Wednesday, 11 October 2023
3:00 pm – 4:00 pm How to Close up Shop: Dissolution, Voluntary Winding Up and Striking Off a Company
About this talk
Success sometimes has its last chapter. When it’s time to wind down a business, it’s good to know your options. Understand the intricacies of dissolving a company, including member’s voluntary winding up, creditor’s winding up, and striking off applications. Our lawyers will guide you through the legal obligations and strategic considerations involved in these procedures.
The talk will be delivered over video conference using Zoom.us. You can either view the talk from your web browser or download the Zoom app.
Talk Points
- How to Dissolve a Company
- Member’s Voluntary Winding Up
- Creditor’s Voluntary Winding Up
- Striking Off Applications
Speaker
- Sebastian Liew, Senior Associate, Dispute Resolution Practice Group
- Aaron Liew, Associate, Dispute Resolution Practice Group
Wednesday, 18 October 2023
3:00 pm – 4:00 pm Contempt of Court: Forcing Compliance with Orders through Committal Proceedings
About this talk
When a court order is not obeyed, proceedings to enforce compliance become crucial. Committal proceedings may be an effective solution, as the party failing to comply with the order may be penalised with a fine or imprisonment. Understand the principles, procedures, and notable cases of using committal proceedings to compel court compliance. Join our webinar to unravel the mechanisms behind this enforcement method and gain insights into its practical applications.
The talk will be delivered over video conference using Zoom.us. You can either view the talk from your web browser or download the Zoom app.
Talk Points
- What is Contempt of Court?
- Civil Contempt as a Form of Enforcement
- Procedure of Committal Proceedings
- Case Studies and Tips
Speaker
- Gan Chong Chieh, Partner, Dispute Resolution Practice Group
- Joseph Khor, Associate, Dispute Resolution Practice Group
Wednesday, 25 October 2023
3:00 pm – 4:00 pm Understanding Damages for Medical Negligence: Types, Trends and Tactics
About this talk
Have you or your loved ones been affected by medical negligence? Unsure about the types of damages you can claim against healthcare professionals and institutions? Recent Malaysian court cases involving brain-damaged infants with multi-million ringgit compensation awards are raising questions about higher damages and novel awards for medical negligence.
Join our webinar on damages in medical negligence, where we will explore the types of compensation available to patients and their families. Discover how recent court decisions may impact your case and the factors influencing awards of damages. Get the knowledge you need to navigate medical negligence claims confidently.
The talk will be delivered over video conference using Zoom.us. You can either view the talk from your web browser or download the Zoom app.
Talk Points
- Types of damages awarded
- Damages for different injuries
- Evidence and aggravating factors
- Recent cases and trends
Speaker
- Jeremy Balang, Senior Associate, Dispute Resolution Practice Group
- Alicia Chin, Associate, Dispute Resolution Practice Group
We are excited and grateful to have been featured in an article title “The Good Guys: Asian Firms Prioritising the Greater Good” by Asia Business Law Journal.
MahWengKwai & Associates is among ten Malaysian law firms whose works have been higlighted in the report authored by Vandana Chatlani. Our efforts that are noted by the Journal include:
Diversity and Inclusion: Individuals of different races, religions and genders are hired, with team members representing diverse backgrounds and heritage
Improving work-life balance: Employees can select flexible work hours and working parents are supported by setting up a childcare centre at the firm’s premises
Pro bono works: NGOs receive legal support through TrustLaw co-ordinated by the Thomson Reuters Foundation. In 2022, the firm provided pro bono assistance to Fugee, a non-profit organisation that provides education to child refugees in Malaysia
Community services: In 2021, lawyers secured a landmark citizenship appeal for a child who was abandoned at birth and whose biological parents were unknown
Our managing partner, Raymond Mah, is also featured in the article. Raymond says, “Our team members come from varied backgrounds and heritages, including Chinese, Malay, Indian, Bidayuh, Iban, and more.” This inclusive approach is a cornerstone of our ethos, promoting the value of various perspectives in our legal practice.
One remarkable aspect of our diversity is the multitude of languages spoken within our team. As Raymond points out, “The number of different languages spoken – English, Malay, Mandarin, Tamil, Cantonese, Hindi, Hokkien, Hakka, and Punjabi – by our staff is a testament to the rich diversity at the firm’s workplace.” This linguistic diversity not only enhances communication but also underscores our global mindset.
At MWKA, we firmly believe that a diverse workforce is a powerful driver of innovation and success. As we continue this journey, our leadership remains dedicated to promoting equality and celebrating the uniqueness of each individual contributing to our vibrant legal family.
