For most company owners or shareholders, the word Paid-Up Capital may be familiar. However, for new companies, they might still not know what is paid-up capital, the minimum amount required, and other things about paid-up capital. Worry not because in today’s article we will briefly explain more about Paid-Up Capital.
What is a 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 such as to pay salary, debts, and other expenses.
What is the minimum Paid-Up Capital to set up a company in Malaysia?
There is no minimum paid-up capital requirement to set up a company in Malaysia. However, 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.
For example, the immigration department of Malaysia would require a minimum capital of RM500,000.00 for a company wholly owned by foreigners, to make a visa application.
We usually recommend an initial paid-up capital of RM1,000 for all new companies upon registration with SSM, but 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 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 are distributed amongst the shareholders.
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.
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 of 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 of ordinary shares
The paid-up of the Company is still at RM60,000.00
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