ELP_Logomark Horizontal_White (1)

Articles

Business person giving partnership agreement to coworker

Understanding The Different Types of Employment Contracts in Malaysia

Leave a Comment / Articles /

In Malaysia, the employment landscape is governed by a variety of contract types, each with its own legal implications and practical considerations. Understanding these contracts is crucial for both employers and employees to ensure compliance with the law and to safeguard their respective rights and obligations. This article explores the different types of employment contracts in Malaysia and discusses the consequences of breaching the employment contracts. Types of Employment Contracts in Malaysia 1. Permanent Employment Contracts Permanent employment contracts offer long-term employment with no specified end date. Under this type of contract, employees are entitled to full benefits, including annual leave, sick leave, and other statutory benefits as stipulated under the Employment Act 1955. Key Features: 2. Fixed-Term Employment Contracts Fixed-term employment contracts are employment contracts that last for a specific duration. These contracts are common in project-based industries or where temporary manpower is required. At the end of the contract term, the employment relationship automatically terminates. These contracts are also governed by the Employment Act 1955, which ensures that employees under fixed-term contracts receive the same protections as permanent employees for the duration of their contract. Key Features: 3. Apprenticeship/ Internship/Training Employment Contracts These employment contracts are designed for individuals who are gaining practical experience and training in a specific trade or profession. They are particularly common in technical and vocational fields, as well as in professional sectors. Under the Employment Act 1955, an “apprenticeship contract” means a written contract entered into by an apprentice with an employer, who undertakes to employ and train the apprentice systematically for a trade for a period between 6 months to 24 months. Key Features: 4. Part-Time Employment Contracts Part-time employment contracts cater are designed for employees who work on an irregular basis or for fewer hours than full-time employees. Under the Employment Act 1955, a part-time employee is defined as an employee whose average hours of work per week are more than 30% but less than 70% of the normal hours of work per week of a full-time employee employed in a similar capacity in the same company. These contracts are common in sectors like retail and hospitality. In addition to the Employment Act 1955, part-time employees are also subject to the Employment (Part-Time Employees) Regulations 2010, which provides specific protections and benefits to part-time employees. Key Features: Contract vs. Permanent Employment in Malaysia When deciding between contract and permanent employment in Malaysia, several factors come into play, including job security, flexibility, cost considerations, and talent acquisition. Understanding these differences can help employers and employees make strategic decisions that align with their needs and long-term goals. 1. Job Security Permanent Employment – it offers higher job security with an indefinite duration of employment. Employees are likely to be more loyal and lead to better retention rates. Contract Employment – it has a predetermined end date, employees may focus more on completing specific projects rather than long-term career growth within the company. 2. Flexibility or Stability Permanent Employment – it provides a stable workforce, which is essential for roles that require continuity and long-term commitment. It also enables better long-term planning for both employers and employees. Contract Employment – it provides greater flexibility for both employers and employees. Employers can hire talent for specific projects without long-term commitments, while employees can explore various opportunities and gain diverse experiences. Additionally, employers are also not obligated to retain employees beyond the contract period. 3. Cost Considerations Permanent Employment –It typically incurs higher fixed costs due to salaries, benefits, and other contractual contributions. Long-term employees may require more investment in training and development to ensure ongoing growth and productivity. Contract Employment – It allows for more flexible budgeting as labour costs are tied to specific projects and timelines. Termination costs may be minimised since contracts have predetermined end dates. 4. Talent Acquisition Permanent Employment –Permanent roles attract candidates looking for stability and long-term career prospects, helping to build a dedicated and committed team. Contract Employment – Contract roles attract candidates seeking flexibility, diverse work experiences, and opportunities to apply specialised skills to specific projects. Breach of Employment Contract in Malaysia Understanding the different types of employment contracts in Malaysia and the distinctions between contract and permanent employment is crucial for both employers and employees. However, it is equally important to recognise the potential issues that can arise from breaching these contracts. A breach of an employment contract occurs when either party fails to fulfil the terms and conditions agreed upon. 1. Employer’s Breach Employer can breach an employment contract in several ways. Common scenarios include: 2. Employee’s Breach Employee can breach an employment contract in several ways. Common scenarios include: 3. Legal Remedies In cases of breach of employment contract, the aggrieved party usually seek legal remedies through the Labour Court or the Industrial Court, depending on the nature of the dispute. The Labour Court handles disputes related to wages or any other payments due to employees, including issues such as unpaid salaries, overtime pay, and other financial entitlements. The Industrial Court hears cases involving unfair dismissal of employees and other significant employment disputes. Legal remedies that may be granted include:   For more information, check out our guides to termination clauses, termination with cause, and risks of no‑termination clause contracts. Conclusion Each type of employment contract in Malaysia comes with its own advantages and challenges, and the right one depends on the needs and circumstances of the parties involved. Furthermore, understanding the implications of a breach of employment contract is crucial, as it ensures that both parties are aware of the potential legal consequences and remedies available. Employers who would like to ensure their employment terms are robust and legally sound are welcome to contact us for a tailored employment contract consultation or review.

