{"id":5332,"date":"2025-09-12T07:19:06","date_gmt":"2025-09-12T07:19:06","guid":{"rendered":"https:\/\/poshcorporate.com\/?p=5332"},"modified":"2026-01-16T04:31:08","modified_gmt":"2026-01-16T04:31:08","slug":"redemption-of-preference-shares-a-practical-guide-for-companies","status":"publish","type":"post","link":"https:\/\/posh.kaizenovaa.com\/cn\/redemption-of-preference-shares-a-practical-guide-for-companies\/","title":{"rendered":"Redemption of Preference Shares: A Practical Guide for Companies"},"content":{"rendered":"<div data-elementor-type=\"wp-post\" data-elementor-id=\"5332\" class=\"elementor elementor-5332\" data-elementor-settings=\"{&quot;element_pack_global_tooltip_width&quot;:{&quot;unit&quot;:&quot;px&quot;,&quot;size&quot;:&quot;&quot;,&quot;sizes&quot;:[]},&quot;element_pack_global_tooltip_width_widescreen&quot;:{&quot;unit&quot;:&quot;px&quot;,&quot;size&quot;:&quot;&quot;,&quot;sizes&quot;:[]},&quot;element_pack_global_tooltip_width_laptop&quot;:{&quot;unit&quot;:&quot;px&quot;,&quot;size&quot;:&quot;&quot;,&quot;sizes&quot;:[]},&quot;element_pack_global_tooltip_width_tablet&quot;:{&quot;unit&quot;:&quot;px&quot;,&quot;size&quot;:&quot;&quot;,&quot;sizes&quot;:[]},&quot;element_pack_global_tooltip_width_mobile&quot;:{&quot;unit&quot;:&quot;px&quot;,&quot;size&quot;:&quot;&quot;,&quot;sizes&quot;:[]},&quot;element_pack_global_tooltip_padding&quot;:{&quot;unit&quot;:&quot;px&quot;,&quot;top&quot;:&quot;&quot;,&quot;right&quot;:&quot;&quot;,&quot;bottom&quot;:&quot;&quot;,&quot;left&quot;:&quot;&quot;,&quot;isLinked&quot;:true},&quot;element_pack_global_tooltip_padding_widescreen&quot;:{&quot;unit&quot;:&quot;px&quot;,&quot;top&quot;:&quot;&quot;,&quot;right&quot;:&quot;&quot;,&quot;bottom&quot;:&quot;&quot;,&quot;left&quot;:&quot;&quot;,&quot;isLinked&quot;:true},&quot;element_pack_global_tooltip_padding_laptop&quot;:{&quot;unit&quot;:&quot;px&quot;,&quot;top&quot;:&quot;&quot;,&quot;right&quot;:&quot;&quot;,&quot;bottom&quot;:&quot;&quot;,&quot;left&quot;:&quot;&quot;,&quot;isLinked&quot;:true},&quot;element_pack_global_tooltip_padding_tablet&quot;:{&quot;unit&quot;:&quot;px&quot;,&quot;top&quot;:&quot;&quot;,&quot;right&quot;:&quot;&quot;,&quot;bottom&quot;:&quot;&quot;,&quot;left&quot;:&quot;&quot;,&quot;isLinked&quot;:true},&quot;element_pack_global_tooltip_padding_mobile&quot;:{&quot;unit&quot;:&quot;px&quot;,&quot;top&quot;:&quot;&quot;,&quot;right&quot;:&quot;&quot;,&quot;bottom&quot;:&quot;&quot;,&quot;left&quot;:&quot;&quot;,&quot;isLinked&quot;:true},&quot;element_pack_global_tooltip_border_radius&quot;:{&quot;unit&quot;:&quot;px&quot;,&quot;top&quot;:&quot;&quot;,&quot;right&quot;:&quot;&quot;,&quot;bottom&quot;:&quot;&quot;,&quot;left&quot;:&quot;&quot;,&quot;isLinked&quot;:true},&quot;element_pack_global_tooltip_border_radius_widescreen&quot;:{&quot;unit&quot;:&quot;px&quot;,&quot;top&quot;:&quot;&quot;,&quot;right&quot;:&quot;&quot;,&quot;bottom&quot;:&quot;&quot;,&quot;left&quot;:&quot;&quot;,&quot;isLinked&quot;:true},&quot;element_pack_global_tooltip_border_radius_laptop&quot;:{&quot;unit&quot;:&quot;px&quot;,&quot;top&quot;:&quot;&quot;,&quot;right&quot;:&quot;&quot;,&quot;bottom&quot;:&quot;&quot;,&quot;left&quot;:&quot;&quot;,&quot;isLinked&quot;:true},&quot;element_pack_global_tooltip_border_radius_tablet&quot;:{&quot;unit&quot;:&quot;px&quot;,&quot;top&quot;:&quot;&quot;,&quot;right&quot;:&quot;&quot;,&quot;bottom&quot;:&quot;&quot;,&quot;left&quot;:&quot;&quot;,&quot;isLinked&quot;:true},&quot;element_pack_global_tooltip_border_radius_mobile&quot;:{&quot;unit&quot;:&quot;px&quot;,&quot;top&quot;:&quot;&quot;,&quot;right&quot;:&quot;&quot;,&quot;bottom&quot;:&quot;&quot;,&quot;left&quot;:&quot;&quot;,&quot;isLinked&quot;:true}}\" data-elementor-post-type=\"post\">\n\t\t\t\t<div class=\"elementor-element elementor-element-5cc8d3c5 e-flex e-con-boxed e-con