This article, Part 2 of a two-part series, continues the discussion on the “Musk Model” and examines the adoption of an Elon Musk-style compensation package by private limited companies in Malaysia. In Part 1 of this series, we explored the framework and procedural requirements applicable to public listed companies on Bursa Malaysia’s Main Market.
For private limited companies, the governance landscape trades public oversight for procedural flexibility. In the absence of Bursa Malaysia’s prescriptive restrictions, the structuring and execution of such equity award moves from a matter of external requirements into a more flexible boardroom exercise. This instalment considers how the board of private companies can execute the “Musk Model” while navigating the statutory defaults and fiduciary obligations of the Companies Act 2016 (“CA 2016”).
Private Limited Companies
A private limited company which is not a subsidiary of a public listed company is not subject to the listing requirements of Bursa Malaysia, but are governed by the CA 2016 and its own constitution.
1. Voting consolidation
While Section 222(1) of the CA 2016 applies to bar interested directors from board deliberation and vote, this prohibition does not apply to a private limited company that is not a subsidiary of a public listed company by virtue of Section 222(2) of the CA 2016. Provided the interested director discloses the nature of his interest at a board’s meeting by giving a general notice to the board in accordance with Section 221 of the CA 2016, he is legally entitled to participate and vote.
There is also no equivalent in the CA 2016 barring such interested directors from voting their own shares as shareholders nor is there a mandate for persons connected with them to abstain.
2. Dilution autonomy
There is no numerical cap on share issuance imposed by the CA 2016 for such private limited companies. Dilution is thus controlled by shareholder authorisation under Section 75 of the CA 2016, constitutional design and fiduciary compliance, rather than regulatory percentage limits.
Procedural Trajectory: A 2-Path System
The legal framework offers significantly more flexibility for such private limited companies to implement a Musk-style allotment. Here, the board enjoys the procedural latitude to approve the award directly,[1] unless statutory or constitutional triggers, as summarised below, necessitate a shift from the boardroom to a general meeting:
When Shareholders Must Vote
The board must yield its authority, and separate and independent resolutions must be passed by the shareholders at a general meeting, if any of the following scenarios arise:
- • The company’s constitution specifically mandates a shareholder vote for director remuneration or share allotments;[2]
- • The package involves non-cash assets (shares) where the value exceeds:
- RM250,000; or
- 10% of the company’s net assets, provided the value is at least RM50,000;[3]
- • The board lacks a subsisting and valid shareholder resolution to allot and issue new shares;[4] or
- • The company’s constitution is silent on waiving existing shareholders’ pre-emptive rights.[5]
When Boards Can Directly Approve
If none of the aforementioned scenarios apply, the board may directly approve the award under Section 230(2) of CA 2016 via a board resolution. This approval must be recorded in the minutes of the directors’ meeting, and the board is mandated to notify shareholders of it within 14 days of the approval, pursuant to Section 230(3) of CA 2016.
This board-level autonomy is however not absolute. Under Section 230(4) of the CA 2016, shareholders holding 10% of the total voting rights can object within 30 days after they have knowledge of it if they consider the payment unfair to the company. A valid objection effectively suspends the board’s approval. To proceed, a shareholder resolution must then be passed, or the equity becomes a debt due by the director to the company under Section 230(5) of CA 2016.
As a reminder, even with this board-led process, the authority to allot under Section 75(1) of the CA 2016 must be current at the time of each issuance of shares. Further, unless the company’s constitution has explicitly opted out of the pre-emption protection under Section 85(1) of the CA 2016, the requirement to offer shares to all existing members first remains a practical hurdle. Failure to abide by these statutory anchors—even if the remuneration itself was approved—can render an issuance void.[6]
Above all, this flexibility is not immunity. All actions must serve a proper purpose and be taken in good faith in the company’s best interest, and any breach of these duties leaves the board vulnerable to a fiduciary challenge under Section 213 of CA 2016.
Conclusion
The “Musk Model” offers a provocative blueprint for high-growth alignment, but its application in Malaysia is tightly moderated. While companies in Texas may move at the speed of their shareholders’ appetite, the framework in Malaysia acts as a variable throttle. For a public listed company (i.e., Bhd. in the Main Market), this throttle is absolute. For a private limited company (i.e., Sdn Bhd. not being a subsidiary of a public listed company), there is more room to manoeuvre, though the board still faces governance hurdles.
Ultimately, while a Malaysian board can reach for the stars with performance-linked rewards, the journey is paved with mandatory disclosures and the enduring principle that every award must serve the company’s best interests. In other words, a Musk-style compensation package is possible in Malaysia provided the package clears the required statutory and procedural hurdles.
[1] Section 230(2) of CA 2016
[2] Section 230(2) of CA 2016
[3] Section 228(1) of CA 2016
[4] Section 75(1) of CA 2016
[5] Section 85(1) of CA 2016; Dato’ Azizan Abd Rahman & Ors v Concrete Parade Sdn. Bhd. & Ors and other appeals [2024] 3 MLJ 223 (FC)
[6] Section 75(4) of CA 2016; Dato’ Azizan Abd Rahman & Ors v Concrete Parade Sdn. Bhd. & Ors and other appeals [2024] 3 MLJ 223 (FC)
About the authors
Shaun Lee Zhen Wei
Principal Associate
Corporate & Investor Services
Halim Hong & Quek
shaun.lee@hhq.com.my
.
Sherzanne Lee
Senior Associate
Corporate & Investor Services
Halim Hong & Quek
sz.lee@hhq.com.my
.
Carmen Lee Kar Mun
Associate
Corporate & Investor Services
Halim Hong & Quek
carmen.lee@hhq.com.my
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