A shareholder agreement is a crucial legal document that governs the rights, obligations, and relationships among shareholders in a company. In Malaysia, such an agreement plays a vital role in safeguarding the interests and rights of the shareholders and ensuring smooth operations of the company. This article aims to provide an overview of the essential elements to consider when drafting a shareholder agreement.

Drafting a comprehensive shareholders agreement is essential for ensuring clarity, transparency, and stability in the relationships among shareholders in a Malaysian company. By addressing key considerations such as shareholding structure, management, exit mechanisms, and dispute resolution, shareholders can mitigate risks and protect their interests and rights effectively.

What is a shareholder agreement?

A shareholder agreement is a contract entered into by the shareholders of a company to regulate various aspects of their relationship, including management, decision-making, transfer of shares, dispute resolution, and more. In Malaysia, while the Companies Act 2016 provides a framework for the rights and obligations of shareholders, a well-drafted shareholder agreement offers additional protection and customization to suit the specific needs of the shareholders and the company.

Key Considerations

Parties – The agreement should identify the parties involved, including all shareholders who are party to the agreement. This may include both individual and corporate shareholders.
Shareholding Structures – Define the shareholding structure of the company, including the number of shares held by each shareholder and any restrictions on the transfer of shares. Any rights attached to different classes of shares shall be specified too, if applicable.
Management and Decision-Making – Outline the roles, responsibilities, and decision-making processes of the shareholders, directors, and officers of the company. This may include matters such as the appointment and removal of directors, quorum requirements for meetings, voting rights, and procedures for decision-making.
Dividends and Distributions – Specify the company’s dividend policy and procedures for the distribution of profits to shareholders. Address any preferential rights or restrictions on dividends applicable to certain classes of shares.
Exit Mechanisms – Include provisions for the sale or transfer of shares in the event of a shareholder’s exit, retirement, death, or incapacity. This may include rights of first refusal, drag-along and tag-along rights, buyback provisions, and valuation mechanisms for determining the fair value of shares.
Confidentiality and Non-Compete – Include provisions to protect confidential information and prevent shareholders from engaging in competitive activities that may harm the company’s interests during and after their tenure as shareholders.
Dispute Resolution and Governing Law – Establish mechanisms for resolving various disputes among the shareholders, including mediation, arbitration, or litigation, and specify the applicable law and jurisdiction for resolving disputes.
Amendment and Termination – Outline the procedures for amending the shareholder agreement and specify any conditions under which the agreement may be terminated, such as the occurrence of certain events or the unanimous consent of the shareholders.
Notice – Determine the mode of service of all written notices to the shareholders of the company pertaining to the shareholder agreement such as electronic media, personal service, registered post and so forth.

Lastly, it is advisable for shareholders to seek legal advice and assistance from qualified professionals experienced in Malaysian corporate law to draft a robust and enforceable shareholder agreement tailored to their specific needs and circumstances.

It would be advisable to consult a professional lawyer. Please contact us for further enquiry.

Disclaimer: The contents of this article do not constitute legal or other professional advice or an opinion of any kind. It is provided for general information purposes only.