Understanding The Different Types of Employment Contracts in Malaysia Read More »

Crop businesspeople shaking hands

7 Reasons to Have a Shareholders’ Agreement

Leave a Comment / Articles /

In the world of business, where trust and confidence are key to business success and nurturing long-term relationship​​, understanding the vital role of a Shareholders’ Agreement in Malaysia is crucial. So, what is a Shareholders’ Agreement?  A Shareholders’ Agreement sets out a contractual framework that governs the relationship of the company’s shareholders, establishing guidelines for their behaviour and interactions within the company. It outlines the rights, duties, and obligations of the shareholders. It is imperative to customise each Shareholders’ Agreement, considering the unique characteristics of each company, as no two companies are identical in their structure and operations. Why Is Having a Shareholders’ Agreement Important? Here are seven reasons why having a shareholders’ agreement is important: A shareholders’ agreement protects the rights and interests of shareholders by clearly defining the rights, duties, and obligations of each shareholder, ensuring that everyone knows what is expected of them. This clarity helps prevent misunderstandings and conflicts between shareholders while ensuring everyone is aligned from the outset. The agreement also mandates that shareholders use their voting power in the company to ensure that the terms of the agreement are complied with for as long as they are shareholders. This commitment fosters effective collaboration between the company and its shareholders. Effective corporate governance hinges on a well-structured shareholders’ agreement that guides the company towards long-term success. A shareholders’ agreement serves as a blueprint for the company’s operations, fostering transparency, fairness, and accountability. Key aspects such as decision-making processes and voting rights are clearly defined, establishing a solid framework for managing the company and fostering a robust relationship between the company and its shareholders. A shareholders’ agreement provides certainty on various crucial matters that impact shareholders’ interests in the company, such as management structure, exit strategies, events like death or disability, valuation methods, dividend policies, and non-competition covenants. By establishing these guidelines upfront, the agreement helps to prevent and resolve issues before they escalate, minimising the risk of future disagreements. This provides shareholders with greater protection in case their relationship turns sour, thereby promoting stability within the company. Moreover, the agreement includes mechanisms for resolving deadlocks and disputes among shareholders. This helps to avoid corporate paralysis or costly legal battles that could disrupt business operations and governance. While shareholders typically have limited information rights, a shareholders’ agreement can enhance transparency by stipulating the provision of specific company information to shareholders. This may include regular updates on the company’s financial, operational, and performance metrics, empowering shareholders to monitor their investments and track the company’s progress over time. A shareholders’ agreement is a private and confidential document that can include matters which shareholders prefer to keep private. Unlike a constitution (which is required to be lodged with the Companies Commission of Malaysia), a shareholders’ agreement does not need to be publicly disclosed. This confidentiality allows commercially or financially sensitive details, such as dividend policies, share valuation methods, and restrictive covenants, to remain confidential. Adopting a shareholders’ agreement can complement the statutory rights and protections provided by the Companies Act 2016 (“Act”). The Act may not fully address or might overlook certain aspects of shareholder protection. A customised shareholders’ agreement allows shareholders to address issues related to their involvement in the company, establishing additional rules and protections tailored to their unique circumstances and priorities. In doing so, it fills the gaps left by the Act or the company’s constitution, thereby enhancing overall shareholder protection. Having a shareholders’ agreement in place may create a positive impression for potential investors, financiers, and business partners by demonstrating the company’s stability and foresight. It signifies that the company operates with structured rules and has established mechanisms to address internal affairs and shareholder disputes effectively. This minimises conflicts and risks, illustrating a well-organised and robust business environment. How to Write a Shareholders’ Agreement? Writing a Shareholders’ Agreement is a crucial step in establishing clear guidelines and terms for shareholders in a company. The following are examples of typical clauses commonly found in a shareholders’ agreement: Conclusion Every company with more than one shareholder is advised to have one shareholders’ agreement in place. A well-crafted shareholders’ agreement provides benefits such as fostering transparency, eliminating disagreements, and promoting harmonious collaboration among stakeholders, all of which contribute to the long-term success and sustainability of a business. Keep in mind that each shareholders’ agreement should be customised to fit the specific shareholding arrangement and the unique circumstances of the company. Given that the purpose of a shareholders’ agreement is to regulate relationships, and recognising that every business and shareholder relationship is unique, it is essential for the terms of the shareholders’ agreement to be carefully thought out and meticulously crafted.

