Is financing not an equity transfer? Then how do you determine if it is an equity transfer?
Difference Between Fundraising and Share Transfer
- Fundraising
- The company raises money by issuing new shares
- The company's Paid-Up Capital increases
- Share Transfer
- Existing shareholders transfer their shares to another party
- The company's Paid-Up Capital remains unchanged
How Can You Tell if It Is a Share Transfer?
- The key is to identify where the money goes
- If the funds are paid into the company, it is generally fundraising
- If the funds are paid to an existing shareholder, it is generally a share transfer
Example
- A founder initially owns 100% of the company's shares
- The founder transfers 10% of the shares to an investor
- The investor pays RM100,000
Result After the Share Transfer
- The founder owns 90% of the shares
- The investor owns 10% of the shares
- The company's Paid-Up Capital remains unchanged
Where Does the Investor's Money Go?
- The RM100,000 paid by the investor does not go into the company
- Instead, it is received by the founder
- In other words:
- The founder gives up part of their shareholding
- And converts that ownership into cash
Summary
- Fundraising involves issuing new shares to raise money for the company
- Share transfer involves shareholders selling their shares for personal proceeds
- The simplest way to distinguish the two is to determine whether the money goes to the company or to the shareholder receiving the payment