Key Clauses to Include in a Shareholders’ Agreement

A well-drafted Shareholders’ Agreement is a vital instrument for any company with more than one shareholder. Although a Shareholders’ Agreement is not legally mandated under Malaysian law, it remains a crucial document for companies with multiple shareholders. It establishes a clear framework for defining the rights, obligations, and mutual expectations of the shareholders, thereby reducing ambiguity in the management and operation of the business. Importantly, it also functions as a strategic tool to prevent misunderstandings and disputes, promote consistent governance, and safeguard the company’s continuity—particularly in scenarios involving share transfers, decision-making deadlocks, or exits. 

The enforceability of shareholders’ agreements in Malaysia has been definitely affirmed in the landmark case Concrete Parade Sdn Bhd v Apex Equity Holdings Bhd & Ors [2021] 9 CLJ 849. In this case, the Federal Court of Malaysia upheld the contractual obligations entered into by shareholders. This landmark Federal Court case serves as a powerful reminder of the importance of clearly drafted corporate documents, especially the company constitution and Shareholders’Agreement. By learning from this case, companies can draft more robust Shareholders’ Agreements that anticipate real-world corporate scenarios and reduce the risk of costly dispute.

Share Capital and Ownership Structure 股本与持股结构 sets out the initial shareholding of each party and governs future issuances. 

It should clearly define the total number of shares and paid-up capital held by each shareholder, any  restrictions on issuing new shares, and the pre-emption rights in future funding rounds to prevent dilution.

Decision-Making and Voting Rights 决策机制与表决权利 are essential to avoid deadlocks and ensure efficient governance, 

The agreement should outline matters requiring unanimous consent versus majority vote, specify reserved matters such as asset sales, borrowing limits, or dividend distributions, and set clear voting thresholds as well as the composition of the board. 

Transfer of Shares股份转让 regulates how shares may be transferred to maintain control over potential new shareholders. 为控制潜在新股东的进入，该条款应规范：This includes conditions for transfer, rights of first refusal and rights of first offer with clear timeframes, and tag-along and drag-along rights in the event of a sale to third parties, with thresholds defined for triggering drag-along.

Exit Strategy 退出机制 provides clarity on how shareholders can exit the company. 

This may include buy-sell provisions, a company sale, an IPO, or merger pathways, as well as valuation mechanisms—whether by independent valuation or formula-based—and corresponding payment terms for shares.

The dividend Policy 红利政策 ensures transparency and manages shareholder expectations by defining when and how profits will be distributed, whether reinvestment takes priority during the startup phase, and the extent of the board’s discretion in declaring dividends. 

Non-Compete and Confidentiality Obligations 不竞争义务与保密条款 protect the company’s proprietary information and interests.

为保护公司的专有信息与业务利益， This clause may restrict: 该条款可限制：shareholders from engaging in similar businesses during and after their tenure and prohibit disclosure of confidential information to external parties. 

The Dispute Resolution Mechanism 争议解决机制 provides a framework for handling disagreements that may arise despite clear agreements. It should specify procedures such as negotiation, mediation, or arbitration, and identify the venue, governing law, jurisdiction, and language for resolving disputes.

In conclusion, a Shareholders’ Agreement is more than a legal formality—it is  a strategic instrument that fosters transparency, reduces legal exposure, and safeguards the long-term interests of all parties. Companies, especially startups and closely held businesses in Malaysia, are strongly advised to engage a corporate legal professional to tailor the agreement to their specific needs and ensure enforceability under the Companies Act 2016.

Important Notes: It is advisable to clearly define the method of share valuation in the Shareholders’ Agreement. For example, the initial valuation may be conducted by the company’s existing accountant. In the event of a disagreement among shareholders regarding the valuation, the parties may agree to jointly appoint an independent valuer, such as one of the Big Four accounting firms in Malaysia (e.g., PwC, Deloitte, EY, or KPMG), to determine a fair market value.

It is also important to note that a Shareholders’ Agreement is contractually binding only on the shareholders who are parties to it. While incorporating reserved matters can help protect minority interests, excessive restrictions may impede the company’s ability to operate efficiently and make timely decisions. A balanced approach is therefore recommended to ensure both governance control and operational flexibility.