7 Reasons to Have a Shareholders’ Agreement Read More »

letter

Understanding Contracts – A Simple Q&A Guide to Signing Contracts

Leave a Comment / Articles /

Welcome to an easy-to-follow Q&A guide, designed to clarify the sometimes confusing world of contracts. Ever been confused about how to sign a contract? You are not alone. We are here to explain the basics and make signing contracts easy to understand for everyone. Q1: Are electronic signatures legally valid? Yes. Electronic signatures are recognised as legally valid under laws such as the Digital Signature Act 1997 and the Electronic Commerce Act 2006. However, electronic signatures cannot be used for certain documents such as Power of Attorney and such documents must be properly executed according to relevant legal requirements. Q2: Must all parties sign on the same copy of a contract? Not at all. Parties can sign the contracts in counterparts, meaning each party can sign a separate copy. When combined, these copies constitute the full, enforceable agreement. Q3: How many copies of a contract need to be signed? The number of copies that need to be signed typically corresponds to the number of parties involved. For instance, in a two-party agreement, each party would sign two copies in a physical setting. In the case of electronic signing, a single copy is adequate. Q4: Is it necessary to sign or initial every page of a contract? No. It is not mandatory to sign every page. Generally, signatures are only needed on the designated signatory sections (it is usually located at the last page of the contract). However, initialling each page can prevent unauthorised alterations to the contract. Q5: Are witness signatures required for all contracts? Business contracts usually do not need a witness. Personal documents like wills, often require witness signatures for added legitimacy and to uphold the document in a legal setting. Q6: Is it necessary to stamp a signed contract? Stamping signifies that any applicable taxes or duties on a document have been paid. Even without stamping, a contract that is properly signed by all parties is still a legally binding document. However, for a contract to be admissible in court as evidence, it needs to be stamped. Contracts should be stamped promptly after signing (within 30 days from its execution) to avoid late penalties. This Q&A is intended to simplify your approach to contract signing. Remember, while we provide a basic outline here, the specifics can differ based on where you are and the details of your situation.

Understanding Contracts – A Simple Q&A Guide to Signing Contracts Read More »

woman submits her employer resume to review job

Understanding Contracts – A Simple Q&A Guide on the Importance of Contracts in Business

Leave a Comment / Articles /

Welcome to an easy-to-follow Q&A guide, designed to clarify the sometimes confusing world of contracts. Wondering why contracts are important in business dealings? You are not alone. We are here to clarify why signing contracts is crucial for any business transaction. Q1: Can a contract provide clarity and reduce misunderstandings? Absolutely. A written contract serves to lay out the roles and responsibilities of each party involved, which significantly reduces the possibility of misunderstandings. It acts as a point of reference for what was agreed upon. If disputes arise, the court will turn to the contract to determine the intentions and agreements of the parties to resolve the disputes. Q2: How does a contract offer legal protection? A contract is a legally binding document that is enforceable in a court of law. This legal enforceability offers a layer of protection for the rights and interests of everyone involved. It ensures that each party’s expectations are met and provides a legal remedy if contract has been breached. Q3: Is there a financial benefit to having a contract? Drafting a contract does involve some costs, but these are generally much lower than the expenses incurred from legal battles due to disputes. Contracts provide a more efficient and cost-effective way to resolve issues, as they lay the groundwork for the resolution process and can often prevent disputes from escalating to the need for court intervention. Q4: Does a contract help in making transactions more professional? Yes, having a contract underscores the professionalism of a business transaction. It demonstrates a commitment to honour the terms and an understanding of business protocols, which can help establish and maintain trust between parties. Q5: Can having a contract prevent disputes? Contracts often prevent disputes before they start. By having clear terms and conditions laid out, there is less room for disagreement. Furthermore, a contract can include mechanisms for dispute resolution, making it easier to handle any disagreements that do arise without resorting to litigation. Q6: What happens if you enter a business deal without a contract? Without a contract, there is no formal record of the terms of your agreement, which may lead to misunderstandings and disagreements that are difficult to resolve. This may result in damaged business relationships, financial loss, and potentially expensive and time-consuming litigation. This Q&A is designed to highlight the importance of contracts in business transaction. By establishing clear terms, contracts offer clarity and safeguard rights. Before engaging in any business activity, it is wise to ensure that a well-drafted contract is in place.

Understanding Contracts – A Simple Q&A Guide on the Importance of Contracts in Business Read More »

signed-contract-header

How To Amend a Signed Contract in Malaysia?