Note: This article does not constitute legal advice to any specific case. The facts and circumstances of each and every case will differ and therefore will require specific legal advice. Feel free to contact us for complimentary legal consultation.
It is common for employment contracts to contain a clause that prevents the employee from working for a competitor in the same industry for a predetermined period of time after the expiration or termination of the employee’s contract. Such a clause is commonly known as a “non-compete clause” and typically reads:
“The Employee shall not carry out any business activity or service that, or join another company or organisation whose nature of business, is similar to that of the Employer for a period of twelve months from the date of expiration or termination of this contract (as the case may be).”
This is essentially a form of restraint of trade. The question is: are non-compete clauses enforceable and valid? This article will discuss the enforceability of non-compete clauses and what else can be done to protect a business when an employee leaves for a competitor.
General Rule and Exceptions
Non-compete clauses are generally void and unenforceable in Malaysia. Non-compete clauses are a form of restraint of trade, and fall under Section 28 of the Contracts Act 1950 which renders void any agreement to restrain anyone from exercising a lawful profession, trade, or business:
28. Agreement in restraint of trade void
Every agreement by which anyone is restrained from exercising a lawful profession, trade, or business of any kind, is to that extent void.
To balance the rights of the employer against those of the employee, Section 28 of the Contracts Act 1950 lays down three exceptions to the general rule:
Saving of agreement not to carry on business of which goodwill is sold
Exception 1— One who sells the goodwill of a business may agree with the buyer to refrain carrying on a similar business, within specified local limits, so long as the buyer, or any person deriving title to the goodwill from him, carries on a like business therein:
Provided that such limits appear to the court reasonable, regard being had to the nature of the business
of agreement between partners prior to dissolution
Exception 2—Partners may, upon or in anticipation of a dissolution of the partnership, agree that some or all of them will not carry on a business similar to that of the partnership within such local limits as are referred to in exception 1.
or during continuance of partnership
Exception 3—Partners may agree that some one or all of them will not carry on any business, other than that of the partnership, during the continuance of the partnership.
Post-Contract Restraint of Trade
Section 28 of the Contracts Act 1950 will only render void a restraint of trade clause that applies to the employee’s post-contract period. It will not apply to a restraint of trade during the currency of the employment contract. In the High Court case of Polygram Records Sdn Bhd v Hillary Ang & Ors (collectively known as “The Search”) & Anor [1994] 3 CLJ 806, it was held that Section 28 of the Contracts Act 1950 was only applicable to cases where a person is restrained from carrying on his trade or profession after the expiry of the contract, not during the contract. In Polygram Records, the second contract between the plaintiff and The Search contained a clause that read:
“During the continuance of this agreement and in the case of the artiste being released from the artiste’s obligation to make sound recordings for the company … or in the case of the termination of this agreement … then for a period of two years after the date upon which the company shall have released the artiste … the artiste shall not without the written consent of the company … render the artiste’s services … in any part of the world as a singer or performer of musical works for the purposes of making records…”
This position was reiterated by the Court of Appeal in Vision Cast Sdn Bhd & Anor v Dynacast (Melaka) Sdn Bhd & Ors [2015] 1 MLJ 424, even if the restraint of trade is for a short period. In this case, the defendants had sought to restrain the second appellant (“Cheok”) from pursuing a lawful trade or business when Cheok had incorporated Vision Cast Sdn Bhd about 15 months after Cheok had left the Dynacast Group of Companies. The Court of Appeal stated that any such restraint against Cheok to pursue a trade or business was unsustainable and bound to be struck down.
In Nagadevan A/L Mahalingam v Millenium Medicare Services Sdn Bhd [2011] 3 CLJ 529, Nagadevan had resigned from the partnership with Millenium Medicare Services Sdn Bhd and commenced practice at another medical clinic situated within a 15 km radius from one of Millenium Medicare Services Sdn Bhd’s medical clinics. Millenium Medicare Services Sdn Bhd contended that its partnership agreement with Nagadevan had a clause that restrained Nagadevan from practising as a medical practitioner within a 15 km radius of any of its medical clinics. However, the Court of Appeal held that a clause restricting the liberty of a person to carry on his trade in the future with other parties, effectively giving rise to a restraint of trade, would fall within the scope of Section 28 of the Contracts Act 1950 unless the restraint of trade falls within any of the three exceptions.
