Important Note:
The following illustrates a simplified version of a private fundraising process. In practice, the exact steps may vary depending on complexity, and the process requires coordination between multiple parties and authorities, including lawyers, the company secretary, SSM and LHDN for filings and stamping.For Malaysian SMEs and early-stage startups, raising capital from private investors often begins with informal discussions before progressing into a more structured legal process once investors show serious interest.
Understanding the overall process helps founders better prepare for the legal and administrative steps involved in bringing investors into their company.
This article outlines the key stages of a private fundraising exercise in Malaysia.
Stage 1: Initial discussions and commercial negotiation
During this stage, founders may share materials such as pitch decks, financial projections, or business plans to potential investors.
Discussions typically focus on the key commercial aspects of the investment, including the:
- company’s valuation
- amount of capital being raised
- potential equity stake investors may receive, and
- type or class of shares to be issued in return for the investment
Once sufficient investor interest has been garnered, the company will usually prepare an investment term sheet for interested investors to sign.
Stage 2: Preparation and signing of the term sheet
The term sheet is usually non-binding and confirms the parties’ alignment on the principal deal terms before the definitive agreements are prepared.
As the terms agreed at this stage will form the basis of the subsequent legal documentation and shape how the investment is implemented, founders commonly engage corporate lawyers to draft the term sheet.
After the term sheet is signed, investors may carry out due diligence on the company.
Stage 3: Due diligence
This typically involves legal, financial and tax reviews to verify the information provided by the founders and to identify any issues that may affect the investment.
For founders, being prepared for this stage by ensuring that company records and documents are properly maintained can help facilitate the review process and avoid delays as the transaction progresses.
The next step is the preparation of core legal documents for the investment.
Stage 4: Preparation of definitive agreements
Often referred to as the definitive agreements, these typically include:
- Share Subscription Agreement (SSA) to govern the investors’ subscription for shares in the company
- Shareholders’ Agreement (SHA) to regulate the rights and obligations between the shareholders if the investors will receive ordinary shares
- adoption or amendment to the company’s constitution, if the investment terms require changes to the company’s constitutional framework
During this stage, the list of investors may still be finalised while the lawyers prepare the legal documentation based on the agreed commercial terms.
Once the definitive agreements have been finalised and signed by the investors, the transaction will move towards share issuance.
Stage 5: Corporate approvals and regulatory filings
The company’s corporate secretary will prepare the necessary corporate approvals and documentation to implement the investment, which may include preparing board or shareholders’ resolutions relating to:
- issuance of new shares to the investors
- execution of the investment agreements
- adoption or amendment of the company’s constitution
The relevant documents and statutory forms will then be lodged with the Companies Commission of Malaysia (SSM) as part of the regulatory filing process.
Stage 6: Completion and share issuance
Upon completion of the required corporate approvals and filings, the company will proceed to issue the shares to the investors.
Following the share issuance, investors will receive documentation evidencing their investment, which may include:
- updated register of members reflecting their shareholding
- statutory forms evidencing the issuance of shares
- stamped copies of the definitive agreements
At this stage, the private fundraising exercise is considered completed.
Let ELP support your private fundraising
Properly structuring the investment arrangement can help founders manage the overall transaction process more effectively and ensure that investor expectations are aligned from the outset. If you are planning a private fundraising exercise or are already in discussions with potential investors, contact us for a free consultation.
