What do you need to know about Paid-Up Capital?
This article will cover the following topics:
- Definition of Paid-Up Capital
- Importance of Paid-Up Capital
- Benefits of Paid-Up Capital
- Definition of Share Capital
- Difference between share capital and paid-up capital
- Minimum registered capital requirements in Malaysia
- Requirements for certain types of businesses
- Requirement for paid-up capital to cover initial expenses
- Registered capital can be paid in over time
- Shareholder liability for unpaid shares
- Can the Shareholders get back the Paid-Up Capital?
- How is Paid-Up Capital related to Shareholding amongst Shareholder?
- How to increase Paid-Up Capital in Malaysia with SSM (Company Commission Malaysia)?
Disclaimer: This content is only applicable when you set up a Company (Sdn Bhd).
Disclaimer: This content is only applicable when you set up a Company (Sdn Bhd).
What is Paid-Up Capital?
The definition of Paid-up capital is the amount of money that a company has received from Shareholder(s) in exchange for shares in the Company. It is also known as contributed capital or paid-in capital. Paid-up capital is the amount of money that a company can use to fund its operations, invest in new projects, and repay debts.
The paid-up capital of a company is listed on its balance sheet. It is calculated by multiplying the number of shares issued by the company by the price of each share. The price of a share is determined by the board of directors with the mandate of the shareholders of the company.
Paid-up capital can be raised in a number of ways, including:
- Selling shares to new or existing shareholders;
- Issuing bonus shares to existing shareholders;
- Increasing the price of issued shares.
Why is Paid-Up Capital important?
Paid-up capital is important for a number of reasons. It provides a company with the financial resources it needs to operate and grow. It also helps to build trust with creditors and suppliers, as it shows that the company has a strong financial foundation to sustain its operation.
Here are some examples of paid-up capital:
A company sells 100,000 shares at RM5 per share. The company’s paid-up capital would be RM500,000.
A company issues 10,000 bonus shares at RM1 per share to its existing shareholders. The company’s paid-up capital would increase by RM10,000.
Paid-up capital is an important concept for entrepreneurs and business owners to understand. It is a measure of the financial resources that a company has available to it, and it can play a vital role in the company’s success.
What are the Benefits of Paid-Up Capital?
The benefits of having sufficient paid-up capital are amongst others would allow a business to:
- submit applications for licenses or relevant approvals for certain business activities based on the minimum paid-up capital requirement set by the licensing or approving authority.
- bid for tender and projects which imposes a minimum capital requirement.
- qualify as a trusted supplier and vendor for multinational companies which imposes minimum capital requirements.
- meet banks’ requirements to qualify for credit facilities or other financial services.
What is Share Capital?
Share capital in Malaysia is the maximum amount of money that a company can raise by selling its shares as approved and mandated by the shareholders through a member’s meeting.
Share capital can be divided into different types of shares, such as ordinary shares, preference shares, and deferred shares. Ordinary shares are the most common type of share, and they give the shareholder the right to vote at general meetings and to receive dividends. Preference shares may give the shareholder the right to receive a fixed dividend before ordinary shareholders receive any dividends. Deferred shares may not give the shareholder any voting rights or dividend rights until certain conditions are met.
The minimum share capital requirement for companies in Malaysia is RM1. However, there are higher requirements for certain types of businesses, such as foreign-owned companies, manufacturing, franchise and construction.
What is the minimum Paid-Up capital requirement to register a Company in Malaysia?
The minimum paid-up capital requirement to set up a Company in Malaysia is RM1.00 only. However, it is important to note that most government agencies, banks, or other entities may require that a Company meet a minimum amount before they would even consider any application for a loan, license, tender as well as any business dealings.
As an example –
- the immigration department of Malaysia would require a minimum capital of RM500,000.00 for a Company wholly owned by a foreigner, to make a visa application.
- the Kuala Lumpur City Hall (DBKL) would only grant business premise licenses to foreigned owned businesses with Wholesale Retail and Trading (WRT) License from Ministry of Domestic Trade And Consumer Affairs (KPDNHEP). The minimum paid up capital for WRT license is RM1,000,000.
Recommendation: We usually recommend an initial paid-up capital of RM1,000 for all new companies upon registration with SSM. This is because, when setting up your bank account, the banks would usually ask for a minimum of RM1,000 deposit, so you can use that as paid-up capital. Please consult your company secretary or alternatively consult your lawyer or business advisors on the best amount for your business. This is because, for some Companies, it is very important to get it right at the point of incorporation due to any applications which may affect the operation of the business.
Paid-up capital requirements for certain types of businesses in Malaysia?
The following are some of the examples of paid-up capital requirements for certain types of business activities:
Manufacturing – RM2,500,000 (unimpaired by losses)
E-Wallet – RM1,000,000 to RM5,000,000 (unimpaired by losses)
Money Broker – RM200,000
Fund Management – RM2,000,000
Robo Advisory – RM2,000,000
Investment Advice – RM500,000
What is the requirement for paid-up capital to cover initial expenses?
The paid-up capital of a company must be sufficient to cover the company’s initial expenses, such as registration fees, office rent, and salaries. This is because the company will not be able to generate any revenue until it starts operating.
