SHARES IN MALAYSIA

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1.0 INTRODUCTION
In order to create a company, fund is needed. And here, fund can be obtained by issuing
shares by each of the members. After the company has been formed, company usually issues
shares to increase the amount of capital for operational and strategic reasons. In another word,
shares functioned as an integral part of the company where investors can own shares directly or
indirectly through mutual funds.1
It is essential to note that the shares that each member holds empower him to acquire
benefit from the company’s business profits. This is by receiving dividends and also a share in
any surplus when the company is wound up. Rationally, a member of company who contributes
more capital than the other will demand greater benefits from the company. This includes a
proportionally higher share in distributions of the company’s profits and also greater influence
on the company’s affairs like having more votes at members meetings. Thus, the aim of this
paper is to discuss and explain most of related topics on shares particularly on the types and
issues of shares.
It must be understood that shares and dividends are closely related yet different. Shares
are evidence of ones ownership in an enterprise, while dividends on the other hand are some kind
of payments made by the enterprise to those who own the shares, or to the shareholders.
Anyhow, shares can be purchased at a stock market if the company publicly held or advertise it.
In addition to that, shares in privately-held companies are also sometimes available, but cannot
be purchased in any of the public stock markets. In fact, purchasers of shares for privately-held
companies may have to meet special requirements established by the company.2
There are several definitions of share. As according to Section 4 of Companies Act
1965, a share defined as a share in a share capital of a corporation and includes stock except
where a distinction between stock and shares is expressed or implied. Meanwhile under Common
Law, Section 542 of Companies Act 2006 stated that a share is essentially a unit of account for
measuring a member’s interest in a company. Each share in a company is limited by shares
1 Chirantan,B. (n.d.). Importance of shares. Retrieved on 13th October 2015,from
http://finance.zacks.com/importance-shares-1133.html
2 Accordingto WiseGEEK website. (n.d). What is the difference between shares and dividends? Retrieved on 13th
October 2015, from http://www.wisegeek.com/what-is-the-difference-between-shares-and-dividends.htm

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which require it to have a sum of money assigned to it as its nominal value3 and this is the size of
the unit of account.4 In the case of Borland’s Trustee v Steel Brothers & Co Ltd5, share can be
construed as an interest of shareholders in the company measured by a sum of money for purpose
of liability in the first place, interest and also represents a mutual agreement between the
shareholders inter se.6 Meanwhile Black’s Law Dictionary gives a simpler meaning for share.
Here, share is considered as a portion of anything. And when a whole is divided into shares, they
are not necessarily equal.7 In short, overall meaning of share as to our understanding is an
agreement between members to hold a company which measured by a sum of money, depending
on the unit price of the share in each company.
Section 98 of Companies Act 1965 stated about nature of shares which should be in
term of movable property and transferable in the manner provided by the articles. Meanwhile
according to Section 100 of the same act stated that,
(1) A certificate under the common or official seal of a company specifying any shares
held by any member of the company shall be prima facie evidence of the title of the
member to the shares.
(2) Every share certificate shall be under the common seal of the company or (in case of
a share certificate relating to shares on a branch register) the common or official
seal of the company and shall state as at the date of the issue of the certificate –
(a) The name of the company and the authority under which the company is
constituted;
(b) The address of the registered office of the company in Malaysia, or where the
certificate is issued by a branch office, the address of that branch office; and
(c) The nominal value and the class of the shares and the extent to which he shares
are paid up.
3 Meaning of nominal value:the priceof a share,bond, or security when itwas issued,rather than its current
market value.
4 Derek, K., Stephen, M., & Christopher,R. (2011). Company law 2011-2012 (28th Ed). United States: Oxford
University Press Inc.
5 [1901] 1CH 279
6ZafrarieAron. (2011). Shares. Retrieved on 13th October 2015, from http://www.slideshare.net/Zafayie/shares-
9431147
7 Accordingto The Law Dictionary.(n.d.). What is share? Retrieved on 13th October 2015,from
http://thelawdictionary.org/share/

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(3) Failure to comply with this section shall not affect the rights of any holder of shares.
(4) If default is made in complying with this section the company and every officer of the
company who is in default shall be guilty of an offence against this Act.
So basically, the above statute stated about issuing share certificate as that would be prima facie
evidence of the title. However, failure to comply, shall not affect the rights of the shareholders.
It must be mindful that shares give certain rights to shareholders depend on the types of
the share itself. Shares issued can give different rights depends on class of shares that a person
holds. Rights regarding to shares may vary in regard to entitlement to dividends, priority in
relation to payment of dividend, voting rights, priority in repayment of capital and also rights to
surplus assets upon winding up. Apart from that, the rights normally attaching to shares may be
divided into three categories namely, right to vote, right to participate in dividends and right to
receive a share of the surplus capital on a winding up.8
Hence, through this research, we will disclosed the types of shares itself which
determines the right of shareholders in each company. Those types comprises of ordinary and
preference share in general, and other types of shares. Plus, we are going to differentiate or make
a comparison between ordinary and preference share in order to make readers gain more
understanding about these shares. Supplementary to that, we intend to disclose further in details
about types of preference share including redeemable preference share and also cumulative and
non-cumulative preference shares. Also in this research, we are going to reveal about function of
prospectus and its’ relation to share as well as reveal about classes of shares, variation of class
rights, issue of shares at premium and at discount, and share buy-back. Apart from that, to learn
further, we also will go into detail about all these mentioned topics beforehand thus, making a
short review or analysis on that. It is vital to have further studies about all these since share
functions as the backbone of each corporation.
8 Andrew, M. (2009). Share and share capital under Companies Act 2006.Britain:Jordan PublishingLimited.

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2.0 TYPES OF SHARES
When an individual acquires shares in a company, he becomes a shareholder and when
his name is registered in the register of members, pursuant to Section 158(1) of Companies Act
1965, he becomes member of the company and may have certain rights. The statute states that,
‘Every company shall keep a register of its members and enter therein
(a) the names, addresses, the number of the identity card issued under the National
Registration Act 1959 if any, nationality and any other relevant information and
particulars of the members, and in the case of a company having a share capital a
statement of the shares held by each member, distinguishing each share by its
number, if any, or by the number, if any, of the certificate evidencing the members’
holding and of the amount paid or agreed to be considered as paid on the shares of
each member;
(b) the date at which the name of each person was entered in the register as a member;
(c) the date at which any person who ceased to be a member during the previous seven
years so ceased to be a member; and
(d) in the case of a company having a share capital, the date of every allotment of shares
to members and the number of shares comprised in each allotment.’
Whilst all members of company can have equal status, it is possible for the memorandum
and articles of each company to specify that some shareholders shall have ‘preferential rights’
depending on the types of shares that they hold. If there is no such provision provided, then
members will have the same rights and will only be distinguished by amount of shares that each
of them hold. So basically, the more shares one has, then the more votes and control one will
have.9
However generally, there are two types of shares which are ordinary shares and also
preference shares that company would issue. Further, there are also other few types of shares;
some might rarely be issued such as deferred share, non-voting ordinary share, and redeemable
9 Catherine, M. (2013). Company law (3rd ed). Great Britain:Thomson Reuters (Professional) Ireland Limited.

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share. It must be noted that each of types of share provides with own strength, benefit, own
ranking and also will be giving different types of rights to the holders.
2.1 Preference Share
Section 4(1) of Companies Act 1965 states that ‘preference share’ refers to a share by
whatever name called which does not entitle the holder thereof to the right to participate beyond
a specified amount in any distribution whether by way of dividend, or on redemption, in a
winding up or otherwise. In other words, the holder of the preference share may not have the
right to vote, or the right to participate beyond a specified amount in the distribution of dividend
or surplus assets upon the company’s winding up. However, regardless of the aforesaid
restriction, Section 148(2) of Companies Act 1965 stated that,
‘Notwithstanding subsection (1), the articles may provide that the right of holders of
preference shares to attend and vote at a general meeting of the company may be suspended
upon such conditions as may be specified:
Provided that any preference shares issued after the commencement of this Act shall carry the
right to attend any general meeting and in a poll thereat to at least one vote for each ringgit or
part of a ringgit that is paid up on each share
(a) during such period as the preferential dividend or any part thereof remains in arrear
and unpaid, such period starting from a date not more than twelve months, or such
lesser period as the articles may provide, after the due date of the dividend;
(b) upon any resolution which varies the rights attached to such shares;
(c) upon any resolution for the winding up of the company.’
In another word, Section 148(2) provides that the holder of preference shares shall be entitled to
attend, vote and also speak at the company’s meeting under few situations. Such situation
enabled the holders to have that right when his preferential dividend is due and payable, on a
resolution to vary the rights attached to his shares, or on a resolution to wind-up the company.10
10 Chan, W, M. (2012).Company law in Malaysia. Selangor: Cengage LearningAsia Pte Ltd. Pg 121-122.

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In short, the holders of preference shares have the rights which are different from the
holders of ordinary shares. And such rights for holders of preference shares must be stated in the
company’s memorandum or articles of association11 as prescribed under Section 66(1) of the
Companies Act 1965,
‘No company shall allot any preference shares or convert any issued shares into preference
shares unless there is set out in its memorandum or articles the rights of the holders of those
shares with respect to repayment of capital, participation in surplus assets and profits,
cumulative or non-cumulative dividends, voting, and priority of payment of capital and dividend
in relation to other shares or other classes of preference shares.’
In this statute, it states that the company’s memorandum or articles of association shall stipulate
the rights of the holders of preference shares with respect to repayment of capital, participation in
surplus assets and profits, participation in cumulative or non-cumulative dividends, voting,
priority of payment of capital in relation to ordinary shares and other classes of preference
shares, and also priority of payment of dividend in relation to ordinary shares and other classes
of preference shares.
2.1.1 Types of Preference Share
Essentially, there are few types of preference share namely participating preference share,
cumulative preference share, non-cumulative preference share, redeemable preference share, and
also non-redeemable preference share.
2.1.1.1 Participating preference share
Participating preference share is when the company is successful, and gets profits, and
then the shareholders would be entitled to participate in the profits beyond the fixed dividends by
way of an additional fluctuating. While for non-participating preference shares the shareholders
11 Wan Murshida Wan Hashim.(2010). Introduction to company law in Malaysia. Shah Alam: University Publication
Centre (UPENA). Pg 222.