e-parent\" data-id=\"5cc8d3c5\" data-element_type=\"container\" data-e-type=\"container\">\n\t\t\t\t\t<div class=\"e-con-inner\">\n\t\t\t\t<div class=\"elementor-element elementor-element-1973eb1 elementor-widget elementor-widget-text-editor\" data-id=\"1973eb1\" data-element_type=\"widget\" data-e-type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t\t\t\t\t\t\n<p>In today\u2019s evolving corporate finance landscape, companies often turn to preference shares as a strategic way to raise capital. Unlike ordinary shares, they allow companies to secure funding without giving up control, while offering investors a more structured, stable return. As highlighted by The Edge Malaysia in its article on <a href=\"https:\/\/theedgemalaysia.com\/article\/know-redeemable-convertible-preference-shares-devil-details\"><em>Redeemable Convertible Preference Shares<\/em><\/a>, the finer details of these instruments are crucial in shaping both company strategies and investor protection.<\/p>\n\n<p>For investors, preference shares may not promise high growth, but their predictable dividends and priority in payouts make them attractive, especially when paired with features like redemption, which provides a clear exit timeline.<\/p>\n\n<p>This redemption option is a key feature valued by both companies and investors. It reflects a company\u2019s commitment and planning, while giving investors\u2019 confidence in recovering their capital within an agreed timeframe.<\/p>\n\n<p class=\"has-medium-font-size\"><strong>1.<\/strong> <strong>Why Companies Choose Preference Shares Over Ordinary Shares<\/strong><\/p>\n\n<p>In Malaysia, the governance of preference shares is a two-tiered system, with the Companies Act 2016 providing the legal framework and the company\u2019s Constitution detailing the specific rights and terms.<\/p>\n\n<ul class=\"wp-block-list\">\n<li><strong>Companies Act 2016:<\/strong> This legislation provides the legal framework, with Section 69 allowing for different share classes, Section 72 governing their issuance and redemption, and Section 90 mandating that a company&#8217;s Constitution must detail the specific rights of each share class<\/li>\n<\/ul>\n\n<div class=\"wp-block-spacer\" style=\"height: 17px;\" aria-hidden=\"true\">\u00a0<\/div>\n\n<ul class=\"wp-block-list\">\n<li><strong>Company Constitution:<\/strong> This is the detailed and vital document that defines the specific terms and rights of preference shares, such as voting rights, dividend rights, liquidation rights, and redemption terms, which are not explicitly defined in the Companies Act.<\/li>\n<\/ul>\n\n<div class=\"wp-block-spacer\" style=\"height: 16px;\" aria-hidden=\"true\">\u00a0<\/div>\n\n<p><strong>Difference between Ordinary Share and Preference Share:<\/strong><\/p>\n\n<figure class=\"wp-block-table is-style-stripes\">\n<table class=\"has-cyan-bluish-gray-background-color has-background\">\n<tbody>\n<tr>\n<td><strong>NO.<\/strong><\/td>\n<td><strong>FEATURE<\/strong><\/td>\n<td><strong>ORDINARY SHARE<\/strong><\/td>\n<td><strong>PREFERENCE SHARES<\/strong><\/td>\n<\/tr>\n<tr>\n<td>(i)<\/td>\n<td><strong>Voting rights<\/strong><\/td>\n<td>Yes<\/td>\n<td>No (unless specified in constitution)<\/td>\n<\/tr>\n<tr>\n<td>(ii)<\/td>\n<td><strong>Dividend<\/strong><\/td>\n<td>Variable, not guaranteed<\/td>\n<td>Fixed, priority payment<\/td>\n<\/tr>\n<tr>\n<td>(iii)<\/td>\n<td><strong>Dividend priority<\/strong><\/td>\n<td>Paid after preference shares<\/td>\n<td>Paid before ordinary shares<\/td>\n<\/tr>\n<tr>\n<td>(iv)<\/td>\n<td><strong>Risk level<\/strong><\/td>\n<td>Higher (returns depend on performance based)<\/td>\n<td>Lower (fixed returns)<\/td>\n<\/tr>\n<tr>\n<td>(v)<\/td>\n<td><strong>Control impact<\/strong><\/td>\n<td>Can dilute the owners\u2019 control over the company<\/td>\n<td>No dilution of owners\u2019 control over the company<\/td>\n<\/tr>\n<tr>\n<td>(vi)<\/td>\n<td><strong>Common holders<\/strong><\/td>\n<td>Founders, senior management, general shareholders<\/td>\n<td>Institutional investors, venture capital firms, angel investors<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/figure>\n\n<div class=\"wp-block-spacer\" style=\"height: 17px;\" aria-hidden=\"true\">\u00a0<\/div>\n\n<p>Subject to the Companies Act 2016 and the Company\u2019s Constitution, a company may issue preference shares which are liable or at the option of the company liable to be redeemed, in accordance with its Constitution.