In closely held companies, especially startups, founder-led businesses, and family-owned businesses, control over the shareholder base is critical.

One common concern is that individuals who are no longer actively involved, such as former directors or employees, may continue to influence major decisions through their shareholding.

This is where compulsory transfer provisions come in. These typically require individuals to transfer or convert their shares upon exit. Common mechanisms include:

• Transfer to remaining shareholders – often at a pre-agreed valuation
• Conversion to deferred shares – removing economic and voting rights

These mechanisms help ensure that ownership remains aligned with those actively managing the business.

When drafting your shareholders’ agreement, constitution, or employee share scheme, ask:

• Should leavers retain any influence?
• Or should their exit trigger a transfer?

Getting this right from the outset helps avoid disputes and preserves long-term control.

So, should departing directors and employees keep their shares?

Not if you want ownership and management of the business to be aligned.

#malaysiancorporatelawyer

This post was first posted on LinkedIn on 31 July 2025.