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are not entitled to participate in the surplus profits or assets. They are only entitled to a fixed rate
of dividend which being determined by the company.
2.1.1.2 Cumulative preference share
Cumulative preference share means a share when dividend accumulate until such time
that the company is in a position to declare dividend, then the accumulated dividends of the
preference shares are to be paid first. Basically, this type of share happens when unpaid
dividends on preference shares are treated as arrears and are carried forward to subsequent
years12. In a clear word, the dividend that is supposed to be paid to the preference shareholders is
unpaid and the shares are accumulated until the fixed amount could be paid in full.
This dividend is unpaid usually due to the less profit and due to the financial problems
that the company face. All dividends owed to holders of cumulative preferred shares must be
paid before holders of noncumulative, preferred and ordinary shares can receive dividends. Non-
cumulative preferred does not accumulate unpaid dividends, but its dividends are paid ahead of
preference shares, after any accumulated dividend obligations have been paid to holders of the
cumulative preferred. Ordinary shares dividends get paid last. Cumulative preferred also ranks
higher than noncumulative preferred in the event of liquidation of company assets.
In the case of Foster V Coles, Foster & Sons Ltd.13, The articles of the company
provided for cumulative preferential dividend for preference shares. The company altered its
articles and the word ‘cumulative’ before ‘preference’ was dropped. This was done obviously
with the intention of converting the cumulative preference shares into non-cumulative preference
shares. It was held that the share were still be cumulative as there was no clear provision to make
them non-cumulative.
12 Gitman, L., & Zutter, C. (2014). Stock Valuation.In Principles of managerial finance (14th ed.). Pearson.
13 (1906) 22 tlr 555

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2.1.1.3 Non-cumulative preference share
Non-cumulative preference share referred to a share that is opposite with cumulative
preference share which is unpaid dividends do not accrues. Non-cumulative preference shares
have the right to get fixed rate of dividend out of the profits of current year only. They do not
carry the right to receive arrears of dividend. If a company fails to pay dividend in a particular
year then that need not to be paid out of future profits.
For example, let us assume that Legacy Company fixed the rate of dividend to the
cumulative and non-cumulative preference shareholders amount of $2.80 annually. By regards of
this issue, on this particular year, the company did not pay the annual fixed dividend which is
$2.80 towards the cumulative shareholders and also towards non-cumulative shareholders.
However, the cumulative shareholders are entitled to get the dividend that they missed on that
particular year on some point in the future. Unluckily for the non-cumulative shareholders, they
would not receive any payment that they missed which is $2.80 on that particular year either in
future as they are not entitled to do so14.
14 Noncumulative Definition | Investopedia. (2006,April 6). Retrieved October 16, 2015, from
http://www.investopedia.com/terms/n/noncumulative.asp#ixzz3oiNArRYf

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For a clear example, here is some calculation regarding cumulative and non-cumulative
preference shares15:
The capital structure of Friends, Inc., is given below:
Preference shares - $20 par value, 10,000 shares authorized,
8000 shares issued and outstanding $160,000
Ordinary shares- $10 par value, 100,000 shares authorized,
70,000 shares issued and outstanding +700,000
Total paid-in capital 860,000
Retained earnings +640,000
Total shareholders’ equity $1,500,000
During the current year, management declared a dividend of $70,000. Dividend on
preferred stock are 6% of par value and have been paid each year except for the immediate past
year. The number of shares issued and outstanding of both the types of shares have not changed
for the last two years.
Solution:
Annual dividend on preference shares:
160,000 × .06 = $9,600
15 Cumulativeand noncumulativepreferred stock. (n.d.). Retrieved October 17,2015, from
http://www.accountingformanagement.org/cumulative-and-noncumulative-preferred-stock/

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(1) If the preference shares is non-cumulative:
Total dividend declared by the
management
$ 70,000
Amount of dividend to preference
shareholders (current)
- 9,600
Amount of dividend to ordinary
shareholders
60,400
(2) If preference shares is cumulative:
Total dividend declared by the
management
$ 70,000
Amount of dividend to preference
shareholders:
Dividends for current year 9,600
Dividends in arrears +9,600 +19,200
Amount of dividend to ordinary
shareholders
50,800
In the case of Staples v Eastman Photographic Material co.16 the articles of association
of a company contained a provision that “the holders of preference shares shall be entitled, out of
the net profits of each year to a preference dividend at the rate of 10% per annum.” Shares were
held to be non-cumulative shares as the provision in the articles clearly prevented payment of
16 (1896) 2 ch. 303

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arrears of dividend out of the profits of subsequent years. It means that the dividend was to be
paid out of profits of each year.
2.1.1.4 Redeemable preference share
For redeemable preference share, it may be classified by the company as a liability,
equity, or as a compound financial instruments consist of both equity and liability components.
In other word, it is types of shares which can be redeemed or repaid after the expiry of
a fixed period or after giving the prescribed notice as desired by the company. Terms of
redemption are announced at the time of issue of such shares. Other name for redeemable
preference shares is callable stock17
The classification depends on the rights of the holders as stipulated in the company’s
constitution.18 Meanwhile Section 61(1) of Companies Act 1965 states that,
‘Subject to this section a company having a share capital may, if so authorized by its
articles, issue preference shares which are, or at the option of the company are to be, liable to be
redeemed and the redemption shall be effected only on such terms and in such manner as is
provided by the articles.’
Based on the statute above, it states that preference share shall be redeemed. Meanwhile Section
61(2) of the same Act stated that,
‘The redemption shall not be taken as reducing the amount of authorized share capital of
the company.’
So, this type of preference share may be redeemed if authorized by the articles at the
option of the company. However, the unit price shall not be reduced from the authorized share
17 Bragg, S. (2013,July 4). Whatis callable stock? - Questions & Answers - AccountingTools.Retrieved October 16,
2015,from http://www.accountingtools.com/questions-and-answers/what-is-callable-stock.html
18 Leo, K., Hoggett, J., Sweeting, J., & Radford, J. (2009). Company accounting (8th ed). Australia:John Wiley & Sons
Australia Ltd.Pg 51.

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capital of the company. This can be seen in the case of Chloride Eastern Industries Pte Ltd v
Premium Vegetables Oils Sdn Bhd19.
The petitioner subscribed to 2,500,00 non-cumulative preference shares of the
respondent. On 10 December 1991, the offer came into pursuant in a circular resolution. The
petitioner applied to the court below on the ground that the respondent redeem the shares from
the petitioner with no loss of value at RM2.5 million but it was dismissed. Therefore, petitioner
appeal.
Petitioner claimed that his right in dividend was being deprived for the year 1991 due to
the non-recognition under art. 4B of Memorandum and Articles of Association (AA) of the
respondent. According to the said article, the non-payment of dividend would entitle the
petitioner for compensation, voting rights and the right to nominate its representative on the
Board of Directors of the respondent. However, respondent claim that petitioner has no right to
dividend as it was allotted in May 1992 thus petitioner has no right under art. 4b of the AA.
Respondent also declared that on 1991 there will no dividend given due to their financial loss.
It was held that no issue on allotment of shares as the shares were bought by the
petitioner on 1991 thus he should receive his dividend on that very particular year.
Non-declaration or non-payment of the dividend for any financial year would confer
certain rights to the petitioner, such as, compensation, voting rights and the right to nominate its
representative on the Board of Directors of the respondent pursuant to art. 4B of the AA.
Besides the petitioner did not received any dividend and was not given his voting right.
Instead, the respondent passed a resolution to redeem the shares from the petitioner at the value
determined by its Board of Directors. Other than that, petitioner was not allowed to nominate its
representative on the Board of Directors. In view of the above, it was clear that the respondent
had been oppressive of the petitioner.
Any redemption to be done must be in accordance with art. 4B of the AA unless
amended. Article 4B stated that the redemption should be the full aggregate value subscribed
(including premium paid) in two equal instalments in the fourth and fifth year after the
19 [2002] 2 MLJ 43

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subscription. Sections 60 and 61 of the CA prohibits the redemption of preference shares at
lesser value than the aggregate amount subscribed. The said provisions of the CA could not be
modified by resolutions passed. In the present case, the aggregate amount subscribed in s. 61 of
the CA for the preference shares and the premium paid herein was RM1 per share. The offer by
the respondent to redeem them at RM0.10 per share was contrary to s. 61.
To make things clear in regard of this case, a company cannot redeem to the redeemable
preference a lesser value then the amount subscribed. It could be conclude that if a shareholder
subscribed for redeemable preference shares and they pay the amount of premium to the
company, the company later on must redeem the shares on the amount subscribed as the
shareholders have their very own right to get their redeemable premium20.
Section 60 and 61 of the Companies Act 1965 clearly prohibit the redemption
of preference shares at lesser value than the amount subscribed and these provisions could not be
modified by resolutions passed by the company since preference share is a fixed right
incorporated to the holders to protect their rights. It must be noted that the aggregate amount
subscribed in Section 61 of the Act means the sum subscribed for the preference shares and the
premium paid, which in this case is RM1.00 per share. As such the offer by the respondent to
redeem the shares at RM0.10 per shares from the petitioner was contrary to Section 61 of the
Act. Therefore, such redeemable act by the respondent was not valid.
2.1.1.5 Non-redeemable preference share
Lastly, the other type of preference share is non-redeemable preference share. This is a
type of preferred stock that includes an option for the shareholders to convert the preferred
shares into a fixed number of ordinary shares.21 Non-redeemable preference share is preference
shares, which cannot be redeemed during the life time of the company. The amount of such
shares is paid at the time of liquidation of the company.
20 Rachagan,S., Pascoe,J., & Joshi,A. (2010).Share Capital.In Concise Principles of Company Law in Malaysia (2nd
ed.). PetalingJaya, Selangor:LexisNexis.
21 ZafrarieAron. (2011). Shares. Retrieved on 13th October 2015, from http://www.slideshare.net/Zafayie/shares-
9431147

