D&P Law Now

How ‘Shares’ Work: Ordinary v Preference Shares

There are generally two types of shares that a company can issue: (1) ordinary shares and (2) preference shares, each type bearing its own set of rights for the holders. Understanding the differences is therefore important should you (i) be interested in setting up your own company or in investing in a company in Malaysia or (ii) be offered shares as an employee.

Below are some important characteristic differences between the two:

Characteristic Ordinary Shares Preference Shares
What are they? As the name suggest, these are shares typically issued upon the incorporation of a company, which gives ‘ordinary’ rights to shareholders (e.g. right to vote and any dividend declared). Preference shares are typically issued to investors / shareholders who wish to enjoy and safeguard their ‘preferential’ economic rights (e.g. priority for any dividend or distribution in case of winding up).
Voting Rights Shareholders have full voting rights (i.e able to vote on any matters raised at shareholders’ general meeting). Holders of preference shares have limited voting rights, mainly for matters which may impact their type of shares (e.g. alteration to rights of preference shares, division or bonus issuance of shares or winding up).
Rights and Terms to be set out in Constitution The constitution can be silent on the rights of ordinary shares, unless the company issues different ‘classes’ of ordinary shares with different sets of rights. Rights and terms of preference shares must be set out in the constitution since preference shareholders usually do not have any additional rights apart from those set out in the constitution.
Priority payment of dividend Ordinary shareholders will only receive dividends after payment to preference shareholders are satisfied. Preference shareholders receive their dividends in priority to that of the ordinary shareholders.
Rate of Dividend Rate of dividend is not fixed in the company’s constitution and is at the discretion of the board of directors. Rate of dividend is usually specified in the company’s constitution at a fixed rate, subject to the availability of profits.
Right to an accumulation of dividends from previous year Ordinary shareholders are usually not entitled to accumulate their dividends from previous years. Preference shareholders may be entitled to accumulate and subsequently claim their dividends if stated in the constitution.
Repayment of capital upon winding up of company Ordinary shareholders only receive their share of the capital after preference shareholders are paid. Preference shareholders are entitled to receive repayment of capital in priority to ordinary shareholders, after payment has been made to the secured creditors of the company.
Participation in surplus assets and profits upon winding up of company Ordinary shareholders are entitled to participate in the eventual distribution of surplus assets and profits of the company. Preference shareholders are not entitled to participate in the eventual distribution of surplus assets and profits of the company unless it is expressly provided for in the constitution.
Redemption of shares Ordinary shares cannot be redeemed or repurchased by a private company. However, for a public company, this may be allowed if it is expressly provided in the constitution. Redeemable preference shares (“RPS”) can be redeemed, although redemption is subject to the requirements under Section 72 of the Malaysia Companies Act 2016.
Convertibility to different class of shares Ordinary shares are non-convertible. Preference shares can be issued with the option to convert into ordinary shares at the pre-agreed conversion ratio.


Given the vast difference between the two types of shares, it is crucial that (i) a company seeking to issue shares or (ii) a potential subscriber of shares first determine the purpose of such issuance or subscription (as applicable) before proceeding with the same.