Knowledge, Experience or Skill gained from Previous Employment
The law does not prevent a former employee from using any knowledge, experience or skill gained during his time with a former employer. In the case of Ace Capital Growth Sdn Bhd v Kua Kee Koon & Ors [2021] MLJU 2118, the letter of offer of employment issued by the plaintiff and accepted by the first defendant had restrictive clauses, which read:
“Section-III: Restraint of Trade Clauses:
a) Employee, in any business or enterprise or association of persons, both corporate and unincorporated which carries on a competing business.
b) The employee agrees and undertakes in favour of the employer that during the restraint period Eight (8 months) and in Malaysia he/she will not directly or indirectly work for a direct competitor of Ace Global Metal Sdn Bhd and Ace Capital Growth Sdn Bhd.
c) The Employee Must Not canvas, or solicit the business of, or maintain any personal records of any client of Ace Global Metal Sdn Bhd and Ace Capital Growth Sdn Bhd.”
The High Court held that a former employer cannot restrict a previous employee from using skills and knowledge in his trade and profession learnt during the course of his employment, as such skills and knowledge are different from secret and confidential information. The High Court also found that the terms and conditions of employment gave rise to a restraint of trade, which is rendered void by Section 28 of the Contracts Act 1950.
Protecting Confidential Information and Trade Secrets
In the realm of employment contracts and business relationships, it is essential to strike a balance between protecting a company’s confidential information and respecting the rights of employees. While restraint of trade clauses have traditionally been used for this purpose, there is an alternative approach that allows employees to rely on clauses governing the non-disclosure of confidential information.
The Duty of Good Faith and Protecting Confidential Information
Former employees are generally expected to act in good faith, adhering to a standard that a reasonable person would deem appropriate. One such permissible restraint is a clause that bars a former employee from disclosing, divulging, or misusing their former employer’s confidential information, proprietary know-how, and trade secrets. This approach not only safeguards a company’s valuable assets but also ensures that the employee’s obligations extend only to protecting confidential information, rather than overly restricting their future career opportunities.
Breach of Confidentiality and Conspiracy to Injure
In the case of Sundai (M) Sdn Bhd v Masato Saito & Ors [2013] 9 MLJ 729, the High Court established the importance of upholding the duty of good faith. Masato Saito was found to have breached his fiduciary duty by misusing confidential information and data without prior consent. This breach was proven through evidence of a conspiratorial agreement followed by overt acts aimed at causing harm. This case underscores the significance of respecting confidentiality obligations without necessarily imposing excessive restrictions on employees’ future endeavours.
Duration of Confidentiality Obligations
While the Federal Court’s ruling in Dynacast (Melaka) Sdn Bhd & Ors v Vision Cast Sdn Bhd & Anor [2016] 3 MLJ 417 indicated that confidentiality obligations could potentially have a perpetual effect, it left open the question of whether restrictions on divulging or breaching such obligations during or after employment fall under Section 28 of the Contracts Act 1950. To ensure legal clarity and enforceability, it is advisable to explicitly state the duration and scope of confidentiality obligations in employment contracts or separate non-disclosure agreements.
Conclusion
The Malaysian courts place significant emphasis on the strict provisions outlined in Section 28 of the Contracts Act 1950 when evaluating clauses that may impose a restraint of trade following the expiration or termination of an employment contract. While such clauses are commonly included, any agreement containing a clause that effectively results in a restraint of trade is generally considered void and unenforceable, unless it unequivocally falls within one of the three exceptions in Section 28 of the Contracts Act 1950.
Whether you are an employer seeking legal guidance on non-compete clauses and potential revisions to your employment contracts or an employee aiming to gain a better understanding of your post-employment rights, we invite you to reach out to us. Our team is well-equipped to provide you with expert advice tailored to your specific circumstances, ensuring that your legal interests are safeguarded in accordance with Malaysian law. A well-drafted employment contract effectively delineates the rights and obligations of all parties involved, with transparency and fairness.
By Tommy Wong and Jasmine Wee Xing Yi
Note: This article does not constitute legal advice to any specific case. The facts and circumstances of each and every case will differ and therefore will require specific legal advice. Feel free to contact us for complimentary legal consultation.
Company shares are a form of security that proves or represents the extent of ownership a shareholder has in a company. It is common for a company to issue different types of shares, and each type of shares provides different rights to its holders. The types of shares that can be issued by Malaysian companies are governed under Section 69 of the Companies Act 2016:
69. Types of shares
Subject to the constitution of the company, shares in a company may-
(a) be issued in different classes;
(b) be redeemable in accordance with section 72;
(c) confer preferential rights to distributions of capital or income;
(d) confer special, limited or conditional voting rights; or
(e) not confer voting rights.