The amount of paid-up capital required to cover initial expenses will vary depending on the type of business and the size of the company. For example, a small startup company may only need a few thousand ringgit to cover its initial expenses, while a larger company may need hundreds of thousands or even millions of ringgit.
If a company does not have sufficient paid-up capital to cover its initial expenses, it may need to raise additional capital from investors or lenders. This can be a time-consuming and expensive process, and it is important to avoid this situation if possible.
As such it is important to:
- develop a detailed budget of your initial expenses to help you to determine how much paid-up capital you need to raise.
- create a contingency fund from your paid-up capital as cushion in case your initial expenses are higher than expected.
- consider using a staggered payment plan for your initial expenses, which will allow you to spread out your costs over time.
Can registered paid-up capital be paid over time?
Yes, registered paid-up capital can be paid over time in Malaysia. A company is allowed to enter into an agreement with its share subscriber to spread out the payment of its paid-up capital over a period of time, typically 12 months to 36 months. This can be helpful for companies that are unable to raise the full amount of paid-up capital required upfront.
To create a staggered payment plan, the company must first obtain approval from the Companies Commission of Malaysia (SSM). The SSM will review the company’s business plan and financial projections to ensure that the company is able to meet its payment obligations under the plan.
Once the SSM has approved the staggered payment plan, the company can start raising paid-up capital from shareholders. The shareholders will be issued with a payment schedule that outlines the amount of paid-up capital that they are required to pay and the dates by which the payments must be made.
What are the shareholders’ liability for unpaid shares?
Shareholders in Malaysia are liable for the unpaid portion of their shares. This means that if a company is wound up and there are insufficient assets to pay its creditors, the shareholders can be held personally liable for the unpaid portion of their shares.
The amount of a shareholder’s liability is limited to the amount unpaid on their shares. For example, if a shareholder has purchased 100 shares at a par value of RM1 per share, and has only paid RM50 per share, then their liability is RM50 per share, for a total of RM5,000.
Shareholders can be held liable for unpaid shares even if they have left the company. This is because a shareholder’s liability for unpaid shares arises at the time that the shares are purchased, and it continues until the shares are fully paid up.
If you are a shareholder in a Malaysian company, it is important to be aware of your liability for unpaid shares. You should ensure that you fully pay up for all of your shares, and you should monitor the financial health of the company to ensure that it is able to meet its obligations.
Can the Company increase Paid-Up Capital without actually transferring money to the Company’s Bank Account?
Absolutely Not!!! – any increase must be done with proof or evidence that the company has received the relevant amount of money from respective shareholders. Failure to remit the payment for the increase is a Major Offence punishable with RM5 Million FINE!!!
If anyone (including your lawyer, company secretary or accountant) tells you that you can increase paid-up capital without actually transferring any money or via some suspicious manner… DON’T DO IT… you will later discover that no auditor would want to sign off your audited accounts and you technically owe the Company for the unpaid amount, which the Company has all the rights in the world to pursue.
Can the Shareholders get back the Paid-Up Capital?
It will depend on the rights attached to the shares issued to the shareholders. Ask your lawyer or Company Secretary.
However, as a General Rule, if you are an Ordinary Shareholder you are only entitled to get back the contribution/injection when the company is wound up and after the proceeds of the wind up is distributed amongst the shareholders. To keep it simple, whatever money is injected into the Company as initial capital, you can “kiss it goodbye”. Paid-up capital is the property of the Company and belongs to the Company.
How is Paid-Up Capital related to Shareholding amongst Shareholder?
This is perhaps best answered with illustrations. Note: Focus on the price of the share and money injected to understand the illustrations
If Shareholder A injects RM10,000 and Shareholder B injects RM50,000 to subscribe to Ordinary Shares priced at RM1.00 per Ordinary Share. In return, the Company will issue and allot:
Shareholder A – 10,000 units of ordinary shares
Shareholder B – 50,000 units if ordinary shares
The paid-up of the Company is at RM60,000.00
If Shareholder A injects RM10,000 and Shareholder B injects RM50,000 to subscribe to Ordinary Shares priced at RM5.00 per Ordinary Share. In return, the Company will issue and allot:
Shareholder A – 2,000 units of ordinary shares
Shareholder B – 10,000 units if ordinary shares
The paid-up of the Company is still at RM60,000.00
How to increase Paid-Up Capital in Malaysia with SSM (Company Commission Malaysia)?
Step 1 – Contact your Company Secretary to prepare the paperwork.
Step 2 – Transfer the funds or something of value to the Company. Provide the supporting document to your Company Secretary
Step 3 – Company Secretary lodge the documents with SSM.
Important Note: It would be best to seek legal advice before increasing your paid-up capital, is it will affect shareholding % and your voting power. You may not want to accidentally lose control over your company.
Other related article:
- What is Sole Proprietorship, Sdn Bhd and LLP ?
- How to Start a Company in Malaysia ?
- What are the Annual Compliance Requirement of a Private Limited Company (Sdn Bhd)?
- 101 Tips on How to Choose Company Secretary for Private Limited Company
- What are the Issues faced by foreigner to setup a Company in Malaysia?
- Company Registration Malaysia
Need to seek legal advice regarding Paid-Up Capital in Malaysia? Talk with company secretary or business lawyer: