Legal Opinion-Rights of Foreign Shareholders in a Malaysian Company

Hi All,

I was asked by one of client to write this legal opinion in brief about the rights and powers of Foreign Shareholders in a Malaysia Company. I think it is good to share with everybody else.

However please take note that this legal opinion is very brief and in general. It may somehow give general idea of the issue discussed.

Case Background

A foreign company from Singapore ('ABC Company') hold a 15.5% (the numbers and name are not actual) shares in a Malaysia Company. Being a foreign shareholder, ABC Company is concerned and wishes to be advised as of its rights as shareholders, its power of vote, access and read account books and records.

On a separate matter, ABC Company also wishes to be enlightened on the latest ruling of Malaysian laws and regulations on FIC (Foreign Investment Committee).

Issue

1. 
   
   What are the basic rights and powers of shareholders in Malaysia Company?
   


2. 
   
   Whether ABC Company having hold 15.5% of shares could be well protected under Malaysian Legal System? Whether they could exercise all its rights and powers?
   


3. 
   
   Division of corporate powers between board and shareholders, whether ABC Company as shareholder will be sufficiently protected and/or whether they could have any kind of monitoring system on the company's activity?
   


4. 
   
   Protections under companies act 1965.
   


5. 
   
   What is the current position of FIC rulings in Malaysia?
   


6. 
   
   Brief on EKUINAS (Ekuiti Nasional Berhad)
   

What are the basic rights and powers of shareholders in Malaysia Company?

1. Malaysian Company Laws is not much different from Singapore Company Laws as it origin from the same root. However, though identical in principle there are differences in both laws as amendments took place from time to time.
   


2. Companies in Malaysia are government under Companies Act 1965 (as the general and principle act) and other related laws such as Security Commission Act 1993, Security Industry Act 1983 and many more (especially for listed company).
   


3. 
   

   The shareholder have few basic rights namely requisition for and convene general meetings; attend, appoint a proxy and speak at general meetings; vote at general meetings; getting information such as Registers of Substantial Shareholders, Registers of Debentures, Instruments and register of charges, register of Directors' Shareholdings, Registers of Directors and Secretaries, Minute Book of General Meetings, Register and index of Members, a copy of audited financial statements (must be circulated to shareholders at least 14 days before the meetings; and above all, to enforce these rights.
   



4. 
   

   To answer your question whether ABC Company has the right to vote, yes they definitely has. And the question on whether your company has the right to inspect/access/read account books, basically yes, only at the annual general meeting or extra ordinary meeting (should ABC Company does not appoint any proxy or director holding executive powers). I will discuss and elaborate further on the issue of division of power bellow.
   



5. 
   

   Assuming that ABC Company does not appoint any director representing its executive interest, the best chance for them to inspect and read the account books (or even objecting or regulating the company business activities) is at the annual general meetings. The meetings among all (as provided under table A of Article 46 in the forth schedule of the Companies Act 1965-if the company adopt the article-most companies in Malaysia adopting it) will enable your company to:-
   



6. 
   

   Peruse the consideration of the accounts, balance sheet and reports of the directors and auditors;
   

   
   
   
   
   1. Declaring a dividend (if any) recommended by the directors;
      
   
   
   2. Election of directors in place of those retiring; and
      
   
   
   3. Appointment and fixing of remuneration of auditors
      
      
      

      
      

Whether ABC Company having hold 18.4% of shares could be well protected under Malaysian Legal System? Whether they could exercise all its rights and powers?

1. Deriving from limited information given, and presumably that ABC Company only holds shares in the Malaysia Company without having any executive directorship; as I mentioned above the most possible chance to regulate, 'inspect' and 'interfere' the business activities is through annual general meetings.
   
   
   



2. Holding 15.5% shares will entitle you to:-
   
   
   
   
   
   
   
   1. Attending annual general meetings and extra ordinary meetings;
      
   
   
   2. Two or more members holding not less than 10% of issued share capital may call for a meeting;
      
   
   
   3. The shareholders must convene the general meeting in a manner as close as possible to the conduct of general meetings in accordance with the articles of the company;
      
   
   
   4. Members holding than not less than 10% of the paid-up share may requisition for the convening of an EGM. The directors must proceed to convene EGM as soon as possible, within 21 days from the date of receipt of the requisition. The meeting shall be held no later than 2 months after the date of receipt of the requisition;
      
   
   
   5. If the directors fail to convene the EGM as requisitioned by the members within 21 days after the date of the requisition was received, any requisitionists representing more than ½ of the total voting rights of all the requisitinists may proceed to convene the EGM.
      
   
   
   6. Your company has the right (through its proxy) to speak at AGM and EGM (however be careful that if your company being members of the Malaysia Company still in arrears, may be barred/or allowed with specific condition from attending a meeting if the articles of association so provided).
      
   
   
   7. Companies Act provide that every shareholder has a right to vote at any general meeting of the company and each equity share issued by public company or a subsidiary of a public company (should the Malaysia Company is a public company) shall confer the right to one vote at a poll at any general meeting.
      

Division of corporate powers between board and shareholders, whether ABC Company as shareholder will be sufficiently protected and/or whether they could have any kind of monitoring system on the company's activity?

1. Again, just to elaborate further and answer simple question on whether or not your company may have the rights to vote and to read account book; I think it would be better to explained briefly the issues of division of powers between board and shareholders.
   
   
   



2. Originally all the decision making power of a company lies in the assembly of the shareholders during the general meetings.
   
   
   



3. But that is no longer practical especially when carrying current complex business affairs, hence most day to day various function of the company are now vested to individuals other than the shareholders themselves. Perhaps for practical and legal reason, the corporate powers of companies are divided between the board of directors and the shareholders. The shareholders in the general meetings and the board now have been the management powers.
   
   
   



4. In short, the board are expected to carry 'trustee-like' fiduciary duties and common law duty to exercise care, skill and diligence to ensure certain minimum standards of behaviour, compliance of laws and most important not to shrouding transactions in secrecy.
   
   
   



5. The power of the board are conferred by the memorandum and articles of association, companies act, common laws and listing rules of relevant exchanges (for public company).
   
   
   



6. The directors (board) are expected under the companies act to:-
   
   
   





1. Keeps accounts


2. Ensure that a balance sheet and profit and loss statement be made out for each financial year


3. Ensure that a directors' report be written for each financial year


4. Lay before the company at its annual general meeting, a profit and loss account, balance sheet and directors' report for the financial year


5. Act honestly and take reasonable care and diligence in exercising his power
   


7. Directors as fiduciaries are subject to the following duties:
   


8. 
   
   
   
   1. Must act bona fide in the interest of the company and must not exercise their powers for any collateral purpose.
      
   
   
   2. Must not place himself in a position which there is a conflict between his duty to the company and his personal interest or duties to others.
      
   
   
   3. Must not make any secret profit out of the position as director.
      
      
      

Protections under companies act 1965

There are several protections provided under the Companies Act 1965 and other rules related to it. Among most common is the statutory protection and remedies of the minority shareholders (under section 181 of the act), disclosure by directors under section 131 onwards of the same act and so on.

FIC and EKUINAS

The new guideline which terminates the FIC and its function commenced on 30 June 2009 and all FIC requirement imposed before on companies are immediately cancelled. FIC now be replaced by a unit under UPE (Economy Planning Unit) under the Prime Minister Department. However, your company must understand that the 30% bumiputera equity requirement is still exist at the macro level and all other requirement under specific sector still remains intact. For example, there are sectors in which still not been liberated by the government and required certain bumiputera's equity.

Participation of bumiputera equity is now carrying out under the EKUINAS, Ekuiti Nasional Berhad a government investment arm company which will identify and venture into Malaysian private company (which is yet to be listed public).

Legal Reference

1. 
   
   Security commission
   


2. 
   
   Companies act 1965
   


3. 
   
   CLJ Law Article: 'minority shareholders' actions by Jim Corkery
   


4. 
   
   CLJ Law Article: 'minority shareholders' remedies-proposal for reform for Malaysia' by Assoc. Prof Dr Samsar Kamal Abdul Latif
   


5. 
   
   CLJ Law Article: 'company directors & offences under the companies act in Malaysia & Singapore 1' by Yashwant Rai Vyas
   


6. 
   
   Minority shareholders watchdog group
   


7. 
   
   FIC