In Malaysia, the types of shares in a company generally issued to shareholders are ordinary shares and preference shares. The rights and powers attached to ordinary shares are provided under Section 71 of the Companies Act 2016, whilst the issuance of preference shares falls under Section 72 of the Companies Act 2016.
Whether you are a founder, an investor or an acquirer of a company, it is essential to know and understand the difference between the two types of shares, as the type of shares you own will determine your rights in the company. This article explores the differences between ordinary shares and preference shares in a company.
Ordinary Shares vs Preference Shares
A company usually issues ordinary shares to founding shareholders and third-party investors who are actively involved in the company’s management to such extent exercised by ordinary shareholders. Meanwhile, a company issues preference shares to shareholders or third-party investors who are not actively involved in the company’s management but instead intend to reap the prioritised benefits arising from the growth and earnings of the company.
Under Section 71 of the Companies Act 2016, an ordinary share provides its holder with the following rights:
- The right to attend, participate and speak at a meeting;
- The right to vote on a show of hands on any resolution of the company;
- The right to an equal share in the distribution of the surplus assets of the company; and
- The right to an equal share in dividends authorised by the company’s board of directors (although this may be subject to the company constitution).
Meanwhile, preference shares can only be issued by a company if such shares are authorised by its constitution. Regarding the issuance of preference shares, Section 72 of the Companies Act 2016 reads as follows:
72. Preference shares
(1) Subject to its constitution, a company having a share capital may issue preference shares.
Section 72 of the Companies Act 2016 further sets out the provisions for the redemption of preference shares. However, the Companies Act 2016 does not expressly set out the rights of a preference shareholder. Thus, it is essential for a company to ensure that all rights of its preference shareholders are expressly defined and stipulated in its constitution.
Summary of Differences
The main differences between the two types of shares and the respective rights attached to them are set out below:
1. General Overview
Ordinary Share:
Most commonly issued by companies to shareholders upon incorporation.
Preference Shares:
Typically issued to non-founding shareholders, subscribers or investors that prefer specific rights and values of preference shares, which differ from those of ordinary shares.
2. Constitution
Ordinary Share:
Rights do not need to be set out in the company constitution unless the company intends to create different classes of ordinary shares (where there are Class A Shares and Class B Shares) that have different rights.
Preference Shares:
Rights and terms (including their issuance, conversion and redemption) must be expressly set out in the company constitution, as preference shareholders do not enjoy other additional rights.
3. Voting Rights
Ordinary Share:
Allow their holders to participate or vote in company matters requiring shareholders’ resolution. A voting right that is generally attached to ordinary shares is the concept of “one share, one vote”, but a different class of ordinary shares may be adopted by the company in its constitution to allow weighted voting rights that provide that class of ordinary shares additional votes over the other class of ordinary shares.
Preference Shares:
Generally do not confer voting rights to their holders unless the company constitution provides otherwise (if so, usually for certain matters only). However, preference shareholders have a sense of priority whereby dividends are distributed to preference shareholders before ordinary shareholders.
4. Dividends
Ordinary Share:
Dividends are distributed to ordinary shareholders only after preference shareholders receive their dividends. The company’s board of directors will determine the rate of dividends to be distributed to the shareholders depending on the available profits of the company and the company satisfying a solvency test
Preference Shares:
Preference shareholders receive their dividends with priority over ordinary shareholders. The company constitution will usually determine the rate of dividends to be distributed to the shareholders, depending on the availability of the profits of the company and the company satisfying a solvency test
5. Accumulation
Ordinary Share:
Ordinary shareholders cannot accumulate their dividends from previous years.
Preference Shares:
Preference shareholders may enjoy a cumulative right to dividends if the right is expressly provided under the company constitution.
6. Repayment of Capital upon Winding-up of Company
Ordinary Share:
Ordinary shareholders will receive repayment of capital after the company has paid its creditors, followed by preference shareholders
Preference Shares:
Preference shareholders will receive repayment of capital after creditors but before ordinary shareholders.
7. Participation in Surplus Assets and Profits upon Winding-up of Company
Ordinary Share:
Ordinary shareholders will receive repayment of capital after the company has paid its creditors, followed by preference shareholders
Preference Shares:
Preference shareholders cannot participate in the distribution of surplus assets and profits unless otherwise expressly set out in the company constitution.
8. Redemption
Ordinary Share:
Cannot be redeemed or repurchased by a private limited company. In the case of a public company, ordinary shares can be redeemed or repurchased if this is expressly set out in the company constitution.
