Is a shareholders agreement necessary in Malaysia?

A shareholders agreement is a private contract among a company’s shareholders that governs how they run the company and deal with their shares. It is not legally required under the Companies Act 2016, but for any company with more than one shareholder it is strongly advisable — it sets the rules on decision-making, share transfers, dividends, deadlock and exit before disputes arise.

Quick summary

• A shareholders agreement governs the relationship between shareholders — decision-making, share transfers, dividends, and exit — alongside the company’s constitution.

• It is not legally mandatory under the Companies Act 2016, but it is strongly advisable wherever there is more than one shareholder.

• It prevents and resolves disputes by setting the rules before problems arise.

Is a shareholders' agreement necessary?

The connection between a company's shareholders is governed by a shareholders' agreement. Although a shareholders' agreement is not required by law, having one is advisable if there is more than one shareholder so that their rights and responsibilities can be clearly stated.

Should a company be part of the kepentingan shareholders agreement?

Whether or not a corporation should be added as a party to the shareholders' agreement depends on whether or not the firm has any rights or obligations under the agreement.

What are the usual provisions or clauses in a shareholders agreement?

A shareholders' agreement will typically include provisions regarding the appointment of directors, the quorum required for a valid shareholders' or board meeting, the procedures for directors or shareholders to decide on matters relating to the company, whether any matters are reserved and require unanimous decision at shareholders' or board meeting, how deadlock is resolved, the transfer of shares, and the rights and responsibilities of each shareholder. Have a look at the common clauses in a shareholders agreement in our article here.

Why using an online template shareholders agreement not a good idea

Some business owners will look up shareholder agreements online to serve as a template or to see what other companies have included in theirs. Using Google won't help in this situation. The needs and circumstances of the shareholders should inform the design of each shareholders' agreement. The obligations of shareholders should be spelled out explicitly and may vary from one firm to another depending on the nature of its operations.

Should a company have a constitution?

After a shareholders' agreement has been signed, the next step is to update the company's bylaws (if any) to reflect the terms of the agreement.

If a company doesn't already have a constitution, it should think about creating one that reflects the wishes of its shareholders.

Under the Companies Act 2016, a company is not required to have a constitution unless it is a company limited by guarantee. In contrast to being regulated by the Companies Act 2016's default provisions, a company's, directors', and shareholders' rights, duties, and powers would be more easily managed if they were spelled up in a single document, namely the constitution.

Even while shareholders' agreements sometimes include a language that says the agreement's contents take precedence over the constitution in the event of a conflict, case law has established that this isn't always the case.

Furthermore, the company's constitution carries more weight in the law than a shareholders' agreement. A shareholders' agreement binds only the shareholders and the company (if it is a party to the agreement) whereas a company's constitution binds the firm, the shareholders, and the directors.

Is a shareholders agreement legally binding to the company?

Shareholder agreements are only legally binding if the company's bylaws reflect the terms of the agreement.

Conformity with 2016 Companies Act regulations

Within 30 days of the approval of the constitution, the company must file it with the Registrar of Companies. It is a crime to fail to do so. The maximum fine that can be imposed on the corporation and its officers is RM50,000.

Within 30 days of the day a special resolution was approved to alter the constitution, the company must notify the Registrar of Companies of the amendment by filing the appropriate form and lodge a copy of the modified constitution. It's illegal to not do so. The maximum fine that can be imposed on the corporation and its officers is RM10,000.

If the corporation or its officers are found guilty of either of the two aforementioned offences, they face an additional daily punishment of up to RM500 a day.

“A shareholders agreement is cheapest to put in place when everyone is still getting along. Once a dispute starts, the absence of agreed rules on deadlock, transfers and exit is exactly what turns a disagreement into litigation.” — says Akmal Saufi Mohamed Khaled, principal at ASCOLAW (Tetuan Akmal Saufi & Co).

Why have a shareholders agreement?

Frequently Asked Questions

Is a shareholders agreement legally required?

No — it is not mandatory under the Companies Act 2016. But it is strongly advisable whenever a company has more than one shareholder.

What does a shareholders agreement cover?

Decision-making and voting, share transfer restrictions, pre-emption rights, dividends, deadlock resolution, and exit or buy-out mechanisms.

What is the difference from the company constitution?

The constitution is the company’s public governing document; the shareholders agreement is a private contract that can set additional, tailored rules among the shareholders.

At ASCOLAW, we regularly draft shareholders agreements for companies under the Companies Act 2016.

Need legal help with this?

We can prepare a shareholders agreement tailored to your company. Contact ASCOLAW for a short consultation.

This article is for general information only and does not constitute legal advice. Every case is unique. Obtain specific advice from a licensed lawyer before acting.

Related guides

• Navigating Share Transfers and Transmissions in Malaysia

• Purchasing shares from a private company