How do you split shares in Malaysia when one partner puts in money and the other does the work?

One partner has the money, the other has the skill: how do you split the shares?

Picture two friends. Mei has RM80,000 saved and a job she wants to keep. Daniel has ten years in the trade and will run the business every day. They want a Sdn Bhd, and each has an unspoken worry. Mei: "If this fails, is my RM80,000 gone while Daniel loses nothing?" Daniel: "If I build this for two years, what stops Mei keeping the whole company?" They are invented. Their question is not.

The short answer: no law in Malaysia fixes the split. The Companies Act 2016 lets a Sdn Bhd issue shares for cash or for work. Mei's money can buy shares or be lent to the company, and the two behave very differently if the business fails. Where the Act requires it, the shareholders approve a new share issue first, and the company then reports the shares to the Companies Commission of Malaysia (SSM) (sections 75 and 78). Write the deal down before anyone pays or starts work: an unwritten deal can still bind, but it is hard to prove.

Why the paperwork matters: in Lai Kim Wa v Khiew Ju Meng a working partner proved an oral promise of half the shares, but he sued in 2017 and the Federal Court ruled in 2026. A money partner's case turns on bank records and a written loan or trust deed.

A money partner, or sleeping partner (rakan kongsi lelap), puts in cash and may stay out of the daily work. A working partner (rakan kongsi aktif) brings skill, time and labour. In Chinese the pair is 一个出钱一个出力: one puts in money, one puts in work. Shares earned by work are sweat equity (人力股; 技术入股 when the contribution is technology or know-how). A promise of a slice of profit with no real shares behind it is often called 干股, and it is not the same as owning shares. In a partnership or enterprise rather than a Sdn Bhd, the sleeping partner answers for all the business's debts too (Partnership Act 1961, section 11).

What is a fair split between a money partner and a working partner?

Mei's instinct: "I paid, so I should hold most of it." Daniel's: "Without me there is no business." The law takes no side. No statute in Malaysia says what split is fair; you agree it, and the Companies Act lets you agree any split.

One simple structure for two founders: set the split when you form the company, in the incorporation application (Companies Act 2016, section 14). Both of you pay the same price per share. Mei lends the rest of her cash to the company under a written loan agreement. Daniel draws a salary, and the shareholders' agreement spells out what happens to his shares if he leaves early.

Some partners prefer a sum. Say Mei puts in RM80,000, and the two agree that Daniel's first two years of work are worth RM40,000. That gives about 67/33. Treat it as arithmetic, not a rule: the law does not require this method, and the value of Daniel's work is whatever the two of them agree. Mei's money is at risk from day one while Daniel's work is still a promise, so his shares can vest, that is, become his to keep, in stages as the work gets done. And if Daniel, as a working director, gets shares for less than they are worth, he may be taxed on the difference as a benefit.

What does each split control: 50/50, 51/49, 60/40, 70/30, 75/25?

Suppose they settle on 70/30. What does Mei's 70% buy her? Shares carry votes and dividends; for votes two numbers matter. More than half of the votes passes an ordinary resolution, the everyday shareholder decision. At least 75% passes a special resolution, the heavier one needed, for example, to change the constitution or reduce capital (Companies Act 2016, sections 291 and 292). So:

• 50/50: nobody can pass a shareholders' resolution alone. At board level a chairperson's casting vote can break a tie, so agree who chairs and check the constitution (see what a 50% shareholder can do).
• 51/49 and 60/40: the larger holder passes ordinary resolutions. The smaller holder, with more than 25%, can block a special resolution.
• 70/30: the same. Daniel's 30% still blocks a special resolution.
• 75/25: the larger holder passes special resolutions as well, because a block needs more than 25%.

Votes follow shares only on a poll (a count by shares) or in a written resolution. On a show of hands at a meeting, each member gets one vote, whatever the split, unless the constitution says otherwise. Two hands, one vote each: Mei's 70% becomes a tie. So demand a poll, which any member with 10% of the votes may do, or decide by written resolution, which a private company can use for most decisions (sections 293, 297 and 330).

Daily decisions belong to the board of directors, not the shareholders, unless the constitution says otherwise (section 211). If Mei wants a say over spending while Daniel runs the shop, she should be a director too, or the shareholders' agreement should list those decisions as reserved matters, which need both partners' consent.

Can you get shares in a Sdn Bhd for your work instead of money?