Preference Shares:
May be redeemed if issued with such an option or right attached to them. These shares are commonly known as “redeemable preference shares”, and their issuance must be provided for under the company constitution. The redemption of redeemable preference shares must satisfy the requirements under Section 72 of the Companies Act 2016 (as mentioned above).
9. Convertibility
Ordinary Share:
Cannot be converted to a different type of shares.
Preference Shares:
Can be converted if they were issued with the option to convert to ordinary shares at such a time and rate that is usually pre-determined. These preference shares are commonly known as “convertible preference shares”.
Conclusion
A company may adopt different classes of ordinary shares (i.e. Class A Ordinary Shares and Class B Ordinary Shares) and different classes of preference shares (i.e. Class A Preference Shares and Class B Preference Shares), all of which come with different sets of rights and functionalities. The categorisation of different classes of shares (i.e. Class A Ordinary Shares and Class B Ordinary Shares) can come in the form of weighted voting rights, which we have written about in this article.
With these different types, classes and nature of shares, it is essential for persons interested in starting a company, investing in a company or acquiring shares in a company to recognise and understand the share structure of that company.
If you would like us to advise you on establishing a share structure for your company (and to adopt such share structure in your company constitution) or if you would like us to conduct due diligence on the share structure of the target company for a potential acquisition exercise, please feel free to contact us below for a free consultation.
By Tommy Wong and Aaron Liew
Note: This article does not constitute legal advice to any specific case. The facts and circumstances of each and every case will differ and therefore will require specific legal advice. Feel free to contact us for complimentary legal consultation.
Wednesday, 20 September 2023
3:00 pm – 4:00 pm Enforcing an Adjudication Decision: Direct Payment from Principal
About this talk
Winning a CIPAA adjudication and obtaining a favourable decision does not guarantee that the respondent will pay the adjudicated sum. One option is to make a demand and bring a claim for direct payment from the principal. Join our online talk in which our speaker will explain how to obtain direct payment from the principal under Section 30 of CIPAA, how to oppose a demand for direct payment and discuss recent cases.
The talk will be delivered over video conference using Zoom.us. You can either view the talk from your web browser or download the Zoom app.
Talk Points
- Overview of CIPAA Claims and Decisions
- Direct Payment from Principal under s. 30 CIPAA
- Opposing a Demand for Direct Payment
- Other ways to Enforce an Adjudication Decision
Speaker
- Michael Koh, Senior Associate, Dispute Resolution Practice Group
Wednesday, 30 August 2023
3:00 pm – 4:00 pm Landlocked by Compulsory Acquisition: Compensation for Loss of Access
About this talk
Have you lost access to your land as a result of compulsory acquisition by the government? This can happen when the frontage of the land is acquired or when the acquired portion cuts through the land, leaving the remaining portion inaccessible. Whether you’re a landowner or a registered valuer, join us for this talk to understand compensation for severance and injurious affection where acquisition results in the loss of access.
The talk will be delivered over video conference using Zoom.us. You can either view the talk from your web browser or download the Zoom app.
Talk Points
- Overview of Land Acquisition in Malaysia
- Severance and Injurious Affection
- Compensation for Loss of Access
- Case Studies and Recent Court Decisions
Speakers
- Denise Phang, Partner, Dispute Resolution Practice Group
- Joseph Khor, Associate, Dispute Resolution Practice Group
As companies worldwide seek external funding to fuel their growth and development, preserving founder control becomes a critical concern. From start-ups seeking private equity or venture capital to private limited companies embarking on initial public offerings (IPOs), attracting investors while safeguarding founder influence demands innovative corporate structures.
When investors become shareholders, their voting rights are determined by the class and rights attached to their shares. Consequently, founders may find their control diluted if substantial shares are allotted to investors. To address this challenge, entrepreneurs turn to dual-class shares with weighted voting rights—a mechanism that grants certain shareholders multiple votes per share.
In this article, we explore the strategic implementation of dual-class shares to empower founders with majority control while attracting vital funding for the company’s growth and development. By examining the advantages and regulatory considerations, we equip clients at MahWengKwai & Associates with valuable insights to make informed decisions in navigating the dynamic landscape of corporate governance.
Definition and Mechanics of Dual-Class Shares
Dual-class shares are a distinctive corporate structure that deviates from the conventional single-class share system. While single-class shares offer equal voting rights to all shareholders, dual-class shares introduce a tiered approach, allocating different voting powers to distinct classes of shares.