Leave a Comment / Articles /

Contracts serve as the cornerstone of business transactions and establish the rights and responsibilities of all parties involved. Once contracts are signed, they become legally binding documents on the parties and cannot be changed or amended at the parties’ discretion. However, there are situations where amending a signed contract becomes a necessity to accommodate changes in plans and circumstances. In this article, we will explore the process of amending a signed contract, offering insights and guidance to you. Review the Existing Clause in the Contract: In most contracts, you will find an amendment or variation clause within the contracts that outlines the conditions of making changes. These clauses are usually located at the end of the contract, often in the final few boilerplate clauses. The standard amendment or variation clause usually require prior written consent of all parties involved before any changes to the contracts can be made. For example, a common phrasing might state, “No variation of any provisions of this Contract shall be binding unless made in writing and signed by all parties.” If your contract lacks such a clause, the usual method is to make changes in writing. This can include email correspondence or other written communication. However, be cautious with handwritten notes in pencil or the absence of the other party’s signature in the amended copy, as these may not be recognised by the court as valid amendment, as confirmed by the Court of Appeal in Kee Wah Soong v Yap Boon Hwa and Another Appeal [2018] 1 LNS 1284. Amend the Contract in Writing While email or handwritten communication is more convenient, it is generally advisable to record amendments through a proper legal document known as an “Addendum.” An Addendum is a legally binding document that outlines the changes to the original contract, the changes may include adding a new clause, deleting an existing one, or modifying a clause. For example, common language used in an Addendum might include wordings like “The terms of Clause 1.1 of the Tenancy Agreement shall be amended to read as follows”. Once the intended changes are clearly defined in the Addendum, the parties involved in the original contract will sign the Addendum and date it to signify their consent to the amendments. In the event of disputes, the courts will consider the original contracts as well as the addendum to determine an issue. For example, in the case of Hewlett-Packard (M) Sdn Bhd & Anor v Agih Tinta Sdn Bhd [2022] 9 CLJ, the Court of Appeal referred to the addendum and determined that the respondent, who was initially not a partner of HP, later became an affiliate through an addendum with Sunlight, a partner of HP. Making oral changes to a contract is not recommended. This is because oral communication frequently results in more disputes and can prolong the process of ascertaining the parties’ intentions. In court, oral evidence is typically more difficult to admit as evidence when there is a written document available. Who Can Amend the Contract? In most scenarios, a contract can only be amended if all parties who originally signed it unanimously agree to the proposed changes. This ensures that the fundamental spirit and intent of the contract are preserved, and no party can unilaterally impose changes without the others’ consent. However, in certain contracts, such as bank facility agreements, one party, often the bank, may be granted the authority to make changes without requiring the consent of the other party. This unilateral amendment power will be specified in the contract terms. When dealing with such contracts, it is important to carefully review the agreement to understand which party holds the authority to make alterations. Practical Steps to Amend a Contract: We will now outline a series of important steps you can take to effectively amend the contract: Review the original contract to identify the section or clause that needs modification. Communicate openly with the other party involved. Discuss the proposed changes, explain your reasons, and listen to their perspective. Sometimes, parties can come to a mutual agreement without making any changes to the contract. If all parties agree to the proposed changes, the next step is to document these changes in writing. As discussed above, an Addendum may be used to formally record the changes. Maintain records of all correspondence and documents related to the changes. These records may serve as evidence in the event of future disputes and offer clarity of the agreed-upon modifications. Be careful when making material changes to a contract. These are changes that substantially alter the original terms. In some cases, creating an entirely new contract may be wiser than amending the existing one. Contracts are designed to protect the legal interests of the contracting parties. When it comes to amending a signed contract, it requires careful consideration, open communication, and documentation. By following the steps outlined in this article, you can effectively navigate contract changes, ensuring the continued legal protection of your interest in commercial transactions.

How To Amend a Signed Contract in Malaysia? Read More »

electronic-signature

Digital Signature and E-Signature

Leave a Comment / Articles /

Is electronic signature legally recognised by law? Digital Signature and Electronic signature (E-Sign) may be used interchangeably, to refer a signing tool for signer to sign on a softcopy. Signing is an action to infer that the signer has indeed, read, understand and agreed/approved to the content of a document. Traditionally, signing is done on a physical document or an object when the signer performs stokes on it, this includes fingerprint signing. With the advancement of technology, signing today, can be performed digitally by affixing, name, mark and even drawing to the softcopy which we refer to Electronic Signature or Digital Signature. Although the purpose of both terms meant the same, however, they refer to very different mechanism in terms of framework, security and admissibility. Electronic Signature In Malaysia, Electronic Signature is governed by Electronic Commerce Act (ECA)[1] to refer any letter, character, number, sound or any other symbol or any combination thereof created in an electronic form adopted by a person as a signature. In another word, as long as an individual affixed his “name” on a PDF, that “name” would be regarded as an Electronic Signature. The main purpose of ECA is to recognize electronic messages in commercial transactions. For an Electronic Signature to be admissible, the law requires that where a signature is required, and if the document is in the form of electronic message, an electronic signature must fulfill the following requirements: Subsection 2 also provides that an electronic signature is as reliable as is appropriate if So long as the requirements laid down in Section 9 of the ECA is satisfied, then the requirements of the law on electronic signature is fulfilled. However, Section 10 of the ECA specifically provides that for documents which requires a seal to be affixed, such as Power of Attorney, Wills, Trust documents and Negotiable instrument (Bank Cheques), these documents were specifically mentioned under the Schedule of the Act, must not be admissible by Electronic Signature unless it is affixed by a digital signature as provided under the Digital Signature Act 1997. Here, it clearly shows that our legislature distinguished electronic signature from digital signature. Digital Signature On a technical standpoint, Digital Signature, an enhanced version of Electronic Signature, provides a higher threshold of security measures compared to an electronic signature. Unlike an Electronic Signature, where the true identity of the signer can easily be faked, for instance person A signed the signature of person B through impersonation, Digital Signature provides a higher level of profiling towards the identity of a signer. The Malaysian legislation has also provided the definition of Digital Signature in Digital Signature Act 1997[2], which stated as the transformation (created using the private key that corresponds to the signer’s public key) of a message using an asymmetric cryptosystem such that a person having the initial message and the signer’s public key can be accurately determine whether the message has been altered since the transformation was made. The legislation has provided a much more technical definition to Digital Signature compared to Electronic Signature. In a simpler term Digital Signature is a mathematical scheme for verifying the authenticity of digital messages or documents, which includes the signer and sender. However, Section 62 of the DSA provides a set of requirements for a document to be legally binding: In Malaysia, there is only a few recognized Digital Signature options available which is certified and validatied by licensed certification authorities. They are: This would mean, documents signed by other foreign Digital Signing platform do not have the same legally binging effect since they do not have the appropriate license as the Certification Authority. In summary, when Malaysian law mandates the use of a seal on a document, Section 10 of the ECA stipulates that a digital signature is the minimum requirement. Before opting for either an electronic signature or a digital signature, parties should, especially when dealing with documents that traditionally require a seal, carefully consider the balance between: (i) the convenience of electronically signing documents using e-signature tools, and (ii) the legal risks associated with the potential challenges to the validity or compliance with statutory requirements of such e-signatures. If employing digital signatures in such cases proves to be overly complex or logistically challenging, opting for physical signatures on the document may still be a prudent choice. [1] https://lom.agc.gov.my/ilims/upload/portal/akta/LOM/EN/Act%20658.pdf [2] https://lom.agc.gov.my/ilims/upload/portal/akta/LOM/EN/Act%20562.pdf

