Three things to take note of in shareholders’ agreement

Drafting

Shareholders’ agreement is a common agreement in an M&A transaction where there is more than one shareholder in the target company after completion of the transaction.

The following are three requirements under the Companies Act 2016 of Malaysia (“𝗖𝗔”) to take note of when preparing a shareholders’ agreement:

1. Save for a company having only one member, two members personally present at a general meeting or by proxy shall be a quorum unless a higher number is specified in the constitution (Section 328, CA).

In the case of a company with two members, a member may frustrate a general meeting by not personally present at the meeting or by proxy. There would be no quorum for the general meeting to proceed to business. In such instance, the majority shareholder has to be able to pass members’ resolution by way of written resolution (save for reserved matters as agreed between the two members and the matters set out in item 3 below).

2. The main venue of a meeting of members must be in Malaysia and the chairperson must be present at that main venue of the meeting (Section 327, CA).

This may pose a problem for a company where all the members are non-residents and they may have to pass members’ resolutions by way of written resolutions instead (if not prohibited under the CA).

3. A resolution to remove a director or auditor before expiration of his term of office cannot be passed as a members’ written resolution and would require a physical general meeting instead (Section 297(2), CA).

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This post was first posted on Linkedin on 4 May 2022.

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