In essence, multiple classes of shares are issued, with Class A and Class B shares being the most common denominations. Class A shares are typically offered to the public and carry limited or no voting rights, ensuring widespread ownership but limited influence in corporate decision-making. On the other hand, Class B shares are held by company founders, executives, or early investors, endowing them with significantly higher voting power.
The typical structure of dual-class shares often bestows superior voting rights upon Class B shares, granting key stakeholders a more influential say in critical matters compared to Class A shareholders. This arrangement empowers company founders to retain substantial control over strategic decisions, even if they possess less than fifty per cent (50%) of the total issued share capital.
Through the implementation of dual-class shares, founders can safeguard their vision and long-term interests, despite seeking external funding to propel the company’s growth and development. This strategic mechanism not only provides entrepreneurs with stability and autonomy in steering their ventures but also allures investors seeking to align with visionary leadership.
Dual-Class Shares in Malaysia
Traditionally, the concept of “one share, one vote” has been the norm in Malaysia, as prescribed by Section 71(1)(c) and Section 293(1)(a)(iii) of the Companies Act 2016. However, the Companies Act 2016 also allows for special voting rights to be conferred to certain classes of shares under Section 69(d) and Section 90(1).
69. Types of Shares
Subject to the constitution of the company, shares in a company may –
(d) confer special, limited or conditional voting rights…
90. Description of shares of different classes
(1) A company that has different classes of shares shall, in its constitution, state prominently the following:
(a) that the company’s share capital is divided into different classes of shares; and
(b) the voting rights attached to shares in each class.
Dual-Class Shares for Private Limited Companies
Taking advantage of Section 69(d) and Section 90(1), private limited companies in Malaysia can establish a dual-class share structure that grants distinct voting rights to each class of shares. For instance, a company may have two classes of shares: Class A Shares with three (3) votes per share, typically held by the Founder or original shareholders, and Class B Shares with one (1) vote per share, offered to Investors, the public, or third parties.
For private limited companies, implementing a dual-class structure involves clearly describing the classes of shares and their corresponding voting rights in the company’s constitution. This strategic approach enables the Founder to retain significant decision-making control while attracting funding from external investors.
Potential for Dual-Class Shares in Public-Listed Companies
While dual-class shares are currently available for private limited companies, their implementation in public-listed companies is still pending further announcements from Bursa Malaysia and/or the Securities Commission Malaysia. Although the Malaysian government has proposed plans to allow the issuance of dual-class shares as part of the revised Budget 2023, public-listed companies must await regulatory developments for their adoption.
The Rationale Behind Dual-Class Share Structures
Dual-class share structures have gained popularity among companies seeking to strike a delicate balance between raising capital and retaining control. Several reasons drive the implementation of this corporate model:
- Preserving Founder Control: For many start-ups and established businesses alike, founders and early investors play a pivotal role in the company’s success. Dual-class shares offer a means for these key stakeholders to maintain significant decision-making power, even as the company expands and attracts external funding. By holding Class B shares with superior voting rights, founders can safeguard their vision and leadership influence.
- Long-Term Vision: Dual-class shares align with the long-term strategic vision of founders and management. With a focus on sustainable growth and innovation, these companies can steer clear of short-term pressures and demands from public investors. This approach empowers management to make strategic decisions that may take time to yield substantial returns, without the fear of facing immediate backlash from short-term shareholders.
- Protection Against Hostile Takeovers: The differential voting rights inherent in dual-class shares can serve as a defence mechanism against hostile takeovers. By concentrating voting power in the hands of committed insiders, companies can shield themselves from external forces that may seek to gain control for short-term gains, potentially compromising the company’s long-term objectives.
Advantages of Dual-Class Shares
Dual-class shares offer an array of advantages that can positively impact a company’s governance and operations:
- Stability and Autonomy: The weighted voting rights provided by dual-class shares offer stability and autonomy to the company’s leadership. This stability can foster an environment conducive to long-term planning and strategic decision-making, as founders and key insiders are not beholden to the immediate demands of external shareholders
- Protection for Visionary Leadership: For companies with founders or executives who possess a unique vision for the company’s future, dual-class shares provide a safeguard against challenges to that vision. By retaining control through Class B shares, these leaders can execute their plans without undue interference, cultivating a corporate culture focused on innovation and bold initiatives.
- Attracting Long-Term Investors: Dual-class shares may be particularly appealing to long-term investors who share the company’s vision and believe in the capabilities of its leadership. Such investors are often willing to make substantial commitments to support the company’s growth, recognizing the value of a strong and focused leadership team.