Digital Signature and E-Signature Read More »

Sam Altman Was Fired as a CEO of Open AI.

OpenAI’s Leadership Shakeup: Would Sam Altman’s Instant Dismissal Fly in Malaysia?

Articles /

Introduction   Disclaimer: This article’s content, discussing Sam Altman’s immediate dismissal from OpenAI, and drawing inspiration from this case to relate to Malaysian law, is based solely on the authors’ observations. It should not be considered as legal advice and is not based on confirmed facts regarding the specific circumstances of Mr. Altman’s departure. Furthermore, the authors do not express any views on American corporate law or its governance processes.   On 17 November 2023, it was announced that OpenAI’s board had made the decision to remove Sam Altman as CEO. The board said that Altman “was not consistently candid in his communications” and such decision was made after the board had taken a deliberative review process. What Altman had allegedly hidden from his company’s board was not clear. The departure of Sam Altman marks a significant upheaval in Silicon Valley. His prominence soared following the introduction of ChatGPT, OpenAI’s highly acclaimed chatbot, positioning him as a prominent figure in the tech world and a renowned authority on artificial intelligence. This generative AI chatbot quickly gained over 100 million users in under a year. At 38, he has been at the forefront of developing “artificial general intelligence” (AGI), an AI system with the ability to perform any task that a human can. The sudden dismissal of Sam Altman, CEO of OpenAI, has brought to light the complexities of corporate governance, particularly in terms of the powers held by boards of directors and shareholders to dismiss top executives such as directors and CEO immediately. This article seeks to deepen the understanding of executive dismissals by examining the legal framework and business implications in Malaysia, as governed by the Companies Act 2016. Drawing inspiration from the recent case of Sam Altman’s dismissal from OpenAI, we will explore whether a similar scenario could transpire under Malaysian law. Through a detailed analysis, including case studies and expert insights, we aim to dissect the nuances of executive termination in the Malaysian corporate landscape and assess the potential parallels with high-profile international cases like that of Sam Altman. Legal Framework and Corporate Governance   How To Remove a Director from the Board?  The Malaysian Companies Act 2016 sets the stage for the appointment and dismissal of directors. Under Section 206 of the Companies Act 2016, the process for the removal of directors varies between private and public companies. For public companies, the power to remove directors is derived from Section 206 of the Companies Act 2016. For private companies, the power to remove a director can either be derived from the company’s constitution or from Section 206 of the Companies Act 2016. If the private company has a constitution: If private companies have existing company’s constitution with specific procedures for the removal of directors, the companies should follow the company constitutions to remove the director. For example, the company constitutions may stipulate methods of removal such as removal made by the board of directors or removal made by the shareholders who appointed such director, and whether such removal can be done immediately or by giving certain notice period. In the case of Thiam Hoe & Anor v Sri Serdang Sdn Bhd & Ors [2020] 1 LNS 75, Justice Darryl Goon Siew Chye determined that the removal of the plaintiffs by the 1st to 4th defendants in private companies was valid even without issuing a special notice in advance, as their articles of association did not explicitly require it. If the private company does not have a constitution: In cases where private companies do not have a company constitution (because it is not compulsory to have one under the law), or if their company constitution does not contain specific provisions on the removal of director, then by default, they should follow the procedures set out in Section 206 of the Companies Act 2016 i.e.: an ordinary resolution passed by the shareholders of the company at a general meeting; the company cannot bypass a general meeting through a circular written resolution; a special notice has to be issued on the director to be removed 28 days before the general meeting is convened; and the director who is to be removed has the right to be heard and to make representation against the proposed removal. How to Remove a CEO from the Company?  The process for the dismissal of a CEO is typically governed by the terms of their employment contracts or appointment letters. Usually, the dismissal process should adhere to the requirement of providing due notice, as stipulated in the contracts or other relevant documents, such as an employee handbook. This ensures that the process aligns with both the specific contractual agreements and standard employment practices. Grounds of Removal/Termination   Do you Need a Reason to Remove a Director from the Board?  If removal is initiated by the shareholders of the company, shareholders are generally not required to provide any reason to remove a director. The High Court’s ruling in Low Thiam Hoe & Anor v Sri Serdang Sdn Bhd [2020] 4 CLJ 618 underscores the unfettered power of shareholders in removing directors. The court noted that this statutory right to remove a director is unqualified and does not require reasons for a director’s removal. This ruling emphasises the authority shareholders hold, allowing them to remove directors for a variety of reasons, including dissatisfaction with performance or strategic direction. The courts are of the view that appointment and removal of directors belong to the internal management or affairs of the company and the court will not interfere with the internal management of a company, as illustrated in the case of Chan Tai Ping V. Ning Yang Properties Sdn Bhd & Ors [2022] 1 LNS 1441. The appointment of a director and the removal of a director are essentially business decisions to be made by the businessmen themselves, and the Companies Act 2016 stipulates for such business decisions to be made by the shareholders in a general meeting of the company. Can You Remove a CEO/Director Immediately?  The standard procedure and best