<\/p>\n\n<p>They are popular in private equity and startup funding for offering:<\/p>\n\n<ul class=\"wp-block-list\">\n<li>Priority payouts: Fixed dividends and repayment before ordinary shares.<\/li>\n\n<li>Capital without control loss<strong>:<\/strong> Usually no voting rights, preserving founders\u2019 decision-making power.<\/li>\n\n<li>Flexible features: Options for redemption or conversion, blending benefits of equity and debt.<\/li>\n<\/ul>\n\n<div class=\"wp-block-spacer\" style=\"height: 16px;\" aria-hidden=\"true\">\u00a0<\/div>\n\n<p>For companies, preference shares offer a funding avenue with fewer restrictions than loans. For investors, they provide predictable, secure returns.<\/p>\n\n<p>These shares can further take on forms that grant\u00a0specific financial or exit protections, such as the following:\u00a0<\/p>\n\n<figure class=\"wp-block-table is-style-stripes\">\n<table class=\"has-cyan-bluish-gray-background-color has-background\">\n<tbody>\n<tr>\n<td><strong>NO.<\/strong><\/td>\n<td><strong>TYPE OF PREFERENCE SHARE<\/strong><\/td>\n<td><strong>FEATURE<\/strong><\/td>\n<td><strong>INVESTOR PROTECTION<\/strong><\/td>\n<\/tr>\n<tr>\n<td>(i)<\/td>\n<td><strong>Redeemable Preference Shares<\/strong><\/td>\n<td>Can be bought back by the company after a set period<\/td>\n<td>Offers planned exit, reduces long-term risk<\/td>\n<\/tr>\n<tr>\n<td>(ii)<\/td>\n<td><strong>Convertible Preference Shares<\/strong><\/td>\n<td>Can be converted into ordinary shares<\/td>\n<td>Enables participation in future company growth<\/td>\n<\/tr>\n<tr>\n<td>(iii)<\/td>\n<td><strong>Redeemable Convertible Preference Shares<\/strong><\/td>\n<td>Can be redeemed or converted<\/td>\n<td>Combines liquidity with equity upside potential<\/td>\n<\/tr>\n<tr>\n<td>(iv)<\/td>\n<td><strong>Irredeemable Convertible Preference Shares<\/strong><\/td>\n<td>Cannot be redeemed, but can be converted<\/td>\n<td>Long-term hold with future access to ordinary share rights<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/figure>\n\n<p>In addition to these structural protections, preference shares usually carry a fixed dividend rate, similar to earning interest which investors can benchmark against returns from other avenues, such as fixed deposits or bond placements, to assess relative attractiveness.<\/p>\n\n<p class=\"has-medium-font-size\"><strong>2. Redemption: A Core Promise to Investors<\/strong><\/p>\n\n<p>One of the key features of preference shares is the redemption option a commitment by the company to repurchase the shares at a set date or event as pre-agreed in legal documents such as the company\u2019s Constitution, shareholders\u2019 agreement, or share subscription agreement.<\/p>\n\n<p class=\"has-black-color has-text-color has-link-color wp-elements-0c74e900b4f7bc849f744e5208bdce41\"><strong>i.<\/strong> <strong>How it comes about:<\/strong><\/p>\n\n<ul class=\"wp-block-list\">\n<li>Performance targets:\u00a0If a company fails to meet certain performance goals, an investor might have the right to redeem their shares.\u00a0<\/li>\n\n<li>Change in control:\u00a0A change in ownership or management of a company can trigger redemption rights.\u00a0<\/li>\n\n<li>Expiration of a term:\u00a0Some agreements allow for redemption after a specific period.\u00a0<\/li>\n\n<li>Violation of terms:\u00a0If one party breaches the agreement, the other party might be able to redeem their assets.\u00a0<\/li>\n<\/ul>\n\n<div class=\"wp-block-spacer\" style=\"height: 16px;\" aria-hidden=\"true\">\u00a0<\/div>\n\n<p><strong>ii. Agreed Terms:<\/strong> The agreement specifies when and how redemption occurs, including the price or premium either fixed in advance or based on a valuation method.<\/p>\n\n<p><strong>iii. Purpose of Redemption:<\/strong> Provides investors with a planned exit and reduces long-term risk, while giving companies flexibility to manage capital structure.<\/p>\n\n<p class=\"has-medium-font-size\"><strong>3. Timing of Redemption: A Mark of Credibility<\/strong><\/p>\n\n<p>Redeeming preference shares on time demonstrates a company\u2019s financial discipline, healthy cash flow, and commitment to investors, strengthening its credibility.<\/p>\n\n<p>Under Section 72(4) of the Companies Act 2016 preference shares may only be redeemed if the shares are fully paid up and the redemption is made out of either:<\/p>\n\n<p>i. profits;<br \/>ii. a fresh issue of shares; or<br \/>iii. the capital of the company<\/p>\n\n<p>However, if an extension is unavoidable due to valid reasons, like market conditions or strategic needs, companies must ensure:<\/p>\n\n<p>i. Transparent communication with investors;<br \/>ii. Legitimate, well-explained justification for the delay;<br \/>iii. Fair compensation, such as higher dividends or a premium;<br \/>iv. Formal amendments to the share agreement, with board and regulatory approval.<\/p>\n\n<p>Handled professionally, even delayed redemptions can preserve investor trust.<\/p>\n\n<p class=\"has-medium-font-size\"><strong>4. The Redemption Process and Procedure<\/strong><\/p>\n\n<p>The redemption of preference shares should be a clear and well-managed process to ensure investor confidence and legal compliance.<\/p>\n\n<p>The right to redeem preference shares is granted under Section 72 of the Companies Act 2016. Process of redemption of preference share as follows:<\/p>\n\n<ol class=\"wp-block-list\" style=\"list-style-type: lower-roman;\">\n<li><strong>Redemption Methods<\/strong>\n<ul class=\"wp-block-list\">\n<li>Confirm preference shares are redeemable under the Constitution or shareholders\u2019 agreement and are fully paid-up.<\/li>\n\n<li>Redemption can be funded from:\n<ul class=\"wp-block-list\">\n<li>Profits available for distribution,<\/li>\n\n<li>Proceeds of a fresh issue of shares, or<\/li>\n\n<li>Capital \u2013 requires directors\u2019 <a href=\"https:\/\/www.ssm.com.my\/Pages\/Legal_Framework\/PDF%20Tab%202\/_solvency_statement_under_s_113_130317%20(1).pdf\">solvency declaration under Section 113.<\/a><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n\n<li><strong>Board Resolutions &amp; Documentation<\/strong>\n<ul class=\"wp-block-list\">\n<li>Hold a Board Meeting to approve:\n<ul class=\"wp-block-list\">\n<li>Redemption terms (price, date, method),<\/li>\n\n<li>Source of funds,<\/li>\n\n<li>Payment to shareholders and share cancellation,<\/li>\n\n<li>Authorisation for SSM filings.<\/li>\n<\/ul>\n<\/li>\n\n<li>Prepare and sign solvency declaration (if capital is used).<\/li>\n<\/ul>\n<\/li>\n\n<li><strong>Execution of Redemption<\/strong>\n<ul class=\"wp-block-list\">\n<li>Pay redemption proceeds to preference shareholders<\/li>\n\n<li>Cancel redeemed shares in the company\u2019s register.<\/li>\n<\/ul>\n<\/li>\n\n<li><strong>Relevant Sections &amp; Lodgement to SSM<\/strong>\n<ul class=\"wp-block-list\">\n<li>Comply with:\n<ul class=\"wp-block-list\">\n<li>Section 72 \u2013 redemption of preference shares,<\/li>\n\n<li>Section 113 \u2013 solvency declaration (if applicable).<\/li>\n<\/ul>\n<\/li>\n\n<li>Lodge the forms to SSM within the required timeframe.<\/li>\n\n<li>Provide written confirmation of redemption to affected shareholders.<\/li>\n<\/ul>\n<\/li>\n<\/ol>\n\n<div class=\"wp-block-spacer\" style=\"height: 21px;\" aria-hidden=\"true\">\u00a0<\/div>\n\n<p class=\"has-medium-font-size\"><strong>5.<\/strong> <strong>Updating the Company\u2019s Equity Structure<\/strong><\/p>\n\n<p>Redemption has a direct impact on the company\u2019s capital base and equity reporting. Once shares are redeemed, the company must update its records, both internally and with the SSM, to reflect:<\/p>\n\n<ul class=\"wp-block-list\">\n<li>A reduction in paid-up capital; and<\/li>\n\n<li>Changes to the register of shareholding<\/li>\n<\/ul>\n\n<p>\u00a0<\/p>\n\n<p>Upon completion of the redemption, the shareholder will receive an official confirmation of redemption (e.g., a redemption statement or acknowledgment letter), and the updated Section 51, Register of Members will serve as evidence of the revised shareholding structure.<\/p>\n\n<p>Timely and accurate updates are crucial for transparency, especially for future audits, due diligence, or fundraising activities.<\/p>\n\n<p class=\"has-medium-font-size\"><strong>POSH Corporate &#8211; Your Trusted Partner in Business<\/strong><\/p>\n\n<p>As a specialist in corporate governance and compliance, we guide companies through the complex redemption process with precision and professionalism.<\/p>\n\n<p>Our contributions include:<\/p>\n\n<ol class=\"wp-block-list\" style=\"list-style-type: lower-roman;\">\n<li>Advisory \u2013 Providing strategic guidance on the legal, procedural, and commercial aspects of preference share redemption, including optimal structuring, timing, and process coordination.<\/li>\n\n<li>Compliance \u2013 Ensuring adherence to the Companies Act 2016 and related regulations, managing documentation, updating statutory records, and overseeing necessary filings.<\/li>\n<\/ol>\n\n<p>\u00a0<\/p>\n\n<p>We have successfully navigated complex corporate exercises including private preference share issuances and redemptions, as well as high-profile Equity Crowdfunding (ECF) projects involving both ordinary and preference shares.<\/p>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>","protected":false},"excerpt":{"rendered":"<p>In today\u2019s evolving corporate finance landscape, companies often turn to preference shares as a strategic way to raise capital. Unlike ordinary shares, they allow companies to secure funding without giving up control, while offering investors a more structured, stable return. As highlighted by The Edge Malaysia in its article on Redeemable Convertible Preference Shares, the [&hellip;]<\/p>","protected":false},"author":3,"featured_media":5790,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[18,14],"tags":[],"class_list":["post-5332","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-advisory","category-company-secretary"],"acf":[],"_links":{"self":[{"href":"https:\/\/posh.kaizenovaa.com\/cn\/wp-json\/wp\/v2\/posts\/5332","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/posh.kaizenovaa.com\/cn\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/posh.kaizenovaa.com\/cn\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/posh.kaizenovaa.com\/cn\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/posh.kaizenovaa.com\/cn\/wp-json\/wp\/v2\/comments?post=5332"}],"version-history":[{"count":10,"href":"https:\/\/posh.kaizenovaa.com\/cn\/wp-json\/wp\/v2\/posts\/5332\/revisions"}],"predecessor-version":[{"id":5842,"href":"https:\/\/posh.kaizenovaa.com\/cn\/wp-json\/wp\/v2\/posts\/5332\/revisions\/5842"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/posh.kaizenovaa.com\/cn\/wp-json\/wp\/v2\/media\/5790"}],"wp:attachment":[{"href":"https:\/\/posh.kaizenovaa.com\/cn\/wp-json\/wp\/v2\/media?parent=5332"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/posh.kaizenovaa.com\/cn\/wp-json\/wp\/v2\/categories?post=5332"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/posh.kaizenovaa.com\/cn\/wp-json\/wp\/v2\/tags?post=5332"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}