Introduction
In conjunction with the tabling of Revised Budget 2023 on
Dual-Class Shares Structures
Dual-class shares ("DCS") deviates from the "one share, one vote" principle.1 Under a DCS structure, a company may issue different classes of shares, such as Class A and Class B, each with different voting rights. Class A shares, typically issued to founders and key executives, hold greater voting power (e.g., 10 votes each), while Class B shares, for public shareholders, carry less voting power (e.g., 1 vote each). Following this DCS structure, the founding shareholders would be given voting power disproportionate to their shareholdings, allowing them to maintain control of the company while enabling access to capital financing.
While DCS structures are novel to Malaysian capital markets, the modern adoption of DCS structures can be attributed to
For example, the
The acceptance and development of DCS structures in the APAC region are showing great promise. In the first half of 2018, both
Conundrum of Dual-Class Shares
The conundrum of dual-class shares revolves around the contentious trade-off between corporate control and shareholder rights. While DCS structures offer founding shareholders the ability to retain significant decision-making power, it comes at the cost of diluting the voting rights of other public shareholders.
Proponents of the DCS structure claim that it empowers founding shareholders to make crucial decisions for the company's long-term growth and innovation, benefiting all shareholders. However, opposing arguments raise valid concerns. Concentration of voting rights in the hands of a few shareholders may lead to poor corporate governance and questionable transactions not aligned with public shareholders' interests. For example, founding shareholders might prioritize their own interests to the detriment of public investors.
The challenge for the
Protection measures
As of the date of writing, the concept paper for the proposed DCS regime has not been published by the
- Maximum voting right: The voting rights attached to enhanced voting rights shares will be capped at a certain multiple of the voting rights of ordinary shares. For example, HKEX and SGX capped the enhanced voting right at 10 votes per share.
- Minimum market capitalisation: Bursa and SC may set a minimum market capitalisation for DCS issuers to qualify for listing. For instance, SGX allows dual-class share listing for companies with a minimum market capitalisation of
SGD 300 million , while HKEX requires a minimum market capitalisation ofHK$10 billion or if less thanHK$40 billion of market capitalisation, meets higher revenue test ofHK$1 billion in the most recent audited financial year. - Enhanced corporate governance measures: We anticipate that specific matters, such as variation of class rights, appointment and removal of directors and auditors, amendments to the constitution, and winding-up of the company, will likely require decisions on a "one share, one vote" basis, similar to HKEX and SGX practices.
- Enhanced disclosure: Bursa and SC may impose stringent disclosure requirements on DCS issuers, with additional warnings, rationale for having DCS structure, and associated risks to be disclosed in prospectus, listing documents and annual reports.
- Unique stock code: Bursa and SC may require DCS issuers to prominently display a unique stock code or symbol in the stock name, distinguishing them from listed companies with regular voting structures. For instance, companies with DCS structure listed under HKEX will have a marker "W" for the stock name.
Concluding remarks
The proposal to list DCS on the Malaysian bourse is a timely and welcoming development as it aligns Bursa with internationally recognized stock exchanges like NASDAQ, HKEX, and SGX, enriching the ecosystem for public listed companies. A robust and transparent DCS regime will be vital in establishing Bursa as a preferred listing destination for high-growth, innovative companies, and technology unicorns in
Footnotes
1. Section 71(3) of the Companies Act 2016 provides that each share in a company, other than preference share, confers on the holder the right to one vote for each share on poll on any resolution of the company.
2. Shobe, Jarrod and Shobe, Gladriel, The Dual Class Spectrum (
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