OpenAI’s Leadership Shakeup: Would Sam Altman’s Instant Dismissal Fly in Malaysia? Read More »

closing-down-sale-sign

LLP Dissolution in Malaysia: A Comprehensive Guide

Articles /

Introduction: In Malaysia’s evolving business environment, the Limited Liability Partnership (LLP) has emerged as a preferred partnership structure. With its unique blend of traditional partnership traits and limited liability advantages, it’s no wonder entrepreneurs are gravitating towards it. However, the dissolution of an LLP remains a complex process. This guide aims to demystify the LLP dissolution process in Malaysia for businesses looking to wrap up operations compliantly. Limited Liability Partnership vs. Traditional Partnership Distinguishing between an LLP and a traditional partnership is pivotal. As highlighted in Malaysia’s Limited Liability Partnership Act 2012, a traditional partnership exposes partners to personal financial liabilities for business debts. In stark contrast, an LLP in Malaysia ensures partners enjoy the benefits of active business management while their personal assets remain shielded from business debts. Step-by-Step Guide to Dissolving an LLP in Malaysia For an LLP in Malaysia, the process of dissolution involves several strategic steps to ensure a smooth and legally compliant transition. Notably, the process begins with a Statutory Declaration, which, crucially, is executed solely by the partner initiating the dissolution process. Application Flow for Declaration of Dissolution: Step 1: Notice from Inland Revenue Board (IRB) Initiate the dissolution by obtaining a written clearance from the IRB, a crucial step for any LLP dissolution in Malaysia. Step 2: Notice of Dissolution and Gazette Notify all partners about the impending dissolution. Moreover, make a public announcement in newspapers in both English and the national language. For reference, check our sample notices here. Step 3: Application for Declaration of Dissolution Within a week of the public announcement, submit a comprehensive dissolution application to the Registrar. This package should include: Statutory Declaration. Notice to partners. IRB clearance. Newspaper announcement. Step 4: Rights to Object Partners are accorded a 30-day period post-application to raise any objections to the dissolution. Step 5: Registrar’s Decision An LLP is officially dissolved when the Registrar gives the nod, provided no valid objections are raised. Step 6: Distribution of Surplus Assets Ensure the transparent and fair distribution of any remaining LLP assets, adhering to pre-existing partnership agreements. Conclusion Understanding the intricacies of LLP dissolution in Malaysia is critical for businesses aiming for a seamless and compliant closure. This guide serves as a roadmap, but expert advice can further ease the process. For more insights on the LLP dissolution process in Malaysia or bespoke assistance, feel free to connect with our team. ***** About the author: This article was written by Lim Yong Lin, Trainee Lawyer – law firm in Kuala Lumpur, Malaysia.   The view expressed in this article is intended to provide a general guide to the subject matter and does not constitute professional legal advice. You are advised to seek proper legal advice for your specific situation.

LLP Dissolution in Malaysia: A Comprehensive Guide Read More »

Defining the issue at hand.

Understanding Share Allotment and Share Transfer and Selecting the Right Strategy for Business Expansion

