Subscribing or acquiring shares: check the pre-emptive rights first

Equity capital markets (ECM)

An investor who wants to subscribe to shares or acquire shares in a private company should first consider whether there are any restrictions to do so in the following documents:

1. Constitution of the company (if the company has adopted a constitution); and

2. Shareholders agreement (if the current shareholders have entered into a shareholders’ agreement).

The constitution of a company may be extracted from the record of the Companies Commission of Malaysia (“CCM”) if the company has filed the constitution accordingly. However, the investor would not be able to know whether the copy extracted from the CCM (if any) is the latest constitution currently adopted by the company. Therefore, it is prudent to get a copy of the latest constitution from the company directly.

Section 85 of the Companies Act 2016 provides that subject to constitution of the company, shareholders have pre-emptive rights to subscribe to new shares allotted by the company. Section 85 have to be read together with the provisions in the constitution and shareholders’ agreement to determine whether there are:

– pre-emptive rights of existing shareholders in the case of allotment of new shares by the company; or

– first right of refusal by existing shareholders if a shareholder wants to dispose its shares.

The investor would have to get the existing shareholders to waive these rights in order for the investor to subscribe or acquire shares.


This post was first posted on Linkedin on 18 August 2022.

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