Disadvantages and Criticisms
While dual-class shares offer compelling benefits, they have drawn criticisms:
- Lack of Accountability: Critics argue that dual-class structures can lead to a lack of accountability, as certain shareholders with superior voting rights may exercise disproportionate control without adequate checks and balances. This concentration of power in the hands of a few can diminish the voice of other shareholders, raising concerns about corporate governance practices.
- Potential for Abuse of Power: The differential voting power granted to insiders through dual-class shares may create opportunities for abuse of power, allowing founders or management to prioritise their interests over those of minority shareholders. Such scenarios can stifle dissent and discourage active shareholder engagement.
- Entrenched Management: Some corporate governance experts contend that dual-class shares can contribute to the entrenchment of management. With concentrated voting power, management may resist external calls for changes or reforms, potentially hindering the company’s ability to adapt to evolving market conditions.
Investor Considerations
Investors need to assess how the weighted voting rights present in a company’s dual-class shares can influence their investment decisions. Understanding the implications of this unique corporate structure is essential for making informed choices that align with their financial goals and risk tolerance. Here are key considerations for potential investors:
- Corporate Governance Practices: Investors need to carefully analyse the company’s corporate governance practices before committing their funds. Scrutinise the board structure, composition, and independence, as well as any measures in place to protect minority shareholders’ interests. Transparent and accountable governance practices are vital for ensuring fair treatment of all shareholders.
- Balance of Power: It is crucial to evaluate the balance of power between different classes of shareholders, particularly the significant disparity between Class A and Class B shares. Understand how much control founders or insiders hold and how their decisions may impact the company’s direction. A skewed distribution of voting power may indicate a higher risk of management entrenchment or potential conflicts of interest.
- Influence on Decision-Making: Investors should analyse how the weighted voting rights might influence key decisions within the company. Gain insights into the specific matters in which Class B shareholders can exert their superior voting power. Evaluate if this concentration of control aligns with the company’s long-term goals and values, and whether it may lead to a lack of responsiveness to other shareholders’ concerns
- Risk Tolerance: Recognize that investing in companies with dual-class shares entails unique risks. With founders or insiders retaining significant control, minority shareholders might have limited avenues to influence the company’s direction. Consider your risk tolerance and whether you are comfortable with potentially reduced voting power and fewer protections compared to traditional single-class share companies.
- Long-Term Investment Goals: Dual-class share structures often emphasise long-term strategic vision. Investors need to align their investment goals with the company’s trajectory and growth prospects. Investing in such companies requires a commitment to ride out market fluctuations and support the company’s leadership in achieving its long-term objectives.
- Future Dilution: Take into account the potential for future share dilution. As the company continues to grow and attract more investors, additional classes of shares may be introduced, further diluting voting power. Understand the company’s plans for future fundraising and its potential impact on the balance of power.
- Regulatory Environment: Be aware of the regulatory environment and voting rights protections in the jurisdiction where the company is incorporated. Regulations may vary across countries and can influence the degree of control granted to certain shareholders.
Conclusion
In the modern corporate world, dual-class shares with weighted voting rights offer a way for companies to get funding while keeping control. We have seen how they empower founders and insiders to plan for the long term without worrying about short-term pressures. They provide stability, protect against takeovers, and attract long-term investors
Investors should be cautious. Dual-class shares come with potential risks like less accountability and entrenched management. Before investing, they should carefully check the company’s governance, power balance, and their own willingness to take risks. Seeking professional advice is vital to make smart choices in dealing with this unique structure.
Understanding dual-class shares is essential for companies and investors alike. By balancing the benefits and risks, they can navigate the corporate landscape successfully and ensure sustainable growth and success.
By Raymond Mah and Tommy Wong
Note: This article does not constitute legal advice to any specific case. The facts and circumstances of each and every case will differ and therefore will require specific legal advice. Feel free to contact us for complimentary legal consultation.
Wednesday, 9 August 2023
3:00 pm – 4:00 pm Defamation Allegations in Strata Management
About this talk
Are you involved in a strata community, perhaps as a owner, JMB/MC committee member or property manager? Have you made statements or shared views only to receive defamation allegations? It is important to know the line between issuing statements to carry out your duties and avoiding a defamation claim. In our upcoming webinar our speaker will explain the law of defamation and how to carry out your duties as a JMB/MC committee member or property managers without being liable for defamation.
The talk will be delivered over video conference using Zoom.us. You can either view the talk from your web browser or download the Zoom app.
Talk Points
- What is Defamation?
