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RCPS -- Devil in the details

RCPS is short for Redeemable Convertible Preference Shares

If you are an equity crowdfunding (ECF) investor, you would probably have heard of redeemable convertible preference shares, or RCPS

There are few approved (by Securities Commission) ECF platform

Pitfalls if you invest in RCPS (of a Sdn Bhd or Bhd)...

  • You may never get back your money; (yes, never, ever)

    • Redemption subjects to conditions

  • You may not able to convert to ordinary shares at a good price;

Things to watch out when you invest in RCPS

  • Redeemable by who ?

  • Convertible by who ? and when ? and at what price or valuation ?

What are the key terms...

Some of the key terms of preference shares to consider include:

1. Number of preference shares to be issued

2. Issuance price

3. Dividend -Rate of dividend -Whether dividend is cumulative -Time for dividend payment

4. Tenure of preference shares Whether the preference shares will be converted to ordinary shares or redeemed upon expiry of tenure

5. Conversion -Whether the preference shares are convertible into ordinary shares -Conversion procedure -Conversion period -Conversion price -Conversion rate i.e. number of ordinary shares issued on conversion of each preference share -Events giving rise to adjustment of conversion price or conversion rate -Adjustment mechanism

6. Redemption -Whether the preference shares are redeemable -Redemption procedure -Redemption period -Redemption price The redemption must be out of: (a) the profits of the company which would otherwise have been available for distribution of dividends; (b) proceeds of a new issue of shares made; or (c) capital of the company subject to a solvency statement made by all directors and lodgment of solvency statement with the Registrar of Companies.

7. Limited voting rights The definition of a “preference share” under the Companies Act 2016 refer to a share which does not entitle the holder to voting rights. The FAQ issued by the CCM clarifies that preference shareholders may have certain voting rights on matters relating to their respective class of shares provided that the rights are stated in the constitution of the companies. The FAQ further states that the CA 2016 has generally retained the policy on the rights to vote for preference shareholders from the repealed Companies Act 1965.

8. Whether the preference shareholders have rights to participate in surplus profits upon winding up of the company. The preference shareholders do not have such rights unless expressly provided in the constitution.

9. Whether the preference shares are transferable -Transfer procedure -The period during which the transfer may take place -Any limitation on the transferability of the preference shares

10. Ranking Priority of preference shareholders over ordinary shareholders in respect of dividend payment and repayment of capital in the event of liquidation, dissolution or winding up.

11. Amendment to the constitution A company may not allot any preference shares unless provided under the constitution and the constitution must set out the rights of the shareholders with respect to repayment of capital, participation in surplus assets and profits, cumulative or non-cumulative dividends, voting and priority of payment of capital and dividend in relation to other shares or other classes of preference shares (section 90(4) of the Companies Act 2016).

Source and/or Reference

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