Advertisement

Reduce Paid Up Capital of Sdn Bhd Company

1353 Views  ⚫  Asked 1 Year Ago
asked on Jan 1, 2017 at 00:35
by   j0han
Hi,

Early 2015 the company increased the authorized and paid up capital to RM1mil respectively. The company however DO NOT have the said 1 mil in any form. We were advised by our company secretary that it is not required for the company to the capital in order to have lodge to SSM. We later learnt that this is not true.

We were young, naive and stupid back then. We still are. But we want to make things right and to follow all laws and regulations. First thing we want to do is to reduce/cancel the paid up capital to right amount.

However, our company secretary told us that there is no such thing. Current law does not allow reduction of paid capital. Upon doing our research, and from SSM website, there is very little information available. 

My questions:

1. Can we reduce our paid up capital and how*
2. What is the repercussion to this? Tax?

We do not have any debt.

Thank you
0 had this question
Me Too
0 favorites
Favorite
[ share ]
7 Answers

answered on Jan 1, 2017 at 01:39
by   vkpc
Paid Up Capital cannot be reduced.
If company profits are found to have been used to pay for the capital, it is a jailable offence.
0 found this helpful
Helpful

answered on Jan 1, 2017 at 02:36
by   lawnovice
Early 2015 the company increased the authorized and paid up capital to RM1mil respectively. The company however DO NOT have the said 1 mil in any form. We were advised by our company secretary that it is not required for the company to the capital in order to have lodge to SSM. We later learnt that this is not true. 

It appears that your Comsec is mixed up with the following : -
1. Authorized Share Capital
2. Issued Share Capital
3. Paid Up Share Capital

What is written from you is that there is no increase in Paid Up Capital.

What is the actual issue then?
0 found this helpful
Helpful

answered on Jan 1, 2017 at 02:53
by   lawnovice
Read Section 64 of the Company Act

https://www.ssm.com.my/acts/fscommand/act125s0064.htm
0 found this helpful
Helpful

answered on Jan 1, 2017 at 07:38
by   j0han
Hi,

Thanks all for the answers.

@vkpc

I was told the same by the comsec. But as per @lawnovice reply, there seems to be a way and I hope there is a way to correct this mistake. Will wind down the company and open another company the better route to take?

@lawnovice

There is a typo in my earlier question. Comsec advised us that it is not necessary for us to have RM1mil in the bank account in order to increase the paid up. We question it at first because our friends told us that we must have the money in the bank then only can increase the paid up but our comsec assure us that it is not necessary. We increased the authorized and issue the paid up to 1mil. We realized now it is a big mistake.

From the link you provided, it seems to be a way to cancel the issued paid-up but I cannot understand it. What does "Subject to confirmation by the Court" mean? Does it mean that company can obtain letter from court to do as such? If yes, which court? I think the most suited reason is b as per below.

b) cancel any paid-up share capital which is lost or unrepresented by available assets; 

We never apply for any loan or facilities and do not have any debt.

Thank you for your kind help.
0 found this helpful
Helpful

answered on Jan 1, 2017 at 17:17
by   jeff005
edited Jan 1, 2017 at 18:13
by   jeff005
@ j0han

My personal views (non-legal)

Comsec advised us that it is not necessary for us to have RM1mil in the bank account in order to increase the paid up.
From what you have written above
Your Authorized Share Capital has been increased to RM1M
Ask your Comsec what is the Issued Share Capital? and what is the current Paid Up share capital recorded with SSM?
And what type of Share Capital, Ordinary Shares or other types?
If your initial Incorporated Authorized Share Capital (ASC) is Rm100,000 and the Paid Up Capital  (PUC) is also Rm100,000, then your share value is Rm1 per share (not Book Value). (I have short cut certain definitions to avoid more confusion)

If you have Increased your ASC to 1M and your Issued Share Capital (ISC) is increase to 1M,
AND your PUC remains at RM100,000, then the value of your share is RM0.10 per share.

When your business increases and the need to pump in cash, then you will have to pump in cash to increase the PUC legally. Or Via Capitalization of certain Tangible Assets. This is beyond the scope of discussion here.

It is not legal to increase share capital via the profits of the company, but there are other legal means of increasing PUC of a business entity (depending on the nature of the business) via Assets Capitalisation. If no assets (yours only), then the requirements MUST be CASH Injection.

There are communications issues with your Comsec.
It is tedious for your Comsec to explain all terms to you correctly when you do not understand the structure of Sdn Bhd and in conjunction to the type of business you are running.