- Defences to Defamation
- Defamation in Strata Communities
- Tips for Avoiding Defamation
Speaker
- Edwin Raj, Senior Associate, Dispute Resolution Practice Group
From left to right : Jerry, Chin Yuen-Fong, Foo Joon Liang, Dr Colin Ong KC, Tan Sri David Wong, Dato’ Mah Weng Kwai, Josephine Hadikusumo, Mr Tan
MahWengKwai & Associates is delighted to announce that our Consultant, Dato’ Mah Weng Kwai, has been appointed a panel arbitrator for the Hainan International Arbitration Court (HIAC).
The Hainan International Arbitration Court (HIAC) is a distinguished arbitration institution dedicated to resolving international commercial disputes. As China’s only free trade zone with an international arbitration centre, HIAC plays a crucial role in facilitating fair and impartial dispute resolution for businesses and individuals both regionally and internationally.
Dato’ Mah Weng Kwai is also a panel arbitrator on the Asian International Arbitration Centre’s (AIAC) panel of arbitrators and is certified as a Mediator by the Malaysian Mediation Centre. Dato’ Mah has sat as an arbitrator in numerous cases, appointed on an ad-hoc basis or by AIAC and other centres in the Asian region such as the Singapore International Arbitration Centre (SIAC). The subject matter of the cases includes, among others, building and construction contracts, sale and purchase of shares, telecommunication contracts, marine dredging and many others.
This appointment is a testament to his exemplary dedication to the legal profession, legal acumen, and extensive arbitral experience. We extend our heartfelt congratulations to Dato’ Mah Weng Kwai on this remarkable achievement.
Note: This article does not constitute legal advice to any specific case. The facts and circumstances of each and every case will differ and therefore will require specific legal advice. Feel free to contact us for complimentary legal consultation.
MahWengKwai & Associates is proud to announce that our consultant, Dato’ Mah Weng Kwai, has been appointed as the Chairman of Advertising Standards Malaysia (ASA). Dato’ Mah succeeds En. Azizul Kallahan, who served ASA for 3 years.
With his eminent background as a distinguished lawyer and former esteemed member of the judiciary, having served as a judge at the Court of Appeal in Malaysia, Dato’ Mah is widely respected as a legal advisor and arbitrator. He also holds the position of Chairman of the Board of Directors of the Securities Industry Dispute Resolution Center, a company under the Securities Commission of Malaysia.
Formed in 1977, Advertising Standards Malaysia is Malaysia’s independent self-regulator for the advertising industry, overseeing non-broadcast and non-networked mediums such as printed newspapers and magazines, posters, direct mail, packaging, leaflets/brochures, cinema commercials, and billboards. Guided by the Malaysian Code of Advertising Practice, Advertising Standards Malaysia ensures adherence to industry standards, promoting legal, decent, honest, socially responsible, and truthful advertisements. The organisation’s role includes resolving industry-related difficulties arising from the Code and regulating advertisements based on complaints from industry members or the general public, thereby safeguarding consumer rights.
Advertising Standards Malaysia is set up under the auspices of and supported by its 5 Constituent Members;
- Association of Accredited Advertising Agents Malaysia (4As)
- Malaysian Advertisers Association (MAA)
- Malaysian Newspaper Publishers Association (MNPA)
- Malaysian Media Specialists Association (MSA)
- Outdoor Advertising Association of Malaysia (OAAM)
Expressing his enthusiasm for the appointment, Dato’ Mah stated, “I am encouraged by this opportunity, which will allow me to share and apply my perspectives, legal knowledge, and experience in dealing with matters brought before the Board.”
To read the News, please click here.
Note: This article does not constitute legal advice to any specific case. The facts and circumstances of each and every case will differ and therefore will require specific legal advice. Feel free to contact us for complimentary legal consultation.
Friday, 28 July 2023
3:00 pm – 4:00 pm Legal Challenges in the Digital Gaming and Esports Industry
About this talk
Malaysia’s digital gaming and esports industry has become a force to be reckoned with, offering opportunities and challenges alike. By understanding the legal issues at play, stakeholders, investors and sponsors can protect their interests, nurture innovation and contribute to the industry’s sustainable growth. Join our online talk where our speaker will guide you through the legal intricacies in this dynamic industry.
The talk will be delivered over video conference using Zoom.us. You can either view the talk from your web browser or download the Zoom app.
Talk Points
- The Power of the Digital Playground
- Protecting Your Digital Assets: Intellectual Property and Licensing
- Player Contracts and Rights
- Esports Regulation
Speaker
- Lesley Lim, Partner, Dispute Resolution Practice Group
