CRG 530GROUP PROJECT

CAPITAL FINANCING

Norazlina

Aziani

Effar Yusni

Nurulhuda binti Abd Jalil

Noor Rafidah

Haslina

APRIL 2008 PART A Q9 : In what circumstances is a company permitted to buy it’s shares?

(3 Marks)

A company is permitted to buy back it’s shares when there is declaration by Directors regarding Shares Buy Back.

The director of the company, shall make a declaration to the effect that they have made an inquiry into the affairs of the company and, at a meeting of director, have formed an opinion that:

It is necessary for the company to buy back its own shares;

The company is solvent as at the date of the declaration and the shares buy back would not result in the company being insolvent or its capital being impaired and the company will remain solvent after each buy back during the period of six months after the date of the declaration; and

The shares buy back is made in good faith and in the interests of the company.

OCTOBER 2008 PART AQ9 : Distinguish between an interim dividend and a final dividend?(4 Marks)

•INTERIM DIVIDEND

- May be declared out of profits in a reserve fund (i.e. undistributed profits

from previous year) in which profits have been capitIlised even where

there is a revenue loss in the current year

- Should not be sanction in GM

•FINAL DIVIDEND

- Final dividends are declared at the end of the financial period whereby

the directors are aware of the company’s profitability and financial

health. It can be declared out of a realized capital profit (i.e. a realized

profit on the sale of fixed assets)- Should be sanction in GM

Apr 2009 Part A Q10 : State the requirements for a company to buy back it’s share under Section 67A of the Companies Act 1965.

Restriction on Selling Treasury Shares - only sell at discount ≤ 5% of the market price

Restriction on Purchase - if the total interest > 10%

Lodgment of Forms - FORM28B (Notice of sale or cancellation of treasury shares) within 14 day after the date of cancellation to be lodge with CCM, Bursa & SC

Adjustments to Register of Substantial Shareholders - shares been cancelled need to update the book

Advertisement - notice of GM advertised in main local newspaper

Declaration by Directors - the need to buy back the shares, the co. is solvent, made in good faith and in interest of the co

Only a listed company is allowed to have a scheme of share buy back. The following requirement must be complied with:

Apr 2009 Part B Q1 (a) : Pursuant to section 22(1) and 341(1) of the Act, CCM would not accept this

following name except prior approval of the Minister is obtained.

Names suggesting connection with a member of the Royal Family or Royal patronage including names containing words as “Royal”, “King”, “Queen”, “Prince”, “Princess”, “Crown”, “Regent” and “Imperial”

Names suggesting connection with a State or Federal government department, statutory body, authority or government agency or any municipality or other local authority including names containing such words as “Federal”, “State”, “National”.

Names suggesting connection with any Asean, Commonwealth, or foreign government or with the United Nation or with any other international organization or cartel including names containing such words as “ASEAN”, “UNESO”, “NATO”, “EEC”, ”OPAC”.

Names suggesting connection with any political party, society, trade union, co-operative society or building society.

Names including a registered trademark, unless the consent of the owner of the trademark is produced to the Registrar of Companies.

Names that are misleading as to the identity, nature, objects or purposes of a company or in any other manner.

Names that are blasphemous or likely to be offensive to members of the public.

Names including the following words or any words of like import, Bank, Banker, Banking, Bumiputra, Bureau, Chamber of Commerce and Industry, Chamber of Manufacturers, Chartered, Executor, Finance, Foundation, Fund, Guarantee, Institute, Insurance, Investment, International, Leasing, Madi in Malaysia, Pioneer, Registry, Trust, Unit Trust, University.

(b)Procedure for incorporating a private company limited by shares

- Application for approval of proposed name from CCM (Form 13A) together with search fees of RM30 per name- Once approved the name will reserve for three months

Preparation and filing of pre-incorporation documents which comprise of• Memorandum and Articles of Association (M&A)• Form 48A (Statutory Declaration by a person before appointment as Director, or by a

Promoter Before Incorporation of Corporation)• Form 48F (Declaration by a Person Before Appointment as Secretary)• Form 6 (Declaration of Compliance)

- Submit all the pre incorporation document together with - Payment of incorporation fees (According to authorized capital) - letter of approval name - photocopy of director I/C

If satisfied CCM will issue Certificate of Incorporation ( Form 9). Once received the Form 9 (Certificate of Incorporation) it may commence business and exercise borrowing powers immediately.

Continuing…..

Within one month from receiving form 9, prepare and file the post-incorporation documents and lodge to CCM:- - Form 44 ( Notice of Situation of the Registered Office) - Form 24 ( Return of Allotment of Shares) - Form 49 ( Particulars of Directors, Managers and Secretaries)

Conduct first board meeting.

c) Soon after incorporating the company, Salmah’s friends could only take up RM1,000,000 shares. What she can do to raise the

remaining shares

• As private co. Salmah restricted to invite public to subscribe the share. • The alternative way, Salmah should convert the company to public

company than she can advertised to public to subscribed shares.

Oct 2009 Part A Q5: Methods to a public company to raise capital

Public

issue

• A direct allotment where the shares are issued and allotted directly to members of the public who have subscibed for the shares.

Offer for

Sale

• Two scenarios :• - where a private companies seek to go public a portion of the shares held by the existing shareholders may

be offered for purchase by members of the public.• -A company allots or place shares to an issuing house which then will offer them for sale to the public.

Rights

issue

• A rights is an offer (in the contractual sense) to the existing members of a corporation of new shares for subscription.

April 2010 Part AQ6: Briefly explain the Central Depository System

Operated by Bursa Malaysia Depository Sdn. Bhd.

Operation is governed by the Securities Industry Central (Central Depositories) Act 1991

Objective of establishment : To provide efficient central clearing and settlement of securities. This system will enable securities transacted without the need for physical delivery of script, i.e. a book entry or script less system

Principal activity : Operation & Maintenance in respect of shares, bond or others securities of any corporation. Central Depository System will created script less trading for immobilization of securities

Transfer of ownership of securities: Done through computerized book entries, rather than by physical delivery of script and execution of transfer forms. Under this system all physical scripts of companies listed on Bursa Malaysia are stored centrally. And the investors will have the Cash Depository System accounts which will show their holdings. When investors trade in the shares, there will be no physical movement of script delivery and receipt. Instead the seller’s CDS account will be debited and the buyer’s CDS account will be credited.

April 2010 Part AQ9 : What are the procedures for a company limited by shares to increase its

authorized share capital?

The company articles must allow the company to increase its authorized capital.

The proposed increased must be approved by the company in general meeting by way of an ordinary resolution to that effect.

The company must notify CCM within 14 days after the passing of the ordinary resolution by way of filling Form 11 and Form-28-Notice of increase in share capital.

Together with the filing of the relevant forms, the company must also pay the relevant registration fee to the CCM.

Attach a copy of the Form 11 and Form 28 to every copy of the company’s Memorandum of Articles of Association.

Failure to do so would render the company guilty of an offence under the Act, Section 62 (4) and 62 (5).

April 2010 Part AQ10: Corporate Restructuring exercise includes a compromise and arrangement.

Briefly explain the definition of compromise and state two (2) example of compromise involving creditors and debenture holders.

• Is a agreement between parties to a controversy to settle their differences by making mutual concessions, as distinguished from adjudication (official judgments) on the basis of an exact ascertainment of the opposing rights and the parties of conflicting interest agree to accommodate each side by adjustment or modification of their interest

Definition

• Creditors and debentures holders giving a extension for payment.• Debentures holders having rights to attached to their debentures

varied in some other respect.• Debentures holders accepting a cash payment less than the face

value of their debentures.• Creditors and debentures holders accepting shares in the company

or in a new company in discharge of their debts.• Secured creditors giving up their securities in whole or in part.• Creditors accepting part shares and part cash in lieu of their debts.• Secured creditors giving up their securities in whole or in part.

Examples

October 2010 Part AQ5 : The establishment of the Central Depository is to provide an efficient central

clearing and statement of securities. Briefly explain the operation of Central Depository System

Investors use the CDS for safekeeping of shares, custodian and pledging services.

All investors (individual or corporate )are required to open CDS account with Authorised Depository Agents (ADA) if they wish to trade in prescribed securities.

The CDS acts a means of representing ownership and movement of securities. The CDS account holders enjoy the convenience of obtaining electronic securities transfer and trade settlement.

Therefore, any transfer of shares will e by an electronic book entry. There is no physical delivery of shares instead the necessary book entry will be made to the CDS to record the transfer.

The seller’s CDS account will be debited and the buyer’s CDS account will be credited

Under this system all physical scrip of companies listed on Bursa Malaysia are stored centrally and the investors will have CDS accounts which will show their holdings.

October 2010 Part AQ6: Distinguish between ‘transfer of shares’ and ‘transmission of shares’

Transfer

Voluntarily act of the former owner when he sell or give away the shares to others person

Need proper instrument of transfer – Form 32A* Transfer of shares in private* Transfer of shares in public

Transmission

Changes of ownership not by agreement and voluntarily action but by operation of law or other events

Other events:* Member’s death* Member’s bankruptcy* Lunacy of members* Liquidation of corporation members

October 2010 Part AQ7: What is prospectus and what is the main purpose of issuing prospectus

Defined by Section 4 of the Act as “any prospectus, advertisement, notice, invitation or circular inviting applications or offers from the public to subscribe or purchase any shares of the company’’

Any document containing an offer of shares for sale to public is deemed to be a prospectus.

The main purpose of the prospectus is to protect the investing public by closing information or relevant facts from which risks of investment can be assessed

October 2010 Part AQ8 : Describe the procedure for registering a charge with the Companies

Commission of Malaysia. What are the consequences of failing to register a charge.

Procedure for registering a charge with the Companies Commission of Malaysia.

The company is required to lodge a statement of particulars on Form 34 (Statement of particulars to be lodged within charge) with CCM within 30 days for registration together with filing fee of RM300.00

Upon registration by CCM, CCM will issue a certificate (Form 40), which is conclusive evidence of compliance of the requirement.

The consequences of failing to register a charge

Failure to register the charge within 30 days of its creation would render the security under the charge void against the liquidator and any creditor of the company [Section 108(1)of the Act]

However, it will not prejudice any contract or obligation for repayment of the money secured by the charge and when a charge become void under section 108 of the Act, the money secured shall immediately become payable [Section 108 (2) of the Act]

October 2010 Part AQ9 : What is a floating charge. State two (2) circumstances when the floating charge

become crystallize.

Definition

Form of security under which all the assets of the company present and future (assets and material which is subject to change on a day to day basis, such as stock, raw material, stock in trade and book debts) other than those which are subject to a mortgage or fixed charge, are used as security for the loan.

The subject assets and material can move into and out of the charge as they are bought and sold in the ordinary course of business (the company can carry n its business in the ordinary way so far as concerns the particular assets and material.

Two (2) circumstances when the floating charge become crystallize.

If there is a default in payment or repayment of the principal sum. If the company fail to repay the loan in accordance with the loan in accordance with the terms under which it was granted the lender can activate certain remedies, such as converting the security to a fixed charge, thus stopping the company from selling the assets and material.

The company goes into liquidation or if it ceases to be a going concern.

APR 2011 PART BQ2 (a) : The procedures for the issuing of dividend by a public listed company.

Check the AOA

on dividend rights of

the various

classes of sharehol

ders

Ensure sufficient balances in bank

account – S108 tax

credit

Convene board meeting to pass the following resolutions:• Recommending the payment of dividend, the rate,

the entitlement date and date of payment (within 1 month of the closing date

• Notice of closure of books• Instruct the bank to deal and open the dividend

account:• Inform Bursa Malaysia on the recommendation

of declaring the dividend and the date of closing the register – once closure date announce – no alteration for dividend should be made

• File FORM53A (notice to close the register of members) with CCM 14 days before closing date

The shareholder will have to

pass and ordinary resolution at the

AGM

Instruct the bank to deal

with the payment and open

special dividend account

Update the

Register of

members and

prepare a dividend list and

dividend warrants

Dispatch the

dividend warrant

to sharehol

ders

(b) The considerations that the board of directors need to take into account prior to

recommending a dividend payment

There are profits available for making dividend

There are sufficient cash for the payment of dividend

There are sufficient tax credit, where dividends are only paid after deduction of income tax at the standard rate applicable to company in the year assessment in which dividends is paid.

Whether there are covenants with financiers regarding dividend restriction

(c) Can a company keep unclaimed dividends? What are the procedures involved indealing with the unclaimed dividends?

Unclaimed dividend

must be submitted to the Register of Unclaimed Moneys if they remained unpaid for more

than 12 months after they become payable

It must advertised by the company in the gazette annually

during the month of March.

All unclaimed money which have not been paid within 12 months after the advertisement in the gazette will be paid within 14 days aft the expiration of 12

months to the Consolidated Trust Account(CTA)

It will remain in the CTA account for period 6 years and after the lapse of 6 years it will paid into Consolidated Revenue account

JAN 2012 PART AQ10 : State four 4 conditions required by section 67A of the Companies Act 1965 for a

company to buy-back its own shares.

Declaration by Directors – the need to buy back the shares, the co. is solvent, made in good faith and in interest of the co.

Advertisement – notice of GM advertised in main local newspaper

Adjustment to Register of Substantial Shareholders – shares been cancelled need to update the book

Lodgment of Forms – FORM28B (Notice of sale or cancellation of treasury shares) within 14 day after the date of cancellation to be lodge with CCM, Bursa & SC

PART B Q2 (a) If Encik Hailam's suggestion is accepted, the board proposes to issue 5,000,000

units of shares at a par value of RM1.00 per share but does not want these newshares to bear any rights to vote in a general meeting. To make the issue attractive,

the board also proposes to pay a fixed rate of dividend of 5% for every unit of shares.Advise the board on the definition and rights of such shares.

A preference share is a share with dividends that are paid to shareholders before ordinary share dividends are paid out.

In the event of a company bankruptcy, preferred stock shareholders have a right to be paid company assets first.

Preference shares typically pay a fixed dividend, whereas ordinary shares do not.

And unlike ordinary shareholders , preference share shareholders usually do not have voting rights.

June 2012 Part AQ7 : Describe two (2) situations each when a company is required and not

required to issues a prospectus

The situation when a company required and not required to issues a prospectus is:i. Application form which issued in connections with shares which are not offered to the public e.g. bonus/ capitalisation issues, right issues, employees’ share option scheme (ESOS), shares issued by private companies; andii. Application form issued in connection with a take over scheme

(c) Raising of share capital in private companies

Section 15 of the Act prohibits private companies from inviting the public to subscribe for any shares. It is usually done in a discreet and private manner to relatives, friends and business partner or associates. The manner chosen for the invitation must not involve a general notice to offer shares in the company. Section 132D of the Act vests the power to issue share in

the shareholders of the company. The directors can issue shares if prior approval of the shareholders in a general meeting is obtained.

Application and Allotment of shares Person desirous to become a member shall complete an application form and submit to the companies together with the application monies,

• To give power of allotment of shares to the board• To allot the shares and authorizing the board to issue the shares and the

share certificate and affixing of the common seal.• The company then will prepare the share certificate and dispatch it to the

new member within 2 months from the date applicant lodge his application• The company secretary will then be instructed to update the Registrar of

Members• The company secretary will lode with CCM, Form 24 (Return of Allotment of

Shares) , if applicable and Form 11 Notice of Resolution) within one month after the date of allotment.

Once receive the application form and remittance, a board meeting

shall convene to approve the allotment. The duly completed

form shall be tabled at the meeting for consideration. The

resolution passed shall also authorize the director to issue share certificate and affix the common seal. Where no such

power of allotment of shares was given to the directors, an AGM has

to be convened either :

June 2012 Part BQ4(a): Describes the procedure for payment of dividend by Lotus Cars Berhad

Lotus Cars Berhad has been a public listed company since the year 2003. Procedure for payment of dividend by Lotus Cars Berhad to its shareholder is:

Check the Article on dividend right of the various classes of shareholder

Ensure sufficient balance in the bank account and sufficient Section 108 tax credit

Convene a board meeting to pass the following resolution:i) Recommending the payment of dividend, the rate, the entitlement date and date of payment (shall be within one (1) month from the closing date) ii) Notice to closure of booksiii) Instruct the bank to deal with payment of dividend and to open as dividend account

a) Inform Bursa Malaysia on the recommendation of declaring the dividend and the date of closing the register. Once the closure date is announced, no alteration to dividend entitlement shall be madeb) File FORM 53A (Notice to Close Register of Members) with the CCM fourteen (14) days before the closing date.

June 2012 Part B (continuing…..)

The shareholder will have to pass an ordinary resolution at the AGM

Instruct the bank to deal with the payment of dividend and to open a special dividend account

Update Register of Members and prepare dividend list and dividend list and dividend warrants

Despatch the dividend warrant to the shareholder

June 2012 Part B Q4(b)One of the director states that the company can only pay dividend if the company has profit for the particular year. Is profit the only indicator to be considered when declaring dividend? Justify your answer.

When Lotus Cars Berhad want to pay dividend to all shareholder, one of the director states that the company that the company can only pay dividend if the company has profit for particular year. Profit is not the only indicator to be considered when declaring dividend. The other indicator director need to consider is:

Whether there are profit available for making dividend

Whether there are sufficient Section 108 tax credits (income Tax Act 1967) with the Department of Inland Revenue. Dividends are paid after deduction of income tax at the standard rate applicable to the company for the year of assessment in which the dividend is paid. The company must have sufficient Section 108 tax credit to cover the amount of tax so deducted from the dividend

Whether there are sufficient cash for the payment of dividend

Whether there are covenant with financiers regarding dividend restriction

June 2012 Part BQ4(c) : How should the company deal with these unclaimed dividend

Unclaimed dividend must be summated to the Registrar of Unclaimed Money if the have remained unpaid for more than twelve (12) month after they become payable. The company is required to keep a register of these unclaimed dividends and it must be advertised by the company in the gazette annually during the month of March.

All unclaimed dividend which have not been paid within twelve (12) month after the advertisement in the gazette will be paid within fourteen (14) days after the expiration of twelve (12) month period by the company to the Consolidated Trust Account (CTA). Owners in respect of unclaimed dividend may recover them from the company at any time before that money is paid to CTA. Those unclaimed money will remain in the CTA for a period of six (6) years and after the lapse of six (6) years it will be paid into the Consolidated Revenue Account.

January 2013 Part AQ4: Differentiate between ‘transfer of shares’ and ‘transmission of shares’

Transfer

Voluntarily act of the former owner when he sell or give away the shares to others person

Need proper instrument of transfer – Form 32A* Transfer of shares in private* Transfer of shares in public

Transmission

Changes of ownership not by agreement and voluntarily action but by operation of law or other events

Other events:* Member’s death* Member’s bankruptcy* Lunacy of members* Liquidation of corporation members

June 2013 Part A Q6 : What is a Central Depository System (CDS)? Why do investors need to

open a CDS account?

Central Depository System (CDS) is govern by the Securities Industry (Central Depositories ) Act 1991 to provide efficient central clearing and settlement of securities. The principal

activities are operation and maintenance in respect of shares, stock bonds, debentures or other securities of any corporation.

CDS has created a scripless trading environment of the Bursa Malaysia for immobilization of securities.

Investors need to open a CDS account with an ADA if they wish to trade in prescribed securities. This is for safekeeping of

shares, for custodian and pledging services.

Q10 :Explain what an Employee Share Option Scheme (ESOS) is.

Part BQ1(a) : The differences between a public issue and an offer for sale

Public Issue

• new created shares for sale to the public.

• It is direct allotment where the shares are issued and allotted directly to members of public who has subscribed for the shares.

• Company has to issue prospectus inviting the public to subscribe for shares.

• The issuing house/ stockbrokers / merchant bank will be remunerated by a fee at a commission .

Offer for Sale

• a block of shares belonging to the existing shareholders is offered for sale to the public.

• The shares are allotted to the issuing house / stockbrokers/ merchant bank which will in turn offer them to the public for subscription

• The issuing house/ stockbrokers/ merchant bank will issue a prospectus inviting the public to subscribe for the shares

• The issuing house/ stockbrokers / merchant bank are remunerated by the profit of the difference between the price at which they subscribed and the offer price.

(b) The sequential procedure for a public issue

Company will create new shares for sale to

the public

Company issue prospectus inviting the public to subscribe for

shares

Interested investors may subscribe for the

issue by submitting application on a prescribed form

The issue must be underwritten, normally by merchant banks and

issuing houses

Should the issue be oversubscribed,

selection of successful applicants will be made by means of balloting

and if under-subscribed, no balloting

is necessary

(c) The underwriting arrangement in a public issue

The underwriting arrangement in a public issue is for a firm (the managing underwriter) to subscribe or procure subscription for the shares to be issued in consideration for a commission to be paid by the company.

Usually the managing underwriter is a merchant bank and is responsible to arrange for sub-underwriting (by underwriting agreement) with a consortium of merchant banks/ issuing house/ stockbrokers.

It is not a statutory requirement for the issue shares to be underwritten, but for companies with shares listed on the Bursa Malaysia or seeking quotation on the Bursa Malaysia, they are required to have the issue underwritten to ensure that the company will get the required funds it intends to raise by the public issue or offer for sale.