It is more common than people think. A director sells a property to their company. A substantial shareholder transfers equipment into the business. A family member of a director disposes of shares to the company. These arrangements feel straightforward, but under Section 228 of the Companies Act 2016, they are among the most legally regulated transactions a Malaysian company can enter into.

Section 228(1) prohibits a company from entering into or carrying into effect any arrangement where a director, substantial shareholder, or a person connected with either of them acquires assets from or disposes of assets to the company above a requisite value, unless shareholders have approved the transaction at a general meeting beforehand.

For private companies, the requisite value threshold is any non-cash asset worth more than RM250,000, or worth more than 10 percent of the company's net asset value provided the amount is not less than RM50,000. If the transaction falls above this threshold and shareholder approval was not obtained, Section 228(2) renders the arrangement void. However, it is important to note that the transaction is only void if there was no prior approval by a resolution of the company or, where applicable, by a resolution of the holding company. Proper prior approval validates the transaction entirely.

If no approval was in place and the deal went ahead anyway, the consequences under Section 228(5) are personal and financial. The director or connected person must account to the company for any gain made from the transaction and compensate the company jointly and severally for any loss or damage. Under Section 228(7), any director who knowingly authorised such an arrangement commits a criminal offence carrying up to five years imprisonment or a fine up to RM3 million.

Where the asset being transferred is shares in a private company, stamp duty under Item 32(b) of the First Schedule of the Stamp Act 1949 also applies at RM3.00 for every RM1,000 of the transfer price or market value, whichever is higher. This cost is often overlooked entirely in private restructuring exercises.

Under the Income Tax Act 1967, if a transaction is structured in a way that reduces tax payable, LHDN can disregard or adjust it under Section 140. Where the parties are considered to be under common control, Section 140A allows LHDN to substitute the price with what an independent party would have paid in an arm's length deal. In practice, LHDN can adjust the value down to a fair market price and tax the difference accordingly, and where Section 140A applies, a surcharge of up to 5 percent may also be imposed under Section 140A(3C).

Getting this right means coordinating shareholder approvals, board resolutions, income tax implications, and stamp duty obligations together, not in isolation.

If you wish to focus on running and growing your business, our CFO advisory team can take care of your accounting, payroll, and tax planning matters for you. Feel free to WhatsApp us at 010-246 2151.

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