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2.2 Ordinary Share
Ordinary share is an equity investment that represents ownership in a corporation and
each unit of such share represents a fractional ownership interest in the business. Ordinary share
also known as equity share and this type of share defined in Section 4(1) of Companies Act
1965 as ‘any share which is not preference share”. Section 148(1) of the same Act gives the
rights to attend, speak and vote at the general meeting for the holders of the ordinary share. It
states that,
‘Subject to subsection (2), every member shall notwithstanding any provision in the
memorandum or articles have a right to attend any general meeting of the company and to speak
and vote on any resolution before the meeting:
Provided that the company’s articles may provide that a member shall not be entitled to
vote unless all calls or other sums personally payable by him in respect of shares in the company
have been paid.’
Apart from that, the shareholders also have the right in any dividend declared by the
company as stated under Section 365 of the Companies Act 1965. And also, when the company
is wound-up, the shareholders of ordinary share may have the right over surplus of assets.22
2.3 Differences between Ordinary share and Preference Share
There are certainly few differences between ordinary and preference share although at
times it may seem to give the same rights to the shareholders. What differs these two includes the
dividend. The dividend in the preference share is fixed which if not paid, usually accrues until it
is done, meanwhile for the ordinary share, the dividend is uncertain and variable as it depends on
the performance of the company. In the case of Will v United Lankat Plantations Co Ltd23,
preference shares with the right to a cumulative dividend of ten per cent per annum were issued.
The dividend payable to the ordinary shareholders is generally not fixed in this way but is
payable at the rate declared by the company. This means that the amount of fixed rate has been
22 Chan, W, M. (2014). Company law in Malaysia. Selangor: Cengage LearningAsia Pte Ltd. Pg 126.
23 [1914] AC 11

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determined by the company for the shareholders of preference shares and so thus the amount of
non-fixed dividend to the ordinary shares shareholders are determined by the company as well.
In some situation where the company make such a huge profit of the year, the
shareholders may receive a large amount of dividend due to the profit they make but for
shareholders of preference share, they will still get the same amount of dividend as being fixed to
them24. This shows the advantage for the shareholders of ordinary shares.
However, if the respected company does not operate profitably, the shareholders of
ordinary shares will get a small amount of dividend and it is possible for them to not get any
dividend at all. Differ from shareholders of preference shares, the will still get the fixed amount
of dividend in spite of the less profit gain by the company. Therefore it could be said that the
fortune or luck that shareholders of ordinary shares have depend on the fortune and luck of the
company.
The other difference is ordinary share usually carries a vote25 but not a preference share
except when dividends fall into arrears. The next differences is voting right. According to section
55 of Companies Act 1965, each member of a public company (or its subsidiary) has one vote in
respect of each ordinary share owned. Whilst preference shareholders are often given limited
voting rights. Ordinary shareholders are required to vote for election of directors and change in
the memorandum of association. Shareholders may vote in person or by proxy. A proxy gives a
designated person right to vote on behalf of a shareholder at the company’s annual general
meeting.
Examples of limited voting rights are rights to vote only:
 During a period when dividends are in arrears;
 On a proposal for reduction of capital; or
 On a proposal to wind up the company.
24 Arjunan,K., & Low, C. (1995). Classes of shares.In Lipton & Herzberg's understanding company law in Malaysia
(p. 121). North Ryde, N.S.W.: LBC Information Services.
25 Section 148(2) authorized the articles to providethe right of voting to the holder of preference shares in
specified circumstances.

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However, in an article namely Encouraging Shareholders’ Participation In Company
Decision-making: A Reflection On Existing Law And Reform Issues by Aiman Nariman Bt
Mohd Sulaiman26, he stated that, a proposal raised by the Malaysian Finance Committee on
corporate governance is introducing cumulative voting. In his explanation, he mentioned,
“Cumulative voting occurs in relation to board appointments. In a cumulative voting, each
member has for each share a number of votes equal to the number of directors being elected.
Instead of ‘one vote; one share’, the member is given additional voting power based on the
number of nominees to the board. The member can allocate these votes to any of the candidates
as the member chooses.”
Few advantages of this cumulative voting is that quality, independence and accountability
of board in a particular company could be determined. Besides, in Malaysia as we well known,
the majority of shareholders are the board of directors. Any by way of cumulative voting,
minority group of shareholders could represent the board. Furthermore it will align the
shareholder and management’s interest.
These ideas that were pointed out by the author could help us to improvise sections in our
Companies Act for the benefit of all parties.
Priority to repayment of capital on a winding up is the next differences. Preference shares
have the priority to receive the repayment of capital on winding up as compared to ordinary or
equity shares. However, if there is any surplus of assets after repayment of paid up capital, the
preference shareholders will not entitled to participate in the distribution of surplus assets.
2.4 Other Types of Shares
The other types of share include deferred share, non-voting ordinary share and also
redeemable share. These shares are rarely issued by the company. ‘Deferred share’ is a share
bearing the restriction that no dividend can be paid to the shareholder for a financial year unless
ordinary shareholders are paid a certain amount for that year. Meanwhile, ‘non-voting ordinary
share’ applies in some companies whose rights to dividend and to share are like those of ordinary
26 [2003] 1 MLJ cxlviii

17
members but do not have right to vote at member’s meetings. In other words, they enjoy the
same rights as ordinary share, except that the right to vote. Lastly, redeemable share that gives
temporary membership with repayment of nominal value shares at the end period of
membership. Then, the membership will come to an end either after fixed period or at the
company’s option.27
27 Buku comp law28th

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3.0 PROSPECTUS
3.1 Introduction
Generally a public company can seek funding by inviting the public to subscribe to its
securities. Through this setting there are always risks floating in the air that the investors might
be misled into investing in the securities of a corporation because they are not in the possession
of all materials related and pertaining to the securities concerned. Besides, there are also
possibilities that information provided to the investors are inaccurate where in some
circumstances such inaccuracy were intentional for instance in the case of false representations
are made before the investors. In addition to that, such inaccuracy may also arise from omission
of facts provided to the investors.
Accuracy and materiality of facts and information to investors are indeed vital so that
they have ultimate confidence in the capital market28. The law seeks to safeguard this element by
endorsing that all material information must be disclosed to investors prior to them in deciding
their investment. This can be achieved through the establishment of prospectus which the law
has enforced criminal and civil liability to those who are responsible in the ill-making
prospectus; inaccuracy and concealment of material facts towards the investors as conjointly, the
aim of the prospectus provisions is to balance the needs of investor protection with an efficient
and credible capital market29
Pertaining to the assurance of law in protecting and preventing the investors from any
unfortunate events, started from 1st July 2000, the Securities Commission (SC) is the authority
made responsible to approve and register prospectuses that are issued to the public for
investment purpose30. Be that as it may the prospectus registered through the SC must still be
lodged with Companies Commission of Malaysia (CCM).
28 Prospectus.(2012, June 25).Retrieved October 15, 2015,from
http://www.slideshare.net/usmanuddin/prospectus-13443586/4
29 Arjunan,K., & Low, C. (1995). Prospectuses.In Lipton & Herzberg's understanding company law in Malaysia (p.
89). North Ryde, N.S.W.: LBC Information Services.
30 Rachagan,S., & Pascoe,J. (2005). Prospectuses.In Concise principles of company law in Malaysia (2nd ed.).
Kelana Jaya:LexisNexis Malaysia Sdn Bhd.

