What do you need to know about Paid-Up Capital?
As usual, most of the content that we publish originates from real questions asked by real clients. So today, we will be explaining to you about Paid-Up Capital in the easiest way we know-how.
Disclaimer: This content is only applicable when you set up a Company (Sdn Bhd).
What is Paid-Up Capital?
Paid-Up Capital means the actual amount of funds/capital injected into a company by the Shareholder(s), usually in exchange for shares in the Company. The said funds may then be utilized for the day-to-day operations of the Company to pay salary, debts, and other expenses.
What is the minimum Paid-Up Capital to setup a Company in Malaysia?
There is no minimum paid-up capital requirement to set up a Company in Malaysia, but it is important to note that most government agencies, banks, or other entities may require that a Company meet a minimum amount before they would even consider any application for a loan, license, tender as well as any business dealings.
As an example – the immigration department of Malaysia would require a minimum capital of RM500,000.00 for a Company wholly owned by a foreigner, to make a visa application.
Recommendation: We usually recommend an initial paid-up capital of RM1,000 for all new companies upon registration with SSM. This is because, when setting up your bank account, the banks would usually ask for a minimum of RM1,000 deposit, so you can use that as paid-up capital. Please consult your company secretary or alternatively consult your lawyer or business advisors on the best amount for your business. This is because, for some Companies, it is very important to get it right at the point of incorporation due to any applications which may affect the operation of the business.
Can the Company increase Paid-Up Capital without actually transferring money to the Company’s Bank Account?
Absolutely Not!!! – any increase must be done with proof or evidence that the company has received the relevant amount of money from respective shareholders. Failure to remit the payment for the increase is a Major Offence punishable with RM5 Million FINE!!!
If anyone (including your lawyer, company secretary, or accountant) tells you that you can increase paid-up capital without actually transferring any money or via some suspicious manner… DON’T DO IT… you will later discover that no auditor would want to sign off your audited accounts and you technically owe the Company for the unpaid amount, which the Company has all the rights in the world to pursue.
Can the Shareholders get back the Paid-Up Capital?
It will depend on the rights attached to the shares issued to the shareholders. Ask your lawyer or Company Secretary. However, as a General Rule, if you are an Ordinary Shareholder you are only entitled to get back the contribution/injection when the company is wound up and after the proceeds of the wind up is distributed amongst the shareholders. To keep it simple, whatever money is injected into the Company as initial capital, you can “kiss it goodbye”. Paid-up capital is the property of the Company and belongs to the Company.
How is Paid-Up Capital related to Shareholding amongst Shareholders?
This is perhaps best answered with illustrations. Note: Focus on the price of the share and money injected to understand the illustrations
If Shareholder A injects RM10,000 and Shareholder B injects RM50,000 to subscribe to Ordinary Shares priced at RM1.00 per Ordinary Share. In return, the Company will issue and allot:
Shareholder A – 10,000 units of ordinary shares
Shareholder B – 50,000 units if ordinary shares
The paid-up of the Company is at RM60,000.00
If Shareholder A injects RM10,000 and Shareholder B injects RM50,000 to subscribe to Ordinary Shares priced at RM5.00 per Ordinary Share. In return, the Company will issue and allot:
Shareholder A – 2,000 units of ordinary shares
Shareholder B – 10,000 units if ordinary shares
The paid-up of the Company is still at RM60,000.00
How to increase Paid-Up Capital in Malaysia with SSM (Company Commission Malaysia)?
Step 1 – Contact your Company Secretary to prepare the paperwork.
Step 2 – Transfer the funds or something of value to the Company. Provide the supporting document to your Company Secretary
Step 3 – Company Secretary lodge the documents with SSM.
Important Note: It would be best to seek legal advice before increasing your paid-up capital, is it will affect shareholding % and your voting power. You may not want to accidentally lose control over your company.
Need to seek legal advice regarding Paid-Up Capital in Malaysia? Talk with the company secretary or business lawyer:
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