Articles /

As an entrepreneur, you are aware that shares are more than just ownership stakes. Shares are assets that can attract investors, bring in new funds as well as act as incentives for your key employees. Let’s say you are the sole owner of a thriving cafe. You plan to bring in new partners to join your business by offering them some ownership. You also plan to offer ownership to your dedicated key employees as a reward for their hard work. You believe that these steps will contribute to your business expansion. But now, you face a question: how should you give them ownership? Should you provide them ownership through transferring your existing shares or opt for your company to create new shares for them? This is where the choice between share transfer and share allotment comes into play.  Think of share allotment like brewing a fresh pot of coffee, it is about creating new shares in your company. On the other hand, share transfer is like sharing a piece of your cafe’s famous cake, it involves moving around the shares that already exist, transferring existing shares from one owner to another. To make the right call for your business’s expansion, it is important to understand the fundamental differences between these two concepts. We have laid out a table below, summarising the key differences between share allotment and share transfer for your better understanding: Aspect Share Transfer   Share Allotment Meaning ·       Buying and selling of shares. The incoming shareholder/an existing shareholder (Buyer) buys existing shares from an existing shareholder (Seller).   ·       The Company’s total equity remains unchanged; it only involves change of ownership of the existing shares.   ·       The incoming shareholder (or investor) subscribes for new shares to be allotted and issued by the Company.   ·       The Company “creates” new shares by allotting and issuing shares to the investor in exchange for additional equity to grow the business.   Special Purpose   ·       Seller wants to sell shares because he needs money, or he no longer wants to be part of the company.   ·       Merger & Acquisition. ·       The Company wishes to raise money and grow the business (i.e., fundraising).   Common Purpose ·       Shares may be transferred/allotted as part of an employee incentive scheme.   Price ·       The Buyer and Seller can mutually agree on the purchase price. The Shareholders’ Agreement may provide guidance on how to determine the price where parties disagree.   ·       The purchase price will be paid to the Seller. ·       The incoming shareholder generally subscribes for shares at fair market value based on the valuation of a Company.   ·       The subscription price will be paid to the Company.   Pre-Conditions ·       Companies Act 2016, the Shareholders Agreement and/or the Company Constitution (if any) may contain provisions that restrict allotment of shares or transfer of shares.   ·       Common pre-conditions often involve the existing shareholders’ right of first refusal to buy the sale shares or subscribe to new shares.   ·       Consent/approval from the existing shareholders (such as the founder of the Company), financial institutions (if the Company obtains any loans), regulators (pursuant to laws or conditions of licences).   Specific Legal Documents ·       Term Sheet ·       Share Transfer Agreement or Share Purchase Agreement   ·       Term Sheet ·       Share Subscription Agreement   Common Legal Documents ·       Shareholders’ Agreement (if the Company does not have a shareholders’ agreement or if new shareholders request a new shareholders’ agreement)  OR Deed of Adherence to adopt the existing Shareholders’ Agreement (if the Company already has one and new shareholders agree to it).   ·       Company Constitution – if the Company does not have one or if modification is necessary.   Company Secretary Documents/Forms ·       Directors’ resolution/ Shareholders’ resolution ·       Section 105 (Share Transfer Form)  + stamping ·       Section 51  (Register of Members)   ·       Directors’ resolution/ Shareholders’ resolution ·       Section 78 (Allotment of Shares) ·       Section 51  (Register of Members)   Stamp Duty ·       Stamp duty is applicable, usually payable by the Buyer (unless the Buyer and Seller agreed otherwise), the calculation is stated as follows:  Types of Companies & Calculation  (a)   Dormant Company or Company making losses/making profit  ·       NTA or Consideration, whichever is higher.  * NTA = Total Asset – Intangible Asset – Total liability  * NTA per shares = NTA/ total issued shares  (b)   New Company  ·       Consideration  ·       No stamp duty Dilution ·       The Seller owns less shares (if he is only selling part of his shares). ·       Every other shareholder’s ownership remains the same. ·       Existing shareholders’ ownership dilutes proportionately (unless such shareholders have an anti-dilution protection). Understanding the differences between share allotment and share transfer is important for making well-informed decisions that align with your business goals. But this understanding is only the beginning. The next step is known as “structuring your shares” which involves precise calculation to determine exactly how much of your company’s ownership should be transferred or allotted and at what price. This task requires not only legal expertise but also financial expertise. Seeking guidance from accountant and financial valuer can assist to determine the ideal number of shares to be transferred or allotted and appropriate pricing. By collaborating with professionals, you are empowered to make the most informed decision to expand your business. ***** About the author: This article was written by Wong Shen Ming, Corporate Associate – law firm in Kuala Lumpur, Malaysia.   The view expressed in this article is intended to provide a general guide to the subject matter and does not constitute professional legal advice. You are advised to seek proper legal advice for your specific situation.

Understanding Share Allotment and Share Transfer and Selecting the Right Strategy for Business Expansion Read More »