19
Previously, matters related to prospectus were governed by Securities Commission
Malaysia Act31 under Division 3 however on 31st July 200732 Securities Commission
(Amendment Act) 2007 has been gazetted after obtaining the Royal assent four days prior to the
gazetted date where subsequently all the provisions of the Act comes into operation except for
the deletion of Division 3 which then being enforced in Capital Markets and Services Act
200733 (CMSA).
Nevertheless, it must be in cognizant that the principal act is Companies Act 1965 (Act
125) under Part IV on Shares, debentures and Charges; Division 1 concerned particularly on
Prospectuses started from Section 36A up until Section 47B, Schedule Fifth and Schedule Sixth.
Primarily, the sections stipulated under Companies Act are likewise in the CMSA but in a
broader and wider scope as the rules and regulations are meticulously laid down under the
CMSA so that it is well-structured thus accessible by all even the laymen. In respect of this part,
the sections that will be referred to will be sections that has been laid down in the CMSA or
otherwise will be stated.
As mentioned before, the principles in regard to the preparation, registration and issues of
a prospectus are governed by Capital Markets and Services Act 2007 (CMSA) under Part 6
Division 3 and also Prospectus Guidelines imposed by the SC on 8th May 2009 which carried
out from 3rd August 200934.
The rules in administering prospectuses basically pursue to insure that firstly, prior to
investing in any company securities, the prospective investor will be provided with written
information that will facilitate his investment decision-making in the said company securities.
Secondly it is to ensure that information comprehended in the prospectus are material
information which such materiality is able to assist the prospective investor in making an
informed decision as to his investment. Thirdly, to guarantee that due diligence is exercised
accordingly by the prospectus’ makers and finally it is to warrant those who give false or make
31 Act 498
32 EResources - Electronic Resources for UUM Community. (n.d.). Retrieved October 14,2015, from
http://www.cljlaw.com.eserv.uum.edu.my/Members/DisplayAct.aspx?ActCode=MY_FS_AME_2007_1305&ActSect
ionNo=7&SearchId=5psb
33 Act 671

20
misleading information in a prospectus will be subjected to civil and criminal liability
correspondently.
This can be seen in the case of PP v. Mok Chin Fan & Ors [2015] 5 CLJ 52 where the
first, second and fourth respondents were directors of Inix Technologies Holdings Bhd (‘Inix’), a
company listed on the MESDAQ market of Bursa Malaysia through an initial public offering in
which RM10.14 million was raised. Prior to that, Inix had issued a prospectus dated 29 July 2005
in which 97.1% of its revenue as reported was found to be false. Inix was required to submit a
quarterly financial report to Bursa Malaysia and again, it was discovered that 93.37% of the total
sales reported in the four quarters of the financial year were false. It was alleged that the
impugned prospectus, which stated fictitious sales, was issued before the listing of Inix and the
abovementioned respondents as directors had approved the issuance of the said prospectus. The
third respondent, a senior financial executive of Inix, was in charge of the financial matters of the
company and had assisted in fabricating the fictitious sales as well as the false figures in the
financial reports. After the listing, the first, second and fourth respondents had authorised the
furnishing of false and misleading statements in Inix Condensed Consolidated Income Statement
to Bursa Malaysia in its four quarterly reports.
The court thus allowed the appeal on the basis of the offences committed by the
respondents were serious in nature. An act of manipulating and providing wrong information in
relation to the company’s financial standing, in order to invite investor’s participation is a grave
offence. On the facts, the false prospectus of Inix had wrongly impressed the public into thinking
that the company was viable and profitable. The falsity would translate into presenting a
company which suffered a loss of RM5.084 million to a company with a profit of RM2.448
million instead.
3.2 What is a Prospectus?
Before going deeper on this topic, it is better to know at the very first instance what is
prospectus in order to grasp this topic firmly. Plainly, prospectus can be said as a printed

21
statement that describes something such as a new business or investment and that is sent to
people who may want to be involved in it or invest in it or a book or document that provides
information about a school, business, etc.35
Besides it also known as a formal written document relating to a new securities offering
that delineates the proposed business plan or the data relevant to an existing business plan;
information needed by investors to make educated decisions whether to purchase the security.
The prospectus includes financial data, a précis of the firm's business history, a list of its officers,
a description of its operations, and mention of any pending litigation. A prospectus is an
abridged version of the firm's registration statement filed with the SEC36.
Legally, prospectus can be defined as a notice, circular, advertisement or document
inviting applications or offers to subscribe for or purchase securities, or offering any securities
for subscription or purchase and unless expressly specified includes a supplementary prospectus,
replacement prospectus, shelf prospectus, short form prospectus, profile prospectus,
supplementary prospectus and abridged prospectus37. Regularly, main prospectus, replacement
prospectus and supplementary prospectus are commonly invoked thus shall be discussed further
on these types of prospectuses.
3.3 Main prospectus, replacement prospectus and supplementary prospectus
First of all, the essential element to be examined thoroughly before understanding these
three commonly prospectus is Section 238 of CMSA which read as follows:
Supplementary or replacement prospectus
238. (1) This section applies–
(a) In the case of a unit trust scheme or prescribed investment scheme, where a
prospectus has been registered; or
35 (n.d.). Retrieved October 10, 2015,from http://www.merriam-webster.com/dictionary/prospectus
36 Prospectus.(2003). In D. Scott, Wall Street Words. Boston, MA: Houghton Mifflin.Retrieved from
http://eserv.uum.edu.my/login?url=http://search.credoreference.com.eserv.uum.edu.my/content/entry/hmwsw/
prospectus/0
37 Section 226 of CMSA.

22
(b) In any other case, where a prospectus has been registered but before the issue of
securities, and where the issuer becomes aware that–
(A) A matter has arisen and information in respect of that matter would have been
required by–
(i) Section 235 or 236;
(ii) Any requirement under this Act;
(iii) Any guidelines issued by the Commission; or
(iv) Any listing requirement of a stock exchange, to be disclosed in the
prospectus if the matter had arisen at the time the prospectus was
prepared;
(B) There has been a significant change affecting a matter disclosed in the
prospectus;
(C) The prospectus contains a material statement or information that is false or
misleading; or
(D) The prospectus contains a statement or information from which there is a
material omission.
(2) As soon as practicable after becoming aware of a matter referred to in subsection (1), the
issuer shall submit a supplementary or replacement prospectus, as the case may be, to the
Commission for registration.
(3) The issuer shall lodge the supplementary or replacement prospectus, as the case may be–
(a) in relation to securities other than a unit trust scheme or prescribed investment
scheme, with the Registrar immediately upon registration by the Commission; and
(b) in relation to a unit trust scheme or prescribed investment scheme, with the
Commission immediately upon registration by the Commission.
(4) Subsection (1) shall apply with respect to matters contained in a supplementary or
replacement prospectus, as the case may be, previously registered under this section in respect
of the securities in question.
(5) On each page of a supplementary prospectus, there shall be a clear statement in bold type
that states that the document is a supplementary prospectus that is to be read in conjunction with

23
the original prospectus and if other supplementary prospectuses have been issued in relation to
the original prospectus, both the original prospectus and the supplementary prospectuses.
(6) At the beginning of the replacement prospectus, there shall be a clear statement
in bold type that states the document is a replacement prospectus, and identifies the prospectus
which it replaces.
(7) A supplementary prospectus shall be regarded as being part of the prospectus to which it
relates and the provisions of this Act and any other law relating to liability in respect of
statements in and omissions from prospectuses or otherwise relating to prospectuses shall apply
to such supplementary prospectus and shall have effect accordingly.
(8) A replacement prospectus shall be regarded as replacing the prospectus previously
registered under section 233.
(9) Where a supplementary prospectus has been registered by the Commission, every copy of the
original prospectus issued after registration of the supplementary prospectus must be
accompanied by a copy of the supplementary prospectus.
(10) Notwithstanding the provisions of this section, the Commission may, on the written
application of any issuer or of its own accord, make an order relieving such person from, or
approving any variation of, the requirements of this section.
(11) In making an order under this section, the Commission may impose such terms and
conditions as it thinks fit.
(12) The Commission shall not make an order under subsection (10) unless it is satisfied that–
(a) compliance with the requirements of this Act is unnecessary for the protection of
persons who may normally be expected to deal in those securities, being persons who
would reasonably be expected to understand the risks involved; or
(b) compliance with the requirements of this Act would impose an unreasonable burden
on the issuer.
(13) Any person who contravenes subsection (2), (3), (5), (6) or (9) commits an offence and
shall, on conviction, be liable to a fi ne not exceeding three million ringgit or to imprisonment
for a term not exceeding ten years or to both.
(14) Any person who contravenes any term or condition as may be imposed by the Commission
under subsection (11) commits an offence.

24
By virtue of the said section, these three commonly prospectus shall be discussed further
below. Generally, main prospectus document refers to the document which invites applications
or offers to subscribe for or purchase securities or offering any securities for subscription or
purchase.
On the other hand, the replacement or supplementary prospectus is a prospectus that is
issued by the issuer of the main prospectus where when after having issued the main prospectus
(but before securities have been issued) the issuer becomes aware of any one from the following
situations; firstly, a matter that has arisen and information in respect of the said matter would be
required to be disclosed in the prospectus if that matter had arisen at the time the main
prospectus was prepared. Secondly, a significant change which will affect a matter that has been
disclosed in the main prospectus. Thirdly, a material statement or information which is included
in the main prospectus is a false or misleading facts. Fourthly, a material omission in respect of a
statement or information included in the main prospectus. Upon these situations, if the issuer
becomes aware then he is required to register a replacement of supplementary prospectus with
the SC38.
What is replacement prospectus? To answer the question, it is best to refer to the lengthy
Section 238 which has been laid down in advance supra. So in a simpler words, a replacement
prospectus is a prospectus which replaces the main prospectus that previously has been
registered with the SC. In accordance with the said section39 at the beginning of the replacement
prospectus, there must be a clear and bold statement stating that it is a replacement prospectus
and that it supersedes or replace the main prospectus.
On the contrary, supplementary prospectus is a prospectus that will be read in
conjunction with the main prospectus. By virtue of Section 238(5)40 each page of the
supplementary prospectus should contain a clear and bold statement which states that it is a
supplementary prospectus. In fact, the supplementary prospectus is considered as a part of the
main prospectus thus the provisions in the CMSA and other laws concerned to liability in regards
38 Section 238 of CMSA which was highlighted supra.
39 Section 238(6) of CMSA
40 Refer to the former para.

25
of statements and omissions from prospectuses or otherwise relating to prospectuses shall apply
to the said prospectus; supplementary prospectus41.
If a supplementary prospectus has been registered by the SC, it is an obligation that a
copy of the supplementary prospectus is accompanied for every copy of the original prospectus
issued after its registration. Where an issuer has submitted a supplementary or replacement
prospectus to the SC for registration and the SC has registered the prospectus but before the
securities have been issued, the issuer is required as soon as practicable to give written notice to
all applicants who have applied to subscribe for or purchase securities in the corporation.
Such written notice must inform the applicants that; firstly a supplementary or
replacement prospectus has been registered with the SC. Secondly, they have 14 days or more
from the date of receipt of the notice to withdraw their application and lastly if the application is
withdrawn the issuer will immediately reimburse the applicant any monies that have been paid
by the applicant in respect of that application. Besides, referring to the Section 239 of CMSA the
written notice must be accompanied by a copy of the supplementary or replacement prospectus.
3.4 Mandatory registration requirements
Requirement to register prospectus in relation to securities
232.
(1) A person shall not issue, offer for subscription or purchase, make an invitation to subscribe
for or purchase securities or in the case of an initial listing of securities, make an application for
the quotation of the securities on a stock market of a stock exchange unless–
(a) a prospectus in relation to the securities has been registered by the Commission
under section 233; and
(b) the prospectus complies with the requirements or provisions of this Act.
41 Section 238(7) of CMSA.

26
(2) Unless authorized in writing by the Commission, a person shall not issue, circulate or
distribute any form of application for securities unless the form is accompanied by a copy of a
prospectus which has been registered by the Commission under section 233.
(3) A person shall not issue, circulate or distribute any form of application for securities of a
corporation that has not been formed or of a unit trust scheme or prescribed investment scheme
that has not been formed.
(4) The Commission may for public information publish the registrable prospectus submitted to
the Commission before the registration of the prospectus under section 233.
(5) The publication under subsection (4) shall not indicate that the Commission recommends the
securities or assumes responsibility for the correctness of any statements made or opinions or
reports expressed in the registrable prospectus.
(6) For the purposes of this section, a “registrable prospectus” refers to a prospectus that has
been submitted under section 233 and which has yet to be registered by the Commission.
(7) A person who contravenes subsection (1), (2) or (3) commits an offence and shall, on
conviction, be liable to a fi ne not exceeding ten million ringgit or to imprisonment for a term not
exceeding ten years or to both.
Based on the section mentioned above, there are two obligations mandatorily on a
company that is public funded; firstly no person can issue, offer for subscription or purchase, or
in an initial listing of securities, make application for quotation on a stock market of a stock
exchange unless a prospectus has been registered with the SC42. Secondly, no person can issue,
circulate or distribute any form of application for securities unless the form is accompanied with
a copy of a prospectus which has been registered with the SC43. Essentially, Section 232 seeks
to ensure that any prospectuses are obliged to register with the SC or else it will be an offence

27
punishable with a fine not exceeding RM 10 million or imprisonment for a term not exceeding
ten years or both44.
Be that as it may, there are always an exception to the general rule. The requirement that
a registered prospectus must accompany any form of application for securities is not applicable
to excluded offers, invitation or issues of securities45.
Excluded offers or invitations refer to any offers or invitations to subscribe for or
purchase securities that are made to any person who is specified under Schedule 6 of the
CMSA46. Whereas excluded issue refers to an issue of securities made to any person specified
under Schedule 7 of the same act.47
This can be illustrated in the case of Frimley Estate Ltd v Fog48 where the applicant was
incorporated in 2004, and in 2004 and 2005 one of the directors (Stephen Duff) promoted the
company and invited persons to subscribe for shares in it. The respondent, Mrs Fog who was a
client of Mr Duff's financial advisory company, acquired shares in the company. She was not
provided with a registered prospectus. The Financial Markets Authority determined that some of
the shareholders were members of the public and that the applicant should have provided a
registered prospectus before seeking their subscription, thus there had been an irregular allotment
which was invalid under s 37 Securities Ac 1978.
Thus, it was held that the applicant was therefore under an obligation to repay the
subscribers who were members of the public, and to pay interest on their subscriptions.
44 Section 232(7) of CMSA which has been laid down formerly.
45 Sulaiman,A., Ariff, Z., & Khan, M. (2011).Prospectus requirements. In Corporation and Partnership in Malaysia.
Selangor: Kluwer Law International.
46 Notably, it specifies 28 types of offers or invitationsthataredeemed to be excluded offers or invitations
47 Presently, Schedule 7 specifies 33 types of issueof securities thataredeemed as an excluded issueof securities.
48 [2015] NZAR 1019; 2015 NZAR LEXIS 44

28
3.5 Registering a prospectus with the Securities Commission
As mentioned at the earlier part of this topic concerning Prospectus Guidelines provided
by the SC, the applicant must comply with such guidelines in order to register their respective
prospectus and thus must adhered to the procedures for registration governed under Part 3 of the
Prospectus Guidelines.
At the very first instance, the applicant must send a written application for registration of
the prospectus to the SC to start off. As in the case of the main prospectus, such written
application must be accompanied with supporting documents which include three registrable
copies of the prospectus, a director’s responsibility statement for the prospectus, a confirmation
that the due diligence working group has seen and verified that the prospectus complies with the
minimum disclosure requirements under the CMSA and the Prospectus Guidelines, original
copies of all letters of consent from any person who has made a statement included in the
prospectus or on which a statement made in the prospectus is based, certified copies of all
material contracts or documents referred to in the prospectus, original or certified copies of the
audited financial statements of the corporation and its subsidiaries for the last three to five years
preceding the date of the prospectus and lastly original or certified copies of the last audited
financial statements of the corporation and its subsidiaries for the current financial period49.
3.6 SC’s rights to refuse in registering
Based on Section 233(1) of CMSA the SC can refuse to register any prospectus if firstly,
the concerned prospectus does not comply with any requirements or provisions of the CMSA.
Secondly, if the prospectus contains a statement of information that is false or misleading one.
Thirdly, the issuer of a prospectus has in fact contravened securities law or the Act and such
contravention ejects doubt on the fitness of the issuer to have access to public funding.
Additionally, Part 3 of Prospectus Guidelines also provides that the SC has the right to
refute and return the prospectus if they opined that the disclosure in the prospectus is inadequate

29
and incomplete, the prospectus is not in its final or complete form and or the prospectus has
failed to be accompanied with all relevant materials and documents.
Procedurally, the SC will publish the prospectus on its website for public information
before registering the prospectus under Section 233 of CMSA. Subsequently, the public may
view and comments therein of the information disclosed in the prospectus50. Nevertheless bear in
mind that such publication by the SC does not indicate that the SC is recommending the
securities or assumes responsibility for the correctness of any statements made or opinions or
reports expressed in the prospectus51. This is in lined with Section 232(5) which states that:
“(5) The publication under subsection (4) shall not indicate that the Commission recommends
the securities or assumes responsibility for the correctness of any statements made or opinions
or reports expressed in the registrable prospectus.”
3.7 Contents of prospectuses
As prospectus’ function is to guide and assist the investors prior making their investment
decision, it is of the essence that the prospectus contains material information and misleading-
free contents. Therefore, the CMSA has empowered the SC to regulate the contents of a
prospectus in assuring that the prospectus comprises thoroughly all information vital to enable
the investor to make an assessment of the securities offered by the prospectus and also to ensure
that due diligence is unequivocally practised by the prospectus makers to avoid any misleading
or false statement is being included in the said prospectus.
As an illustration, in the case of Tucci v. Smart Technologies Inc.52 where the plaintiffs
brought a class action alleging that the prospectus for the defendant company's initial public
offering contained material misrepresentations and that the plaintiffs acquired the defendant's
securities at an artificially inflated price. A settlement agreement provided for a settlement
amount of $ 15,250,000. The court then allowed the claim as a result of the alleged
misrepresentation is material and the defendant has failed to prove otherwise.
51 Refer also to the appendices attached at the back.
52 [2013] O.J. No. 4215; 2013 ON.C. LEXIS 4321;2013 ONSC 5786

30
In respect of this subtopic, Section 235 and 236 of the CMSA thus laid down below in
order to understand clearly on the contents of prospectus; what shall be in the prospectus which
is a disclosure-based document.
Contents of prospectus
235.
(1) Without prejudice to section 236, a prospectus–
(a) shall be dated and that date shall, unless the contrary is proved, be taken as the date
of issue of the prospectus;
(b) shall state that–
(i) the prospectus has been registered by the Commission;
(ii) in respect of securities other than a unit trust scheme or prescribed investment
scheme, a copy of the prospectus is lodged with the Registrar and in respect of a
unit trust scheme or prescribed investment scheme, a copy of the prospectus is
lodged with the Commission; and
(iii) the registration of the prospectus shall not be taken to indicate that the
Commission recommends the securities or assumes responsibility for the
correctness of any statements made or opinions or reports expressed in the
prospectus;
(c) shall contain a statement that no securities will be allotted or issued on the basis of
the prospectus later than such period as the Commission may specify from the date of
issue of the prospectus;
(d) shall, if it contains any statement made by an expert or contains what purports to be a
copy of or an extract from a report, memorandum or valuation of an expert, state the date
on which the statement, report, memorandum or valuation was made and whether or not
it was prepared by the expert for incorporation in the prospectus;
(e) shall not contain the name of any person named in the prospectus as having made a
statement–
(i) that is included in the prospectus; or
(ii) on which a statement made in the prospectus is based, unless the requirements
of subsection 244(1) are satisfied; and

31
(f) shall set out such information, matters or reports as may be specified by the
Commission.
(2) A condition requiring or binding an applicant for securities to waive compliance with any
requirement of this section or section 236, or purporting to affect him with notice of any
contract, document or matter not specifically referred to in the prospectus, shall be void.
(3) Notwithstanding the provisions of this Division, the Commission may, either on the written
application of any person referred to in section 232 or of its own accord, make an order
relieving such person from or approving any variation of the requirements of this Act relating to
the form and content of a prospectus.
(4) In making an order under subsection (3), the Commission may impose such terms and
conditions as it thinks fit.
(5) The Commission shall not make an order under subsection (3) unless it is satisfied that–
(a) compliance with the requirements of this Act is unnecessary for the
protection of persons who may normally be expected to deal in those securities,
being persons who would reasonably be expected to understand
the risks involved; or
(b) compliance with the requirements of this Act would impose an unreasonable
burden on the issuer.
(6) A prospectus shall be deemed to have complied with all the requirements of this
Act relating to the form and content of a prospectus if it is issued in compliance with an order
made under subsection (3).
(7) Where a prospectus relating to any securities is issued and the prospectus does
not comply with the requirements of this section, the issuer and each director of the issuer at the
time of the issue of the prospectus commits an offence and shall, on conviction, be liable to a fine
not exceeding three million ringgit or to imprisonment for a term not exceeding ten years or to
both.
(8) Any person who contravenes any term or condition as may be imposed by the
Commission under subsection (4) commits an offence.

