How to safeguard shareholders’ interest through shareholders’ agreement

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When any sale and purchase of shares results in more than one shareholder in a company, the shareholders should enter into a shareholders’ agreement to set out their rights and obligations, no matter how amicable their relationships are.

A minority shareholder and majority shareholder may consider including the following in the shareholders’ agreement to safeguard their interests as shareholders:

Minority Shareholders

1. Have a list of shareholders’ reserved matters which set out matters which the company can carry out only with unanimous consent of all shareholders or majority votes which must include the minority shareholder’s assent.

2. Have a list of board reserved matters which set out mattes which the board can carry out only with unanimous consent of all directors or majority votes of directors which must include the director nominated by the minority shareholder.

3. Minority shareholder to have board representation to protect the minority shareholder’s rights and monitor the affairs of the company.

4. Minority shareholder to have the right to tag along in the event the majority shareholder wants to dispose its shares to a third party. The minority shareholder may not want to continue to hold shares in the company if the majority shareholder exits.

5. Minority shareholder to have the first right of refusal in the event of disposal of shares by other shareholders.

𝑴𝒂𝒋𝒐𝒓𝒊𝒕𝒚 𝒔𝒉𝒂𝒓𝒆𝒉𝒐𝒍𝒅𝒆𝒓

1. Majority shareholder to have the right to drag along minority shareholder in the event of sale of shares to a third party if the third party intends to acquire the entire (and not some) issued share capital of the company.

2. Majority shareholder to have board representation which reflects its shareholding and control of the company.

3. Majority shareholder to have the first right of refusal in the event of disposal of shares by other shareholders.

What would you add to the list?

#malaysiancorporatelawyer
#shareholdersagreement
#mergersandacquisitions

This post first posted on Linkedin on 21 March 2022.

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