Yes. The Companies Act lets a company issue shares that are paid up "otherwise than in cash", which means paid with work or property instead of money (section 78). It reports the new shares to SSM on a form called the return of allotment and sends the written contract for the work with it. So sweat equity is lawful; the hard questions are value, tax and what happens if the work stops.

On value the Act is silent: no formula, and no bar on shares for work already done or still to come. The one limit is the directors' duty to issue shares for a proper purpose and in the company's best interest (section 213).

The Act is also silent on whether shares count as fully paid before the promised work is done. So if Daniel's shares are issued as fully paid and he walks out after six months, the shares stay his unless a leaver clause or a court order says otherwise. Three routes: issue shares only for work already done, issue them partly paid, or sign a leaver clause first (sections 70, 82 and 83).

SSM accepts one price per share for each class of shares on a return of allotment. So either everyone pays the same price, with part of Daniel's price paid in work, or Daniel's shares go in a separate class; ask your company secretary which route SSM will accept. Partly paid shares, where part of the price is still owed, are allowed, but a holder who does not pay a call, the company's demand for some of the unpaid price, after notice, can lose the shares (sections 82 and 83).

Then tax. Shares given free or cheaply to a director or employee can be a taxable benefit of employment (Income Tax Act 1967, section 13(1)(a); LHDN Public Ruling 11/2012). The ruling does not cover two founders taking shares together at the start, so take tax advice.

Shares, a loan or a salary: what are the options for the money and the work?

Mei and Daniel are not choosing one percentage; they have five tools, and they can mix them:

• Ordinary shares for the cash and the work.
• A loan for the cash.
• Preference shares for the cash.
• Shares for the work, at once or in stages.
• A salary for the work.

Ordinary shares for the cash and the work, for example 70/30

By default every ordinary share carries one vote per share on a poll, an equal share of any dividend and of what is left when the company closes (Companies Act 2016, section 71). A 70/30 split is just a difference in the number of shares each partner holds.

Share capital or a loan for the cash?

Mei does not have to put all RM80,000 into shares: some can buy shares and the rest go in as a shareholder's or director's loan, beside any split. A loan is a debt. It comes back on the agreed dates and gives no vote. Shares carry votes and dividends, but the money is hard to get back while the company runs. If the business fails, the loan is paid alongside the other unsecured creditors, and only after them does any share capital come back (sections 435 and 527).

Put the loan in writing: how much, what interest, and whether it is repayable on demand or on fixed dates. A bank that lends to the company may require the partners' loans to wait until it is repaid. If Mei later wants to turn her loan into shares, that needs a stated price and the shareholders' approval, and SSM must receive the contract or a statement of its terms (sections 75 and 78).

Personal guarantees to a bank

A bank may ask both directors to guarantee the company's loan personally. Between the two of them, each then carries an equal share of that debt unless they agree otherwise (Contracts Act 1950, section 99). So Daniel, with 30% of the shares, can end up paying half the guarantee. Agree in writing how you will share any call. Leaving the company does not end a guarantee: see what happens when a shareholder leaves.

Preference shares for the cash

Preference shares give Mei a fixed return, or a first claim on dividends or capital, ahead of the ordinary shares. They usually carry no vote; any vote must be set out in the constitution (sections 2 and 90(4)). A money partner holding only preference shares may give up control.

Shares for the work, at once or in stages

Some founders agree that the working partner's shares vest in stages, with a leaver clause, which says what happens to a leaver's shares. A good leaver goes for a reason both agree is fair; a bad leaver for a reason both agree is not. One surprise for Mei: the company cannot buy Daniel's shares back, because a Sdn Bhd cannot buy its own shares or, except within narrow limits, help anyone buy them (sections 123 to 127). So Mei, not the company, pays for a leaver's shares, and the transfer carries stamp duty of RM3 for every RM1,000 of the price or the value, whichever is greater (Stamp Act 1949, Item 32(b)). The clause should also not let the majority partner pull the trigger by dismissing the working partner: see the leaver clause.

A salary for the work

The company can pay Daniel a salary, paid as the work is done, even in a year with no profit. A director's fees and benefits need board approval, subject to the constitution, with notice to the shareholders within 14 days (section 230). The Act does not say clearly whether a salary under an employment contract counts as a benefit, so approve and minute it the same way. A tax point on dividends: from the year of assessment 2025, an individual pays 2% on dividends above RM100,000 a year (Income Tax Act 1967, Schedule 1, Part XXII).

What if the working partner stops working, or the money partner wants the money back?