32
General duty of disclosure in prospectus
236.
(1) For the purpose of determining whether a prospectus contains any statement or information
which is false or misleading or from which there is a material omission under subsection 246(1)
or 248(1), regard shall be had to whether the prospectus contains all such information that
investors and their professional advisers would reasonably require, and reasonably expect to
find in the prospectus, for the purpose of making an informed assessment of–
(a) the assets and liabilities, financial position, profits and losses and prospects of the
issuer and, in the case of a unit trust scheme or prescribed investment scheme, of the
scheme;
(b) the rights attaching to the securities; and
(c) the merits of investing in the securities and the extent of the risk involved
in doing so.
(2) The information that investors and their professional advisers would reasonably require and
reasonably expect to find in the prospectus under subsection (1) is information–
(a) which is known to all or any of the following persons:
(i) a person who was a director of the issuer at the time of issue of the
prospectus;
(ii) a person who has consented or caused himself to be named and is
named in the prospectus as a director or as having agreed to become a
director, either immediately or after an interval of time;
(iii) a promoter;
(iv) the principal adviser in relation to an issue of, offer for subscription
or purchase of, or invitation to subscribe for or purchase, securities;
(v) a person named in the prospectus, with his consent, as having
made a statement that is included in the prospectus or on which a
statement made in the prospectus is based;
(vi) a person named in the prospectus, with his consent, as a stockbroker,
share broker or underwriter, as the case may be, in relation to an issue of,

33
offer for subscription or purchase of, or invitation to subscribe for or
purchase, securities;
(vii) a person named in the prospectus, with his consent, as an auditor,
banker or advocate in relation to an issue of, offer for subscription or
purchase of, or invitation to subscribe for or purchase, securities;
(viii) a person named in the prospectus, with his consent, as having
performed or performing any function in a professional, advisory or other
capacity not mentioned in paragraph (iv), (v), (vi) or (vii) in relation to an
issue of, offer for subscription or purchase of, or invitation to subscribe
for or purchase, securities; or
(b) which any of the persons referred to in paragraph (2)(a) would have been able to
obtain by making such enquiries as were reasonable in the circumstances.
(3) Without prejudice to the generality of subsection (1) or (2), in determining the
information that is required to be included in a prospectus under this section, regard shall be
had to–
(a) the nature of–
(i) the securities;
(ii) the business of the issuer of the securities; and
(iii) the unit trust scheme or prescribed investment scheme;
(b) the persons likely to consider acquiring such securities;
(c) the fact that certain matters may reasonably be expected to be known to any
professional adviser whom investors referred to in subsection 236(1) may reasonably be
expected to consult; and
(d) whether the persons to whom an issue of, offer for subscription or purchase of, or
invitation to subscribe for or purchase, securities is to be made are the holders of
securities in the corporation, or unit holders in the unit trust scheme or prescribed
investment scheme, and if they are, to what extent (if any) relevant information has
previously been given to them by the issuer under any law or any requirement of the rules
of a stock exchange, if applicable, or otherwise.

34
To put it in simpler words, the contents of a prospectus must include information that is
specified specifically in the Section 235 which has been laid down above and also the
Prospectus Guidelines that has been discussed formerly.
In consideration of understanding this part, a case shall be made into reference; Kiara
Emas Asia Industries Berhad v Tetuan Wong Chooi & Mohd Nor [2012] 2 CLJ 438 where it
was contended that the defendant failed to make full disclosure of material particulars as
prescribed under the KLSE Listing Rules and Requirements relating to a charge, a shadow
director and related party dealings in the prospectus that was done in the listing process. The
omission to make such disclosure was the operative cause to the plaintiff being listed, albeit
wrongly, and the subscribers misled by the omission to purchase the shares under the impression
that the plaintiff was financially fit and sound when that was not the case. The issues for
determination were whether the proper party to claim for losses for relying on the defective
prospectus was the shareholders of the plaintiff, whether there was a cause of action against the
defendant and whether there was a causal link and losses.
The claim was dismissed by the court as it was the investors who had purchased shares in
the plaintiff company that suffered losses upon reliance on the defective prospectus. The plaintiff
did not rely on it but was responsible for issuing it with the misrepresentations. The plaintiff
therefore did not suffer any loss and so could not sustain a suit against the defendant who had
acted in the listing process but it was further held by the court that as the plaintiff's directors
were responsible for the issuance of the prospectus, they owed a duty to potential subscribers to
maintain the veracity of the content of the prospectus. If the information set out in the prospectus
was wrong or misleading as alluded to by the plaintiff, the injury and consequent damages/losses
were due to the plaintiff through its directors for failing to take reasonable care and not due to the
negligence of the defendant53.
Section 235 mentioned above requires a prospectus to encompass the date of the said
prospectus being issued, a statement that such prospectus has been registered legally with the SC
and a disclaimer showing that the registration does not an indication that the SC is
recommending the securities nor the SC will be held responsible if there is any wrongful on the
part of the statement made, opinion and reports expressed in the prospectus and also a statement
53 See para.30 of the case

35
to the manifestation that no securities will be issued on the basis of the prospectus later than the
period specified by the SC.
On the occasion of existence a copy or an extract from a report, valuation or
memorandum prepared by an expert in the prospectus, the said prospectus must contain the date
of the report, memorandum or valuation was made and also a statement implying whether that
report memorandum or valuation was made for the objective of such embodiment in the
prospectus54.
The section also restricts the prospectus from any insertion of names whom having made
statements that is admitted to the prospectus unless that person has consented to such inclusion.
In case of a statement is being included without that person consent or he has already withdrawn
his consent then he would not be subjected to any criminal or civil liability if the facts
incorporated in the prospectus were found false or misleading statements.
Whereas the Prospectus Guidelines generally seeks to provide guidance on the usage of
plain language in preparing a prospectus55 and a guide in following the procedural flow for a
prospectus including the advertisement procedure. Apart from that, it also comprehends a
definite rules on how financial information must be bestowed upon the prospectus.
If the issuer fails to comply with the procedural guidelines, there might be some issues
that can be arisen from such failure. This is best illustrated in the case of Ratus Mesra Sdn Bhd v
Shaik Osman Majid & Ors [1999] 3 MLJ 529 where the plaintiff was in the business of ostrich
farming had advertised its business in the newspaper inviting investment in ostrich farming.
Following the publication of the advertisement, the defendant published an article entitled
'Ostrich farms should provide prospectus. The plaintiff claimed that the words contained in
certain paragraphs of the article in their natural meaning were understood to mean that the public
or potential investors must act with caution in respect of the plaintiff's dubious advertisement,
that the advertisement was deceiving, that there must be legal constraints on the plaintiff's
freedom to trade, that investors should be suspicious of the plaintiff's motives, that the plaintiff's
scheme was a sham and nothing less than an unscrupulous scheme. The plaintiff thus claimed for
54 Prospectus and Allotment of Securities COMPANIES ACT, 2013. (2014,April 23). Retrieved October 15, 2015,
from http://www.slideshare.net/proglobalcorpindia/companies-prospectus-and-allotment-of-securities-rules-
2014?related=3
55 (n.d.). Retrieved October 14, 2015,from http://www.sc.com.my/wp-
content/uploads/eng/html/resources/guidelines/prospectus/130104/part3_division1.pdf

36
damages for libel as well as for malicious falsehood against the defendant. The defendant
submitted that the words in the article were not defamatory of the plaintiff, that the article was a
fair comment upon a matter of public interest and that there was no proof of express malice
shown to negative the defence of fair comment. The defendant also denied the claim for
malicious falsehood.
The court held that the defendant's comments on the need to introduce rules or to require
prospectus from the plaintiff's company were perfectly reasonable and were honestly made. At
no time during the proceedings in court or in any of the articles published by the defendants had
it been suggested that the plaintiff was out to cheat or swindle investors, that it was a liar or that
the plaintiff's investment scheme was no more than a trap set for investors as alleged in the
statement of claim hence the Plaintiff’s claim was dismissed.
Whereby Section 236 basically implements the ‘reasonable investor standard of
disclosure’ in preparing the prospectus56. The general duty of disclosure is that those who are
responsible for the prospectus’ contents are free to determine the information and facts they wish
to include in the said prospectus. The said information however must be that a reasonable
investor or his professional advisor ‘would reasonably require and reasonably expect’ to find in
a prospectus so as to enable the investor to make an informed assessment to the assets and
liabilities, financial position, profits and losses and prospects of the issuer. Next, the rights
attaching to the securities and finally on the merits of investing in the securities and the extent of
the risk involved in doing so.
In conjunction with that, the CMSA had provided that in determining such ‘reasonably
require and reasonably expect’ issue the following circumstances must be taken into
consideration this is by virtue of Section 236(3) that has been enunciated above; firstly, the
nature of the securities. Secondly, the nature of the business of the issuer of the securities.
Thirdly, the person likely to consider acquiring such securities. Fourthly, the fact that certain
matters may reasonably be expected to be known to a professional adviser and lastly whether the
retrospective investors are holders of securities in the corporation57.

37
Referring to the case of Chuah Tong Yeong V Kuala Lumpur Golf & Country Club
Bhd58 where the defendant was the developer and manager of the Kuala Lumpur Golf and
Country Club. It issued a brochure and prospectus listing out facilities and features such as a
library, gymnasium and health centre, 100 covered car parks, 500 open car parks, four tennis
courts and a practice court. The plaintiff paid a sum of RM90,000 to become a member. The
plaintiff later lodged a written complaint with the defendant over the non-existence of the listed
facilities. The plaintiff thereafter sought a declaration for the annulment of his membership
agreement, the return of the RM90,000 and damages. His suit was based on misrepresentation.
He claimed that: (i) no library was provided; (ii) only a gymnasium and massage facility was
provided; (iii) the 100 covered car parks were not provided and the number of open car parks
were 100 less than represented; and (iv) no tennis and practice courts were built.
The court held that since the plaintiff in becoming the member of the club by relying on
such prospectus aligned with the ‘reasonably required and reasonably expect’ the defendant must
have borne in his mind that such prospectus and brochure would definitely invite the Plaintiff
and anyone who interested in such offer. Hence by including misstatement by any
misrepresentation is no excuse thus the defendant was ordered to pay damages towards the
Plaintiff due to the misleading facts in such representation.
Conceding that the requirements and provisos embodied in the Section 235 and 236 are
not being complied with or being breached by the applicants, such failure shall result in refusal
from the SC’s part to register the prospectus59, a stop order will be issued from the SC which in
fact will direct the issuer or any other person not to allot, offer, issue or make an invitation to
subscribe for or purchase and even sell further securities. Last but not least the issuer or any
person who involved in such breach may be liable for civil and criminal liability if found guilty
on the false or disclosure of any misleading facts and information.
3.8 Liability for misstatement or omissions
As being explained over and over again before, misstatement in a prospectus which refers
to any false or misleading information included in a prospectus may lead to being liable for civil
and or criminal liability if found guilty. Not only that, it also lengthen the scope to cover material
58 [2003] 6 MLJ 577
59 Section 233(1) CMSA

38
omissions of fact and information from a prospectus. Such liability is reasonably closely related
to the ‘reasonable investor standard of disclosure’ which has been discussed formerly60.
Firstly, criminal liability that has been stipulated in Section 246 of CMSA which is read as
follows:
Criminal liability for false statements, etc. in prospectus
246.
(1) No person shall authorize or cause the issue of a prospectus which contains–
(a) any statement or information that is false or misleading; or
(b) any statement or information from which there is a material omission.
(2) For the purposes of this Division, a statement shall be deemed to be in a prospectus if it is–
(a) contained in a report or memorandum that appears on the face of the prospectus; or
(b) contained in a report or memorandum that is issued with the prospectus with the
consent or knowledge of a person who authorized or caused the issue of the prospectus.
(3) A person who contravenes subsection (1) commits an offence and shall, on conviction, be
liable to a fine not exceeding three million ringgit or to imprisonment for a term not exceeding
ten years or to both.
Apparently, it has been decided that it is obviously an offence for a person authorising or
causing a prospectus to be issued if there is any false or misleading statement or even omitting
material information from a prospectus which if found guilty by the law, that person shall be
punished with a fine of not exceeding RM 3 million or imprisonment for a term of not exceeding
ten years or both in a worst case scenario.
For an example, the prospectus of a company stated that the company had the experience
of two and half decades in its business however it was in fact such experience was not as of the
company itself but the partners of a firm which had been taken away by the company. In this
circumstance the management was held not liable for untrue statement. It was held that no

39
malafide intention for such statement thus it was not materially suffice to render the directors
criminally liable61
Secondly, civil liability by virtue of Section 249 of CMSA which stated as follows:
Civil liability for misleading or deceptive acts
249.
(1) A person shall not act in a manner that is misleading or deceptive or is likely to mislead or
deceive in connection with–
(a) any prospectus issued;
(b) the allotment of, issue of, offer for subscription or purchase of, or invitation to
subscribe for or purchase, securities;
(c) any notice referred to in subsection 241(4) or (5) or a preliminary prospectus referred
to in subsection 241(6), or any report referred to in subsection 241(7) or any notice or
report as may be specified by the Commission under paragraph 241(3)(d); or
(d) the carrying on of negotiations, the making of any arrangements or the doing of any
other act preparatory to or in any other way related to any matter referred to in
paragraph (a), (b) or (c).
(2) A person who contravenes this section shall not be guilty of an offence but a person who
acquires, subscribes for or purchases securities and suffers loss or damage as a result of any act
referred to in paragraph.
Thus, any person who cause or authorise the issuance of a prospectus by which it
contains inaccurate facts can be compelled to pay compensation towards the investor who
suffered loss in consequence to that reliance. The amount of compensation will be subjected to
circumstances of the case as to whether the party being sued is responsible for the prospectus
wholly or partially or only certain particulars in the said prospectus.
61 A Text Book Of Company Law. (n.d.). Retrieved October 17,2015, from
https://books.google.com.my/books?id=A0hLAgAAQBAJ&pg=PA145&dq=example of
prospectus&hl=en&sa=X&redir_esc=y#v=twopage&q=example of prospectus&f=false

40
This can be referred to the case of Dato' Ariff Wan Hamzah & Ors v HwangDBS
Investment Bank Bhd & Anor [2013] 1 MLJ 526 where the plaintiffs claimed against the
defendants for negligent misrepresentation as well as negligent misstatement. The second
plaintiff, was the daughter of the first plaintiff while the third and fourth plaintiffs were business
associates or partners of the first plaintiff. The plaintiffs claimed a sum of RM6,909,940 together
with loss of earnings and interest which they claimed to have lost as a result of investing in the
purchase of placement shares in a company called Litespeed Education Technologies Bhd
('Litespeed'), based on the misrepresentations of the two defendants.
It was alleged that the defendants' representations were false, inaccurate and misleading
and that they suffered losses and damages as the value of the Litespeed shares plunged soon after
the Plaintiffs purchased the shares allotted to them under the placement exercise. Further or
alternatively, the plaintiffs contended that the defendants each owed them separate duties of care.
The first defendant, an agent of Litespeed responsible for statements in the Prospectus, owed a
duty to investors such as the plaintiffs, to ensure that all information in the Prospectus was
accurate up until the date of their subscription of shares in Litespeed, which the first defendant
failed to do.
The plaintiffs' claim against the second defendant, who was Litespeed's auditor and
reporting accountant, premised on tort of negligent misstatement on the ground that its
statements for the relevant financial years as well as the prospective forecast in the Prospectus
were reported favourably when they were actually inaccurate, false and misleading. A duty of
care was owed, it was contended, to these plaintiffs to ensure that the financial statements set out
in the Prospectus were accurate and fair, which the second defendant had breached.
Likewise, the defendants maintained inter alia, that they made no misleading statements
or false representations as alleged; they owed no duty to the purchasing plaintiffs as contended
and therefore cannot be responsible for any losses suffered by the purchasing plaintiffs; and that
they had cautioned all investors in the Prospectus that there were no guarantees concerning
Litespeed's share prices and investors were advised to be careful about the inherent risks of such
an investment. The second defendant argued that the plaintiffs were not entitled to rely on any of
the statements made by it in the Prospectus and therefore owed no duty of care to the plaintiffs.
The court then dismissed the claim with cost holding that, the plaintiff's cause of action
which premised on negligent misrepresentation by the first defendant failed. The plaintiffs were

41
bound to act on their own initiative and with the requisite professional advice independently
obtained in determining whether or not to invest in the Litespeed placement shares. The
limitation or exclusion clause was worded specifically to meet a situation such as has arisen here,
namely ascribing blame or liability to the first defendant for the investors' decision to invest in
the Litespeed shares.
This was not a general exclusion or widely worded limitation of liability clause. Such
clauses cannot simply be ignored. By executing the letters of offer, the plaintiffs accepted these
clauses as part of the binding contract for the purchase of the placement shares and the effect of
these clauses ought to be given full effect. The net effect of these clauses was to exempt or
exclude the first defendant from liability.
In fact, the plaintiffs, particularly the second to fourth plaintiffs did not rely in a specific
way upon any of the information set out in the Prospectus. A general reliance was insufficient.
The plaintiffs were bound to show that the information issued by the accountants worked so as to
exert a specific influence on their minds and as a consequence of which they were induced to
purchase the shares. That has not been made out in the instant case which is another reason why
the plaintiffs' claim against the second defendant in this regard fails. Evidently that the plaintiffs'
complaint was that the assumptions pertaining to the financial forecast were wholly unrealistic,
and as a consequence, misleading to prospective purchasers such as the plaintiffs, when risks of
non-performance of various contracts, or assumptions made on contingent bases, were not
highlighted. No proper qualifications were made or highlighted. No attempt was made to verify
the matters set out in the assumptions.
Based on the case above, it can be proved that albeit the presence of misleading facts or
information the reliance must be of essence and not merely general reliance as it was not suffice
for a cause of action.

42
3.9 Defences that can be invoked
As the maxim goes aequum et bonum, est lex legume which brings the meaning of what
is good and equal, is the law of laws62 there are specifically three common defences that can be
invoked by the person charged under Section 246 and 248 namely due diligence defence,
reliance defence and withdrawal of consent defence63.
On the point of the first defence; due diligence defence a cross reference to section 250 is
necessary where it is fixed as follows:
Due diligence defence
250.
A person shall not be guilty of an offence under section 246 and is not liable under section 248 if
he proves that–
(a) he had made all enquiries as were reasonable in the circumstances; and
(b) after making such enquiries, he had reasonable grounds to believe and did believe
until the time of the making of the statement or provision of the information that–
(i) the statement or information was true and not misleading; or
(ii) there was no material omission.
Based on the section mentioned above, it can be resorted to show that he has made all
reasonable queries and thus believed on reasonable grounds that the inclusion of statement in the
prospectus is not misleading neither deceptive nor such prospectus did not include any omission.
On the other hand, the second defence is quite drawn-out as there are three other sections
concerned on this defence viz Section 251, 252 and 253 by which will be propounded below:
Reliance on statement and information in respect of false or misleading statement
251. A person shall not be guilty of an offence under section 246 and is not liable under section
248 if the person (hereinafter referred to as the “first-mentioned person”) proves that the false
or misleading statement or material omission from a statement in a prospectus–
62 Aequum et bonum. (n.d.) A Law Dictionary, Adapted to the Constitution and Laws of the United States. By John
Bouvier. (1856). Retrieved October 17 2015 from http://legaldictionary.thefreedictionary.com/Aequum+et+bonum

43
(a) is or is based on a statement made by a person referred to in subsection 244(1)
(hereinafter referred to as the “second-mentioned person”); or
(b) is contained in a copy of or what purports to be a copy of, or an extract from, a report
or valuation of the second-mentioned person, and it is proved by the first-mentioned person that–
(A) the statement accurately represented the statement made by the second-
mentioned person, or the copy or the purported copy or extract was a correct
copy of, or extract from, the report or valuation, as the case may be; and
(B) after making such enquiries as were reasonable in the circumstances, the
first-mentioned person had reasonable grounds to believe, and did believe until
the time of the allotment of, issue of, offer for subscription or purchase of, or
invitation to subscribe for or purchase, the securities, that the second-mentioned
person, in making the statement, report or valuation, as the case may be–
(i) was competent to make it;
(ii) had given the consent required by subsection 244(1); and
(iii) had not withdrawn that consent.
Reliance on statement and information in respect of misleading or deceptive act
252. A person is not liable under section 249 in respect of an act that is misleading or deceptive
or is likely to mislead or deceive if the person (hereinafter referred to as the “first-mentioned
person”) proves that the act consists of a representation made in reliance on–
(a) a statement made by a person referred to in subsection 244(1) (hereinafter referred to
as the “second-mentioned person”); or
(b) a report or valuation of the second-mentioned person, and it is proved by the first-
mentioned person that–
(A) the representation accurately reflects the statement made by the second
mentioned person or is contained in the report or valuation of the second
mentioned person, as the case may be; and
(B) after making such enquiries as were reasonable in the circumstances, the
first-mentioned person had reasonable grounds to believe, and did believe until the time
of the allotment of, issue of, offer for subscription or purchase of, or invitation to

44
subscribe for or purchase, the securities, that the second-mentioned person in making the
statement, report or valuation, as the case may be–
(i) was competent to make it;
(ii) had given the consent required by subsection 244(1); and
(iii) had not withdrawn that consent.
Reliance on public official statement in respect of false and misleading statement
253. (1) A person shall not be guilty of an offence under section 246 and is not liable
under section 248 if the person proves that the false or misleading statement or material
omission from a statement in a prospectus (hereinafter referred as the “defective statement”) is
or is based on a statement made by a public officer in the course of his duties or is contained in a
copy of or what purports to be a copy of, or an extract from, a public official document, and it is
proved by the person that–
(a) the defective statement accurately represented the statement made by the public
officer including the context and form in which it was originally made; or
(b) the defective statement is contained in a copy of or what purports to be a copy of, or
extract from, a public official document, and the person had reasonable grounds to believe, and
did believe until the time of the allotment of, issue of, offer for subscription or purchase of, or
invitation to subscribe for or purchase, the securities, that the defective statement was true and
not misleading and that there was no material omission from the defective statement, as the case
may be.
(2) A person is not liable under section 249 in respect of an act that is misleading or deceptive or
is likely to mislead or deceive if the person proves that the act consists of a representation made
in reliance on a public official document or statement made by a public officer in the course of
his duties and it is proved that–
(a) the representation accurately reflects the statement made by the public officer
including the context and form in which it was originally made; or
(b) the representation is contained in a copy of, or an extract from, a public official
document, and the person had reasonable grounds to believe, and did believe until the
time of the allotment of, issue of, offer for subscription or purchase of, or invitation to

45
subscribe for or purchase, the securities, that the representation was not misleading or
deceptive or is likely to mislead or deceive.
Basically, the three provisions enunciated above applicable to the person charged with
section 246 and 248 if he can successfully proves that he had reasonably believed and relied on
the information supplied by another person categorically experts and public officer.
Lastly, the withdrawal of consent defence which is dealt under section 254:
Defence of withdrawal of consent
254. (1) A person who is named in a prospectus as–
(a) a proposed director or director of an issuer or a principal adviser in relation to an
issue of, offer for subscription or purchase of, or invitation to subscribe for or purchase,
securities;
(b) making a statement that is included in the prospectus; or
(c) making a statement on the basis of which a statement is included in a prospectus,
shall not be guilty of an offence under section 246 and is not liable under section 248 if–
(A) in the case of a proposed director or director, having consented to become a
proposed director or director of the issuer, he withdrew his consent before the
issue of the prospectus, and the prospectus was issued despite such withdrawal;
or
(B) in any other case, where the prospectus was issued without his knowledge or
consent, he gave reasonable public notice thereof forthwith after he became
aware of its issue.
(2) A person who is named in a prospectus as–
(a) a proposed director or director of an issuer, or a principal adviser in relation to an
issue of, offer for subscription or purchase of, or invitation to subscribe for or purchase,
securities;
(b) making a statement that is included in the prospectus; or
(c) making a statement on the basis of which a statement is included in a prospectus,

46
shall not be guilty of an offence under section 246 and is not liable under section 248 if it is
proved that the statement was not included in, or was not included substantially in, the form and
context that the person had consented to.
Accordingly, any person who at first instance had consented hence anticipated his
statement into the prospectus which then he retracted such consent before the issuance of the said
prospectus to the public can appeal to the august house on this defence.
3.9.1 Present-day Issues
Growth can never be stopped unless by death, same goes for the law. Being in techno
world which made everything reachable at your fingertips causing new arising legal issues as law
involved in every aspect of daily life. Thus, in coping up with this tech world the SC has come
up with several recommendations.
Firstly, on the issue of electronic prospectus. The SC recommends that prospectuses only
appear on the web-page of the relevant regulatory authority, such as the relevant exchange. This
will alert prospective investors to the fact that the prospectuses have been duly approved and
registered with the relevant authorities. In addition, there is assurance that the electronic
prospectus received by the investor is complete and protected from alteration or tampering64.
Secondly, on the issue of advertising and share-hawking. Advertising is the publishing of
notices or announcements that are available to the world at large. Share-hawking on the other
hand, deals with direct solicitations to subscribe for or purchase securities. The basis of the
prohibition against share- hawking is that it is undesirable to permit shares to be sold by door to
door salespeople to persons who are not experienced in business matters65.
64 Publications - Framework for the Implementation of Electronic Commerce in the Capital Market. (n.d.). Retrieved
October 15, 2015, from http://www.sc.com.my/wp-content/uploads/eng/html/resources/ecommerce/ec_3.html
65 Publications - Framework for the Implementation of Electronic Commerce in the Capital Market. (n.d.). Retrieved
October 15, 2015, from http://www.sc.com.my/wp-content/uploads/eng/html/resources/ecommerce/ec_3.html

47
4.0 VARIATION OF CLASS RIGHT
As preference shares enjoy definite priority over ordinary shares, there may arise
occasions where there is an effort to vary those benefits. In Gower’s Principles of Modern
Company Law book, Professor LCB Gower observed that, normally, there cannot be class rights
until the shares of the members divided in separate classes in the sense that some have different
rights than the others. He added that, once a special class of shares has been created, then any
rights enjoyed by that class will apparently be regarded as special class rights.66
Generally, there are many ways to vary class rights. Section 65 of the Companies Act
1965 furnishes two situations where the class rights are deemed to be varied. First, under Section
65(6), it provides that it is deemed to be a variation of class rights if new preference shares are
issued ranking side by side with the existing preference shares. The only exception is where the
terms of the existing preference shares authorized it, because the holders would have known and
then consented to it either when they subscribed in the shares or when they purchase the shares.
Secondly, Section 65(7) of the same Act provides that any alteration to the clause in the
articles or memorandum pertaining to the procedure for the variation of class right is also
deemed to be a variation of class right. For example, the company’s memorandum provides that
the class rights may be varied only if all of the holders of the class of shares agree. Any alteration
or changes to this memorandum is deemed to be variation of class rights. What constitutes a
variation of class rights was held in Greenhalgh v Arderne Cinemas Ltd [1964] 1 All ER 572. In
this case, few alterations have been made to the share structure. Later on, plaintiff contended that
he had lost the control he had earlier. The court held that this alteration to the share structure was
a matter of business and not a matter of law, since plaintiff still had the same voting rights as
previously. Therefore, we can see that, for variation of class right to be established, the alteration
to articles in company, must not affect the crucial rights of the holders like voting rights since the
purpose of the variation itself is to protect the rights of holders.67
66 Rachagan,S. (2002). Principles of company law in Malaysia. Kuala Lumpur:Malayan LawJournal.Pg 203.
67 Arjunan,K. (1998). Company law in Malaysia: Cases and commentary. Singapore:Butterworths Asia.Pg 146-147.

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