Raising Funds Legally

Many business owners need to raise fund for either long term capex or short term working capital, they must make sure they do it the 'legal' way.


5/27/20242 min read

Raising funds for a company in Malaysia requires strict adherence to the provisions of the Companies Act 2016 to avoid any legal offenses. Here are several compliant methods to raise funds, along with the necessary precautions:

### 1. Issuance of Shares

Private Placement:

- Procedure: Offer shares to a select group of investors, not exceeding 50 persons within a 12-month period, excluding employees.

- Compliance: Ensure the offer does not constitute a public offering and is exempt from prospectus requirements.

- Board Approval: Obtain board approval and adhere to any specific provisions in the company’s constitution.

Rights Issue:

- Procedure: Offer additional shares to existing shareholders in proportion to their current holdings.

- Disclosure: Provide full disclosure to shareholders about the terms and reasons for the rights issue.

- Compliance: Follow the company’s constitution and any regulatory requirements.

### 2. Issuance of Debentures


- Convertible debentures (can be converted into shares).

- Non-convertible debentures (remain as debt instruments).


- Approval: Obtain board and, if necessary, shareholder approval.

- Disclosure: Issue a disclosure document or offer circular, unless exempted.

- Trust Deed: If required, appoint a debenture trustee and execute a trust deed to protect debenture holders' interests.

### 3. Crowdfunding

Equity Crowdfunding:

- Platforms: Use registered crowdfunding platforms regulated by the Securities Commission Malaysia.

- Limits: Adhere to fundraising limits set by regulations (e.g., RM3 million in 12 months for an issuer).

- Disclosure: Provide necessary disclosures and financial statements to potential investors.

Reward-based Crowdfunding:

- Nature: Offer non-financial rewards (e.g., products, services) to backers.

- Compliance: Ensure clear communication about the nature of rewards and fulfillment timelines.

### 4. Venture Capital and Private Equity

Venture Capital Funds:

- Procedure: Seek investment from venture capital firms that provide funds in exchange for equity stakes.

- Agreement: Negotiate terms, valuation, and investment agreements.

Private Equity:

- Procedure: Partner with private equity firms for larger funding needs, usually in exchange for significant equity and/or control.

- Due Diligence: Prepare for thorough due diligence and possibly significant changes to management or strategy.

### 5. Bank Loans and Credit Facilities

Secured Loans:

- Collateral: Provide assets as security for the loan.

- Compliance: Ensure all legal documents and charges over assets are properly executed and registered.

Unsecured Loans:

- Creditworthiness: Rely on the company’s credit rating and financial stability.

- Terms: Negotiate favorable terms while ensuring compliance with loan covenants.

### 6. Convertible Securities

Convertible Notes:

- Procedure: Issue notes that can be converted into equity at a later date.

- Compliance: Obtain necessary approvals and provide clear terms regarding conversion.

Precautions to Avoid Offences

1. Adherence to Regulations:

- Follow all provisions of the Companies Act 2016, particularly those concerning capital raising and financial assistance.

- Comply with Securities Commission Malaysia guidelines and requirements.

2. Proper Documentation:

- Maintain thorough and accurate documentation of all transactions, board resolutions, and shareholder approvals.

3. Transparent Disclosures:

- Provide clear, accurate, and complete information to all potential investors to avoid allegations of misrepresentation or fraud.

4. Legal and Professional Advice:

- Consult legal advisors and financial professionals to ensure all fundraising activities comply with applicable laws and regulations.

By following these methods and precautions, a company can raise funds legally and avoid committing any offenses under Malaysian law.