Start with Mei's worry: can she get her RM80,000 back before profits are shared? Only if she decides that before paying it in. The tools are a loan with repayment dates, or redeemable preference shares, which the company can redeem, that is, pay back to her on set terms, if it has the profits or can pass the solvency test (section 72). While the company is alive, share capital comes back only through a capital reduction (a special resolution plus the court's confirmation or a solvency statement that the company can pay its debts), through redeeming redeemable preference shares, or under a court order (Companies Act 2016, sections 72, 115 to 119 and 346).

A court can also order the other shareholders or the company to buy a partner's shares, but only where that partner was harmed as a shareholder. A loss that belongs to the company alone is not enough (Low Cheng Teik v Low Ean Nee, Federal Court, 2024).

Now Daniel's side: what if he stops working? Nothing happens to his shares by itself. Shares change hands only by a signed and stamped transfer, or by law on death or bankruptcy (sections 70 and 105). A partner who stops working keeps the shares unless the constitution, a signed leaver clause or a court order says otherwise. On death the shares pass to the estate unless a death clause gives the others a right to buy: see what happens when a shareholder leaves or dies.

Daniel can also lose ground through dilution: if the company later issues new shares for cash, his percentage shrinks unless he buys his portion. An issue offered to every shareholder in proportion needs no shareholders' approval, so a partner who cannot pay is simply diluted (section 75(2)(a)). Most other issues need the shareholders' approval and, unless the constitution says otherwise, a first offer to the existing holders. One exception: shares issued to pay for an asset, after 14 days' notice sent to every member and advertised, need no approval (section 75(2)(d) and (3)); see when a new share issue can be challenged.

What happens if the share deal was never written down?

Suppose Mei and Daniel shook hands and started. Is the deal binding? An oral agreement can be a binding contract: the Contracts Act 1950 does not demand writing, but the terms must be certain (sections 10 and 30). "You will get 30% of the company" is certain enough. "We will sort out your share later" may not be. The real problem is proof.

The second trap is signing. Once the partners have signed a document, oral evidence generally cannot be used to contradict or vary its terms (Evidence Act 1950, sections 91 and 92). A court may still hear a separate oral term on a point the document does not cover, if the two do not conflict, and fraud can still be proved. What this means for Daniel: if he was promised shares and is now handed something to sign, he should read it against the promise and get advice first. Once he signs, the written terms may replace what was said before.

In a Sdn Bhd: the working partner and the money partner

In Lai Kim Wa v Khiew Ju Meng, the partner who had set up the company persuaded a friend to leave his own business and work in it, on an oral promise of 50% of the shares and assets. The High Court found the promise proved, found deceit, and held that the founder held the promised shares on trust for him (for the friend's benefit).

The Court of Appeal (2024) held that the loss was his own, not the company's, and ordered compensation for the value of the shares, "but not the shares themselves"; he had asked for the value, not the shares. It sent the amount back to the High Court to be worked out. In 2026 the Federal Court upheld that ruling and agreed that the value must include what was lost through the other side's wrongdoing. The lesson is time and proof, not that a claim fails.

The money partner's version is Ng Hoo Kui v Wendy Tan Lee Peng (Federal Court, 2020): a money partner who paid for shares registered in someone else's name can claim them on trust, and the court followed the money trail.

Promised shares for your work, and the deal is changing?

If you are in Daniel's shoes two years in, with nothing signed: a clear promise of shares for work can bind without writing, but you must prove it, so keep every message about the promise with its date; a court can accept computer records as evidence (Evidence Act 1950, section 90A). Until the shares are allotted and entered in the register of members, the company's own list of shareholders, you are not a shareholder, and the protections a shareholder has when new shares are issued do not reach you (Companies Act 2016, sections 85 and 101). Ask for the shares to be allotted and filed before any new investor comes in. A claim on a broken contract must usually be brought within six years (Limitation Act 1953, section 6).

In a partnership or enterprise: the Partnership Act 1961

If Mei and Daniel simply started trading together, the law treats them as partners, deed or no deed (Partnership Act 1961, section 3). With nothing agreed, the defaults are blunt: profits are shared equally, losses are shared equally "whether of capital or otherwise", nobody is paid for working, and advances beyond the agreed capital earn 8% a year (section 26). Whatever you agree, each partner is liable for all the firm's debts (section 11).

Section 26 also says partners share capital equally unless they agree otherwise. Where one partner put in all the cash, a court will usually treat that capital as theirs, to be repaid before any surplus is split (sections 26 and 46). Write down each partner's capital, and in Peninsular Malaysia register the partnership or enterprise with SSM within 30 days of starting (Registration of Businesses Act 1956, section 5).

