a),
Effects of contravening ss 69 E,69F, 69G AND 69G
15.21 A person who fails to comply with the notification requirements of the
ss 69E, 69F, 69G and 69J commits an offence punishable by a fine of RM1
million with default penalty of RM5,000: s 69 M.
15.22 Further, the CA has empowered the court on the application of CCM to make any
one or more orders as setout s 69 N (1) against those persons who contravene ss
69E, 69F, 69G.
15.23 These orders include an order restraining the disposal of shares, restraining the
exercise of voting rights attached to the shares, directing the substantial
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shareholder to dispose of his or her shares and any other order directing the
company or any other person to do or refrain from doing a specified act:
15.24 The court may also make an order vesting the shares held by the defaulting
substantial shareholders in the CCM: s 69N(4). Where this is the case, CCM may
deal with the shares as he or she sees fit: s 69N(8) read in conjunction with s 311.
Duty of the company to maintain a register of substantial shareholders
15.25 A company must maintain a register of substantial shareholders, which must be
kept open for inspection by any member of the company and by any other person:
15.26 The company which defaults in maintaining a register of substantial shareholders,
together with any of its officers who knowingly defaults in this respect, also
commits an offence punishable by fine of RM5,000 with default penalty of
RM500: s 69L(4).
Furnishing of information and particulars of shareholding to CCM
15.27 The CA empowers CCM to require any person or company to make a statutory
declaration verifying information and particulars of his or her shareholding in a
15.28 This information must be furnished to CCM within seven days from the date of
receipt of the notice from CCM. Section 69A(3) sets out the consequence of
failing to comply with this provision.
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15.29 It is to be noted that s 69A, is independent of the duties imposed upon a
substantial shareholder as discussed above and it has been enacted so as to
enhance transparency as is also the objective of s 69O.
Furnishing of information and particulars of shareholding to the public listed
15.30 Section 69O, empowers a public listed company either on its own account or
when directed by the SC or Exchange to issue a written notice on its member
requiring that member to disclose to it whether he or she holds any voting share in
the company as a beneficial owner or as trustee for some one else.