Exiting a private company in Malaysia is not always straightforward, as shares in a Sdn Bhd are not freely traded and often depend on finding a willing buyer.
This article explains how a shareholder may exit a private company under the Companies Act 2016 and the possible limitations involved.
Selling or transferring shares to another party
In the absence of a Shareholders’ Agreement (SHA) or constitutional restrictions, a shareholder may exit the company as long as there is a willing buyer.
In practice, the process is relatively straightforward:
- identify a willing buyer, whether an existing shareholder or a third party
- sign the instrument of transfer under Section 105
- pay the applicable stamp duty for the instrument of transfer
- submit the stamped instrument to the company
- the company registers the transfer under Section 106 and updates its register of members
Company share buyback
Unlike public listed companies, private companies generally cannot buy back their own shares unless the shareholder holds redeemable preference shares, then the company may redeem those shares in accordance with their terms of issue.
However, redemption is not guaranteed as the company must first satisfy financial requirements including the solvency test under section 112 of the Companies Act 2016.
Oppression remedy for minority shareholders
Under Section 346 of the Companies Act 2016, a shareholder may apply to the court if the company’s affairs are conducted in a manner that is oppressive, unfairly prejudicial or discriminatory towards them, such as exclusion from management or abuse of majority power.
The court may order other shareholders or the company to purchase the affected shareholder’s shares, or in some cases, order that the company be wound up.
However, this is usually a last resort as court litigation can be costly and carries no guaranteed outcome.
Why the Companies Act 2016 may limit exits
Although the Companies Act 2016 sets out the procedures for dealing with share transfers, it does not provide contractual or commercial exit mechanisms for shareholders. This may lead to several practical issues:
No willing buyer
If no buyer exists or the existing shareholders are unwilling to purchase the shares, the shareholder may effectively be unable to exit.
No agreed valuation mechanism
Without a formal agreement, there may be no clear basis for determining the value of the shares, resulting in prolonged negotiations.
No protection for minority shareholders
Minority shareholders without board representation may face delays or obstacles if directors do not cooperate in registering the transfer.
Let ELP assist with your Shareholders’ Agreement
A well-structured Shareholders’ Agreement allows shareholders to plan for exit scenarios upfront and avoid the challenges above.
If you have an existing SHA that requires review or wish to put one in place, contact us for a free initial consultation.
