No Share Capital Application Monies

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asked on Jun 21, 2017 at 21:07
To all the Valued Legal Gurus,

I would like to get some expert advise.

Firstly, here is some background info:
1. I am 1 out of 2 directors of my malaysian private limited entity. While the other director was my big boss who is a foreign director.
2.The holding company for the malaysian private limited entity was actually under a singapore private limited entity that is held by the same foreign director, my big boss.  
3. Malaysian entity is an R&D company that have been owing money say RM5million from the holding company in singapore. 
4. Lately my big boss asking me to sign a share allotment on malaysian entity that converts the loan amount of say 5 mil owed to singapore entity which now makes the singapore entity holding a 5mil shares in the malaysian entity, in exchange. However there is no monies transfer for it.
5. Recently there is a letter from my company secretary asking us, the malaysian directors (including myself) to indemnify them for any non-compliance on this allotment of shares. It stated that we (the malaysian directors) understand that this is a "....serious offence for not having the share capital application monies that was not applied towards the business of the company and that this may result in queries during any audit process"....
6. internally my group CFO is getting a quotation from local insurance company for a new insurance proposal for "Directors & Officers Management Liability". 

This raises some concern to me, so i did a research on how serious could that get. i found this link: 
The imprisonment and penalty seems heavy.
however it seem to apply for public listed company, while mine was more for private listed company.

Please may i know if i should be concern with signing of such allotment without share capital application monies ?

Thanks in advanced.
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4 Answers

answered on Jun 22, 2017 at 21:27
Under Companies Act, using company money to increase paid up capital is an offence punishable by fine and jail.  There is no difference whether it is a Public Listed or a Private Limited Company.
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answered on Jun 27, 2017 at 03:29
edited Jun 27, 2017 at 03:32
by   Melvo
kindly find below some feedback from my financial controller:


Regarding the statement as highlighted below, found on the letter requested by Company Secretary to hold them not liable: 
"....serious offence for not having the share capital application monies that was not applied towards the business of the company and that this may result in queries during any audit process".... 
This means any increase in share capital that is not supported by funds is not allowed. This is not applicable for us but a standard clause to be included. 
The increase share capital is fully paid for by the loan owning to Singapore, hence the letter on converting the loan to share capital.  Our auditor, tax agent and company secretary have reviewed our management accounts and this is done in accordance with the Malaysian companies rules and regulation. So to answer your questions, we are 100% legal in doing so. 
Our company accounts for FY12,13,14,15,16 and current Dec 2016 are fully audited and tracks the loan amount correctly. These loan amount are also supported by bank statements on all the cash transfers, expenses paid on behalf across the years. 


Had some discussion with my CEO as well, he reckoned that it is just a legal caveat needed by the company secretary perhaps. He believes converting debt to equity in malaysian entity which shows the shares allocation behold by singapore holding company is a perfectly legal thing to do as it proves the same amount of 5 mil debt with shares certificate showing 5 mil shares alloted by malaysian entity to holding company, offset the actual value of debt.

I wonder would it actually be okay after all, if my financial controller could prove that we have several years of audited report that summed up to the value owed by the malaysian entity to the singapore holding company, even without the actually shares application monies  ?

Much appreciated for your further advise on this matter. 
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answered on Jun 27, 2017 at 04:19
edited Jun 27, 2017 at 04:30
by   jeff005
Just for discussion. Non professional opinions.

It depends on the nature of the business. Case to case basis.

What is meant by the above situation is that a Spore company can keep billing the Msian  company for consultancy services (massive charges) and then "Capitalized" it? Isn't it like the CIA printing paper money out of nowhere legally?

Increase in Paid Up share capital using company resources is possible, eg appreciation of Assets Capital but still subject to the approval of the Tax dept and in line with Company Laws & Acts.
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answered on Jun 30, 2017 at 19:46
You've a good point Jeff. Thanks for sharing more thoughts on this.

We are a Telecommunication and payment processing software development company.
We have audited reports over the years showing total loan amount accumulated and owed to Singapore holding entity, with all operational expenses, staff salaries etc all recorded.
However the holding entity has the money from venture capitalist which i have no visibility on.
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