Corporate Law

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the public to subscribe its securities through issuing prospectus. It is also known as public offer. Members of the public will directly receive the securities that they have applied to subscribe from the company after they respond to the company’s prospectus.

1.2 Comparisons between loan capital and share capital

First, voting rights. Hassan, Harjeet and Henry which owned a company, 3 Bros Berhad could offer parties that wish to exert some control (voting), participate in earnings (dividends) and growth (capital) of the company.The investor who buy the ordinary shares in 3Bros Berhad are provided with a small degree of ownership in the issuing company. Therefore, the investor have a certain amount of say in how the company is run and are allowed to vote on important decisions, such as the appointment of a board of directors. The investor for ordinary share in the company receive the right to vote on major company decisions, including mergers or acquisitions.

Naturally, investor would purchase the ordinary share to get the privilege to vote. They are having the power to vote in a general meeting and carry the equal rights in reference to dividend and capitals. Preference shareholders receive no right to vote on company decisions. The lack of voting rights means the company is not beholden to preferred shareholders the way it is to equity shareholders.

Second, dividend. Preference shareholders are often entitled to a fixed dividend however ordinary shareholders are not. The returns to ordinary shares are more volatile. Even if no dividends are distributed, shareholders in 3Bros Berhad can still earn profit by selling their shares at a higher price than the original purchase price. This is known as realizing a capital gain. In good years, the company is likely to be profitable and have more available for returns to in ordinary dividends. However, in poor years, then the company may have to cut back, or even stop the ordinary dividends. However, there is a risk if the company did not perform well. Nevertheless, the company, 3Bros Berhad is performing well as they owned two retails at the capital city, Kuala Lumpur which located in Pavillion and Bukit Bintang. Not only that, the goodwill of 3Bros Berhad is increasing as one of the blog HungryPlace.com have listed the restaurant name in the article of ‘Top 10 must try restaurant in Kuala Lumpur 2017’. Shareholder or investor who purchase the ordinary share in 3Bros Berhad do not have to worry as Hassan, Harjeet and Henry are doing well to expand the company.

Third, participation in surplus profits upon winding up of company. Ordinary shareholders in 3Bros Berhad are entitled to participate in the surplus profits or assets of the company which remain after repayment of capital. In contrast, preference shareholders have no right to participate in surplus profits unless the right to participate in surplus profits is expressly set out in the articles. To illustrate, in the case of winding up of 3Bros Berhad,ordinary shareholder are entitled to receive the surplus profits or assets after payment of capital. However, preference shareholder are not entitled to this privilege.

In brief, the issuance of share capital can be beneficial for the investor as well as for the company. Provided that, all the privilege to the investor of ordinary share are stated such as voting right, dividends and participation in surplus profits upon winding up of company. In other word, the company, 3Bros Berhad should raise the capital by share capital.