In short, for your case;
1. Determine whether the ISC has been adjusted to 1M 
2. If it has not been and remains at 100,000 shares @ RM1 Ordinary Share (example), leave things as it is. (It is legal)
3. Winding down a company for no good reason may appear to other potential future investors (if any), as an attempt to cover a possible fraud committed. Many frauds have been committed via "assets" capitalization, hence there are Company Laws to curb this abuse.

What does "Subject to confirmation by the Court" mean?
Beyond your understanding and need not, at this point of time. Civil Court. (Commercial)

b) cancel any paid-up share capital which is lost or unrepresented by available assets;  
From what you have described, there is no additional cash injection nor assets.
So, how to "cancel"?
Just determine whether there is any increase of ISC via search at SSM or latest Audited Acs.
You cannot just "cancel", have to apply for a decrease in Issued Share Capital (not Authorized Share Capital ) by Certified Accounting Methods by the application to Civil Court under company laws.
The lawyers plus accounting fees can be 30-50K depending on the "size" of the company.

Read up on the various types of Share Capital
Then approach your Comsec
Do not put the Cart in front of the Horse (yr Comsec is the Horse now)
Your friends and you MAY be worrying over "nothing"
0 found this helpful
Helpful

answered on Jan 1, 2017 at 18:21
by   j0han
Hi jeff005,

Thank you very much for your feedback. It is our comsec that brought this matter to us, thus we really concern about it. Below info extracted from the form 24:

(b) the shares so allotted do not exceed the authorized capital of the company which is RM 1,000,000.00 divided into 1,000,000 shares of RM 1.00 each

(d) the total issued capital of the company now stands at 1,000,000 shares of RM1.00 each and the paid up capital is RM 1,00,000.00 ; 
From your reply, does this mean that if we have no cash (directors), we can use our asset to increase the paid up?

It is not legal to increase share capital via the profits of the company, but there are other legal means of increasing PUC of a business entity (depending on the nature of the business) via Assets Capitalisation. If no assets (yours only), then the requirements MUST be CASH Injection.
have to apply for a decrease in Issued Share Capital (not Authorized Share Capital ) by Certified Accounting Methods by the application to Civil Court under company laws. 
This is to be done our company auditor or other party? What are our available option? It seems that we are in the wrong here and want to make things right.

Again, lot of insight in your reply. 

Thank you.
0 found this helpful
Helpful

answered on Jan 1, 2017 at 20:08
by   jeff005
edited Jan 1, 2017 at 20:23
by   jeff005
What is the Paid Up Share Capital according to your Audited Acs?

(d) the total issued capital of the company now stands at 1,000,000 shares of RM1.00 each and the paid up capital is RM 1,00,000.00

This is a Misnomer
If it is filed at SSM that the Paid Up Capital is RM1,000,000
NOTE...  "Paid UP"
Then there must have documentation that reflects such transaction..!! Via Cash or other legal acceptable means.

From your reply, does this mean that if we have no cash (directors), we can use our asset to increase the paid up? 
It means Company Assets.
If personal Assets, transfer it to the name of the Company. Means company own the assets.
But it is ridiculous to do so..
Why set up a Sdn Bhd (Liabilities Limited by Shareholdings) in the First instance?

Increasing the Authorized Share Capital is okay
Increasing the Issued Share Capital is okay
Then unable to "finance" the Paid Up Share Capital is not okay (at later stage).

Assuming at Incorporation of the company the ASC is 100,000 Ordinary Share @ Rm1 each and the ISC is also @ Rm1 each and the PUC is also Rm1 each.
Now that the ISC is increased to I M, if no CASH is paid up, means your 1 share is worth 10sen.
But you then owe RM900,000 in the ISC.
It may mean nothing now

BUT, in the event of lawsuits which goes beyond the RM100,000 PUC, then Personal Bankruptcy comes into the picture. Ever wonder what is "shares on call"? It have several meanings, one of which the shareholders have to top up till it is RM1 not at current RM0.10 per share.

Your Auditors and Comsec have to work hand in hand to resolve this issue.

Why increase Issued Share Capital in the first place. You have sign all the forms. You are responsible. Everybody will wash hands over this matter. What solution did your Comsec suggested? Auditors?

Any increased in ISC  can be decreased in the same proportion unless the court decree otherwise.
Note the term Increase and Decrease
Not lower than as stated in the M & A during incorporation of the Company.
Hence the previous "trick" of RM2 companies.
100,000 ASC 
2 shares (ISC)
Rm2 PUC companies

It all bores down to the M & A of Incorporation.
0 found this helpful
Helpful

Your Answer





By posting your answer, you agree to the privacy policy, cookie policy and terms of service.