Staff speaking about conditions of agreements in conference room

Understanding the Distinction: Shareholders’ Agreement vs. Company Constitution

Articles /

In the intricate world of corporate governance and legal structures, two fundamental documents play pivotal roles: the Shareholders’ Agreement and the Company Constitution. While they may seem interchangeable to the uninitiated, a closer examination reveals their unique purposes, functions, and implications for businesses. In this comprehensive guide, we will delve into the crucial differences between these two essential documents, shedding light on their individual significance within the corporate landscape. Definition and Purpose Shareholders’ Agreement A Shareholders’ Agreement is a legally binding contract among the shareholders of a company. This agreement outlines the rights, responsibilities, and obligations of the shareholders in relation to the company and each other. It serves as a private internal document that governs the shareholders’ relationship and often covers matters not addressed in the Company Constitution. Company Constitution On the other hand, a Company Constitution, also known as Articles of Association, is a public document required during the incorporation of a company. It outlines the rules and regulations that govern the internal management and operations of the company. The constitution is submitted to the government authorities and is available for public scrutiny. Flexibility and Customization Shareholders’ Agreement One of the key distinctions between a Shareholders’ Agreement and a Company Constitution lies in their flexibility and customization. A Shareholders’ Agreement is highly flexible and can be tailored to the specific needs and preferences of the shareholders. It allows for a wide range of provisions, such as buy-sell agreements, dispute resolution mechanisms, and dividend distribution policies, which may not be included in the Company Constitution. Company Constitution Conversely, a Company Constitution is more rigid and standardized. It typically follows a template prescribed by regulatory authorities and may not be as adaptable to the unique requirements of the shareholders. While it sets the fundamental rules for the company’s internal governance, it may lack the specificity and nuance found in a Shareholders’ Agreement. Confidentiality Shareholders’ Agreement Privacy and confidentiality are paramount in a Shareholders’ Agreement. Since it is a private contract, the details contained within it are not disclosed to the public or competitors. This discretion can be vital for safeguarding sensitive business strategies and financial arrangements. Company Constitution In contrast, a Company Constitution is a public document that anyone can access. This means that the company’s internal rules and regulations, as outlined in the constitution, are open for scrutiny by competitors, stakeholders, and the general public. It may not be conducive to maintaining confidentiality. Amendment Process Shareholders’ Agreement Amending a Shareholders’ Agreement typically requires the unanimous consent of all parties involved. This can be advantageous in ensuring stability and preventing unilateral changes that may negatively affect certain shareholders. Company Constitution A Company Constitution can be amended with a special resolution passed by the shareholders, often requiring a specific majority vote. While it allows for changes to the company’s rules, it may be less stringent than the requirement for unanimous consent in a Shareholders’ Agreement. Enforcement Shareholders’ Agreement Enforcing a Shareholders’ Agreement is generally a more straightforward process since it is a private contract. Disputes and breaches of the agreement can be resolved through arbitration or legal action, as specified in the document. Company Constitution Enforcing the Company Constitution may involve a more complex process, as it is a public document subject to regulatory oversight. Legal actions related to the constitution may require compliance with company law and corporate governance regulations. Termination Shareholders’ Agreement Terminating a Shareholders’ Agreement often requires the agreement of all parties involved or may be governed by specific provisions within the agreement itself. The process for termination is typically outlined in the document. Company Constitution Terminating a Company Constitution can be a more cumbersome process, as it may involve regulatory filings and compliance with company law. The decision to amend or replace the constitution must follow legal procedures. Importance in Startups Shareholders’ Agreement In the startup ecosystem, a well-crafted Shareholders’ Agreement is invaluable. It can address critical issues such as equity distribution, founder roles, and exit strategies, providing a solid foundation for the company’s growth. Company Constitution While a Company Constitution is still necessary for incorporation, its standardization may not cover the specific needs and nuances of a startup. Startups often rely heavily on Shareholders’ Agreements to define their unique governance and operational requirements. Public Listed Companies Shareholders’ Agreement Public listed companies are less likely to have extensive Shareholders’ Agreements, as they have a wide and diverse shareholder base. Most of their governance is governed by securities regulations and the Company Constitution. Company Constitution For public listed companies, the Company Constitution plays a central role in defining the rights and responsibilities of shareholders, as it is a legally required document. However, they may still have additional governance documents and policies in place. Compatibility Shareholders’ Agreement A Shareholders’ Agreement can coexist with a Company Constitution. In cases where the constitution lacks specificity on certain matters, the Shareholders’ Agreement can fill in the gaps, providing additional clarity and enforceability. Company Constitution The Company Constitution is the foundational document for a company and takes precedence over a Shareholders’ Agreement in case of any conflicts or inconsistencies between the two. Conclusion In conclusion, understanding the difference between a Shareholders’ Agreement and a Company Constitution is crucial for businesses at every stage of their journey. While both documents play vital roles in corporate governance, their distinct characteristics make them suitable for different purposes and scenarios. A Shareholders’ Agreement offers flexibility, confidentiality, and customization, making it ideal for addressing specific shareholder concerns and private arrangements. On the other hand, a Company Constitution is a standardized public document that sets the fundamental rules for a company’s internal governance and is required for legal compliance. Ultimately, the choice between these two documents depends on the unique needs and goals of the company and its shareholders. Whether you opt for a Shareholders’ Agreement, a Company Constitution, or both, it is essential to seek legal counsel to ensure that your corporate governance documents align with your business objectives and comply with relevant laws and regulations. In

Understanding the Distinction: Shareholders’ Agreement vs. Company Constitution Read More »

Responsibilities of Executor:

  • Apply for and extract the grant of probate.
  • Make arrangements for the funeral of the deceased.
  • Collect and make an accurate inventory of the deceased’s assets.
  • Settling the debts and obligations of the deceased.
  • Distributing the assets.

Note for Digital Executor:
If you wish to leave your digital assets to certain people in your Will, there are important steps that need to be taken to ensure that your wishes can be carried out:

  • Keep a note of specific instructions on how to access your username and password of your digital asset.
  • You are advised to store these private and confidential information in a USB stick, password management tool or write them down.
  • Please inform your executor or a trusted person of the whereabouts of the tools so that they will have access to your digital asset.