What are weighted voting rights (also referred to as dual-class share structure)?

The general rule for shareholders to vote in a company resolution is that every shareholder is entitled to 1 vote per share. However, a quick search on the Internet will reveal that big tech companies, the likes of Google, Apple, Facebook etc tend to adopt dual-class shares, so that the founders or directors of the company retain a large degree of control over the company’s affairs by consolidating voting powers through weighted votes.

Weighted votes come in the form of dual-class shares; an unequal voting power conferred upon a class of shareholder where 1 share carries more than 1 vote. This is typically done by offering a class of shares (“Class A”) that has ordinary voting rights of 1 vote per share to the public, while the founders or directors are offered a different class of shares (“Class B”) that carries greater voting rights (e.g. 10 votes per share). This is practical for companies to secure public funding, while yet not ceding their control on the company affairs and decision-making.

Application of weighted votes in Malaysia

The affairs of a Malaysian company are regulated by the Companies Act 2016 (“the Act”).

Section 71 and Section 293 of the Act appear to establish the default position where shareholders (except for preference shareholders) are entitled to one vote for each share on a company’s resolution. This could explain why instead of conferring weighted votes to a specific class of shares, most companies are structured such that the majority shareholder secures the overall voting power.

However, a closer look into other provisions in the Act such as section 69 and section 90, reveal a different realm of possibilities that differ from the “one share one vote” default position.

The relevant sections are reproduced below together with our analysis:

Provisions in Companies Act 2016 Analysis
Section 71. Rights and Powers attached to shares

(1) A share in a company, other than preference shares, confers on the holder –

(a) the right to attend, participate and speak at a meeting;

(b) the right to vote on a show of hands on any resolution of the company;

(c) the right to one vote for each share on a poll on any resolution of the company;

(d) the right to an equal share in the distribution of the surplus assets of the company; or

(e) the right to an equal share in dividends authorized by the Board.

  • Section 71 provides for the default one share one vote attached to ‘ordinary’ shares.
Section 293. General rules on voting

(1) Unless otherwise provided in the constitution

(a) in the case of a company having a share capital –

(i) on a vote on a written resolution, every member shall have one vote in respect of each share or stock held by him;

(ii) on a vote on a resolution on a show of hands at a meeting, every member shall have one vote; or

(iii) on a vote on resolution on a poll taken at a meeting, every member shall have one vote in respect of each share or stock held by him.

  • Section 293(a)(iii) establishes the default position where every member has one vote per share on a written resolution, unless otherwise provided in the constitution. The latter phrase allows a constitution to opt out of or even amend the default provision.

 

 

Section 69. Types of Shares

Subject to the constitution of the company, shares in a company may

(a) be issues in different classes;

(b) be redeemable in accordance with section 72;

(c) confer preferential rights to distributions of capital or income;

(d) confer special, limited or conditional voting rights; or

(e) not confer voting rights.

  • Section 69(d) in particular permits a company constitution to confer ‘special voting rights’, which could include shares with weighted votes.

 

Section 69. Types of Shares

(1) A company that has different classes of shares shall, in its constitution, state prominently the following: 

(a) that the company’s share capital is divided into different classes of shares; and 

(b) the voting rights attached to shares in each class.

  • This section seems to permit the structuring the voting rights of different classes of shares, so long as it is prominently expressed in the constitution.

 

Case Laws

In the absence of any landmark case in Malaysia addressing on this topic, we turn to English case laws for guidance. The brief facts of the English House of Lords case Bushell v Faith [1970] 1 All ER 53 are as follows:

  • The plaintiffs are 2 sisters who voted for an ordinary resolution to remove their defendant brother as a director.
  • The company’s constitution provided that the defendant brother shall have 3 votes per share on a poll on proposed resolution to remove a director. This meant that the defendant brother could effectively defeat any resolution to remove him as a director, even though the Act only required a majority vote of the members to remove a director.

The Court of Appeal held in favour of the defendant brother. The sisters then appealed to the House of Lords, which held in favour of the brother with the weighted votes. The English Courts effectively stated that they would not interfere with the rights that companies choose to attach to their shares.  While this decision has faced some criticism, it remains as support for the position that weighted voting rights are unlikely to be successfully challenged by a minority shareholder if they are expressly provided for in the constitution.

Conclusion

Weighted voting shares or dual-class shares give the flexibility to the founders or certain shareholders to the extent that they allow other shareholders more equity but still retain control of the company.  If shareholders of a private company would like to incorporate such a share structure, it should be clearly stipulated in the Constitution of the company.

However, with regard to public listed companies in Malaysia, which are regulated by the Bursa Malaysia Listing Requirements, it appears that Bursa Malaysia has yet to allow the listing of dual-class/weighted voting shares.

***

This article was written by Shawn Ho with assistance from Tiffany Chin (Intern).  Shawn leads the corporate practice group of Donovan & Ho, and has been recognised as a Notable Practitioner, whilst the firm has been recognised as a Notable Firm for Corporate and M&A by Asialaw Profiles 2020, 2021 and 2022. We are also ranked as a Recommended Firm by IFLR1000 2020, 2021 and 2021/2022.

Our corporate practice group advises on corporate acquisitions, restructuring exercises, joint venture arrangements, shareholder agreements, employee share options and franchise businesses, Malaysia start-up founders and can assist with venture capital funds in Seed, Series A & B funding rounds.  Feel free to contact us if you have any queries.

 

Case Spotlight: Court of Appeal finds that Fixed Term Employee is Actually a Permanent Employee
Case Spotlight: Retrenchment of F&B Workers due to the Pandemic Upheld by Industrial Court
Share This