Lost capital is paid first from profits, then from capital, and last by the partners in their profit ratio (section 46(a)). Example: A puts in RM100,000 and B only work, and they share profits 50:50 by default. The business closes with RM40,000 after paying its outside debts. The RM60,000 shortfall is shared equally, so B must pay RM30,000 and A gets back RM70,000. The partners' agreement, written or shown by how they acted, can say the working partner bears no capital loss, because sections 26 and 46 apply "subject to any agreement". A written agreement is the safe way.

That is the partnership rule. In a Sdn Bhd, a shareholder's liability is limited to any amount unpaid on their shares, so nobody pays the other partner's lost capital (Companies Act 2016, section 192). As a shareholder, Daniel does not have to make good Mei's lost RM80,000.

How do you record the split with SSM?

This section is mostly for the company and its secretary, but Daniel should read it too: his proof of ownership is the register of members and the return filed with SSM. If the split is set when the company is formed, the first shares go in the incorporation application (Companies Act 2016, section 14), and steps 1 to 3 below apply only to shares issued later.

1. Required, unless the new shares are offered to all shareholders in proportion: the shareholders approve the issue by ordinary resolution, or as the constitution provides, and the company lodges the approval with SSM within 14 days (sections 75, 76 and 290).
2. Required unless the constitution says otherwise: offer new shares that rank equally to the existing shareholders first (section 85). The directors then allot.
3. Required for shares paid in work: the written contract, or a statement of its terms, lodged with the return of allotment. A written contract is the safe way (section 78).
4. Required: enter the new shares in the register of members within 14 days (section 77).
5. Required: lodge the return of allotment with SSM within 14 days, online through MyCoID; only the company secretary can lodge it. Late lodging is an offence: on conviction, a fine of up to RM10,000, plus up to RM500 for each day the default continues after conviction (section 78).
6. Required: tell SSM about the change in members within 14 days (section 51).
7. Good practice: a shareholders' agreement, which is not lodged with SSM. Stamp duty is RM10 for each signed copy, stamped within 30 days of signing (Stamp Act 1949, Items 4 and 34; section 47). If the agreement itself holds a promise to lend or to repay money, LHDN's 2026 guideline may treat it as a security and charge duty on the amount.
8. Good practice: a written loan agreement for any shareholder loan, also stamped within 30 days; duty is RM5 for every RM1,000, with lower rates for a small or medium enterprise (Item 27). For Daniel's service agreement, LHDN treats an employment contract as RM10 (Item 4) and a contract for services as charged on its value (Item 22).
9. Required: keep proof of every payment. The company must keep its records for seven years (section 245).

What should the shareholders' agreement say for a money and work split?

Think of the agreement as Mei's and Daniel's unspoken questions, answered in writing while they still get on. It should cover:

• What each partner puts in: Mei's cash, how much and when; Daniel's role, hours and any service agreement.
• What Mei's cash is: share capital or a loan. If a loan: the interest, the repayment dates, whether it waits behind a bank loan, and whether it can later become shares.
• Bank guarantees: who signs, and how any call on a guarantee is shared.
• Vesting or earn-in: when it starts and whether past work counts; what makes a good leaver and a bad leaver, including death and long illness; whether a partner removed as a director without fault is a good leaver; and the price for vested and unvested shares.
• Who buys a leaver's shares, how they pay, and at what price. A bad-leaver price far below value, triggered by a breach, can be tested in court as a penalty (Contracts Act 1950, section 75).
• Salary, director's fees and dividend policy; how future funding comes in, as shares or a loan, and what happens if one partner cannot pay.
• Reserved matters, what happens in a deadlock, rights to information, an exit route, and a clause saying the document is the whole agreement.

The hub guide to shareholder agreements walks through every clause. Anything that must bind the company itself, such as classes of shares or a board seat, goes in the constitution as well (section 33).

When to get a lawyer

See a lawyer before any money goes in or any unpaid work starts, and before shares are issued for work. See one too when a partner stops working, wants the money back or proposes a new share issue; when you were promised shares and are now offered something different; before a new investor comes in; and when a letter arrives from the other side's lawyer. The free Lawyer's Letter Check helps you tell a letter from a court paper, and how to find a lawyer in Malaysia explains how to choose one.

This article is general information about Malaysian law as at 20 October 2026. It is not legal or tax advice on your situation, and reading it does not make you a client of the firm. Rates, deadlines and court decisions change, so check the current law before you rely on one.