Can Non-Cash Be Used As Paid-Up Capital?

Consult with our best Business Lawyer today to know more about Paid-Up Capital or Non-Cash Paid-Up Capital:

What is paid-up capital?

Paid-up capital is the actual amount of money the company has that was injected into a company, usually by the shareholders of the company, in exchange for shares in the company. In this regard, the paid-up capital:

Represents the money that the company has that is not borrowed in any way;
Is usually used for the day to day operations of the Company to pay salary, debts and other expenses;
While there is no minimum amount of paid-up capital requirement to set up a company in Malaysia, most private and public agencies will refuse to enter into any business relationship unless the company meets a minimum amount of paid-up capital as requested by them; and
Money that is injected as initial capital belongs to the company and cannot be claimed by the shareholders of the company- i.e. it doesn’t need to be repaid to the shareholders.

What does paid-up capital consist of?

Money. It is important that the paid-up capital figure is reflected in the company’s balance sheet/ financial statement accurately as it will determine who will enter into a business relationship with the company. For example:

Bank would want to look at it (in a loan application process) and might ask the company to increase its paid-up capital in order to loan to the company a certain amount of money;
It determines whether a company can submit a tender document for projects; and
A company operating in certain industries may be required to have certain licenses before it can commence its business operations. The company would need to have a certain amount of paid-up capital before it can obtain such licenses.

Furthermore, inaccurate financial reporting can cause the company to land itself in hot water.

For more info about Paid-Up Capital you may read here – What is Paid-up Capital in Malaysia?

Can non-cash be used as paid-up capital?

Yes and no.

Let us deal with the latter first- non-cash cannot be used as paid-up capital. As paid-up capital has to be deposited into the company’s corporate bank account, it ultimately has to be in cash.

Now let us deal with the former. It is a yes because, having said what was mentioned earlier, shares can be bought by the shareholders for consideration other than cash. This was clearly stipulated in Section 78(1) of the Companies Act¹, which states that in the process of allotting shares to a shareholder, a company shall lodge with the registrar a return of allotment within fourteen days from an allotment of shares, which includes a statement of capital (and in the case of non-cash as consideration):

The number and amount of the shares comprised in the allotment;
The amount paid/ deemed to be paid/ due and payable on the allotment of the shares;
The class of shares to which each share comprised in the allotment belongs; and
The contract evidencing the entitlement of the allottee for the allotment of shares in consideration for non-cash given by the allottee.

So how do you reconcile both?

Provide sufficient evidence of the valuation of the assets involved. This is important as:

The registrar can actually, with notice in writing, require the directors of the company to supply a statement of valuation at the current value of assets;
The valuation (assuming it is accurate) can also assist the company when it plans to enter into a business relationship with a private/ public entity.

Consult with our best Business Lawyer today to know more about Paid-Up Capital: