Company Shares

Companies may issue different types of shares to raise capital, namely Ordinary Shares and Preference Shares. Within these two types of shares, there are features and rights that you may decide on when choosing the right type for your business and ECF campaign.

There are 2 general types of company shares, Ordinary Shares and Preference Shares. The characteristic of each type are as follows:

Ordinary Shares

Voting Rights:	typically have voting rights in company
Returns:	can benefits from value appreciation and dividends
Risk:	higher volatility
Ownership:	represent ownership in the company

Preference Shares

Voting Rights:	usually non-voting
Returns:	offer regular dividends but lacks price appreciation
Redemption:	can be redeemed at a predetermined price
Priority:	Preference shareholders have priority over ordinary shareholders in receiving dividends

Key Consideration of Issuer for Their Offer
Ordinary Shares(“OS”): OS are usually held by the founders of the companies/early shareholders and are the most common type of shares. OS generally gives the ordinary shareholder the right to one vote at a company shareholders’ meeting, so founders or early shareholders who want to retain control over the management of the company will usually opt for this.

Preference Shares ("PS"): Preference Shares are shares of a company's stock with dividends that are paid out to shareholders before Ordinary Shareholders dividends are issued. If the company enters bankruptcy, Preference Shareholders are entitled to be paid from company assets before Ordinary Shareholders. Most Preference Shares have a fixed dividend, while Ordinary Shares generally do not. Preference Shareholders also typically do not hold any voting rights, but Ordinary Shareholders usually do.

There are different variations of Preference Shares that you can choose as an issuer. Here are some of the variations:

Redeemable Preference Shares ("RPS"): Redeemable Preference Shares gives the issuer the right to redeem the shares within a specific number years from the date of issuance at a predetermined price mentioned in the offer. The predetermined price would usually be a multiple or fixed percentage increase from the subscription price. Before redeeming the shares, the issuer shall ensure that RPS are paid up in full and all the conditions specified at the time of issuance are fulfilled. This class of shares generally exhibit more debt-like characteristics, while being classified as equity by the Securities Commissions of Malaysia.

Businesses who originally plan to take a loan but might not meet the criteria that creditors are looking for may opt for this class of shares. RPS are popular as they provide flexibility to issuers as well as certainty to the shareholders. It is also a common choice by venture capitalists as they provide a predetermined exit route for their investments. Issuers may receive required funding for their business origination/expansion and redeem the shares when the business is generating stable cash flow.

Redeemable Convertible Preference Shares ("RCPS"): Redeemable Convertible Preference Shares have similar features to Redeemable Preference Shares, with an option to convert to Ordinary Shareholders after a specific number of years at a specific conversion rate.

This class of shares is generally suitable for agriculture/plantation companies. For the first couple of years, the crops may not yield any return/ generate sales (depending on the type of crops). Property development and mining companies also exhibit similar characteristics to plantation companies and may benefit from RCPS.

Irredeemable Convertible Preference Shares ("ICPS"): The key point of difference between Redeemable Convertible Preference Shares and Irredeemable Convertible Preference Shares is their ability to be redeemed by the issuer.

Redeemable Cumulative Convertible Preference Shares ("RCCPS"): Redeemable Cumulative Convertible Preference Shares are similar to RCPS, with an additional ability to cumulate the dividend payouts should the company fail to pay out the previous years. This class of shares is also suitable for similar companies noted under RCPS.

Last Update: 04 October 2024