When our clients—especially startups—look to raise funds by selling shares, their main concern is the risk of new shareholders in the company.
What if a new shareholder doesn’t align with the company’s vision or worse yet, disrupts operations or decision-making?
In these situations, we recommend a Share Subscription Agreement (SSA), a contract that clearly outlines key terms under which a type of share known as a ‘subscription share’ is offered to the new shareholder, including:
- subscription price
- timeline for issuance
- if the investor will participate in decision making, and
- any other prerequisites you see fit
With these terms defined, the SSA protects the company’s interests as it brings in outside capital, allowing them to raise funds confidently.
If this describes your situation, read on for an overview of Share Subscription Agreements under Malaysian law, beginning with an understanding of subscription shares.
What are subscription shares?
Subscription shares are new shares issued specifically to be offered under a Share Subscription Agreement in the form of ordinary or preference shares, each with benefits that attract different types of investors.
Ordinary shares
Ordinary shares are the standard shares that give equity ownership and grant its holders:
- voting rights at general meetings
- rights to dividends (if declared)
- a residual claim on assets in the event of a wind up
Ordinary shares generally come with voting rights, giving shareholders a say in key company decisions. Whether this is beneficial depends on the investor’s goals — some may value influence and control, while others may prioritise fixed returns over governance.
They carry higher risk but offer more potential for long-term capital gains and full participation in company decision making.
Preference shares
Preference shares give holders preferential treatment over ordinary shareholders, namely:
- fixed and preferential dividend entitlement
- priority in the repayment of capital upon liquidation
However, they give holders very limited to no voting rights, which is neither good nor bad, and simply depends on the intentions of the investor.
For example, preference shares are the go-to for investment rounds involving venture capital or institutional investors who prioritise return on investment and risk management.
Key terms to include in an SSA
While our priority is always our clients, a well-drafted SSA inevitably protects investors by setting clear expectations on both sides.
To do that, we make sure these key terms are included.
Conditions precedent
These are conditions that must be fulfilled before the subscription can proceed. These can include:
- Due diligence clearance – Investor is satisfied with the outcome of its legal, financial, and commercial due diligence.
- Shareholder waivers – Existing shareholders waive pre-emption, anti-dilution, and other rights that may hinder the share issuance.
- Board and shareholder approvals – Company obtains necessary resolutions to approve the share issuance and related agreements.
- Regulatory approvals – All required governmental or regulatory consents are obtained.
- Proof of authorisation – Investor provides proof of internal authority to enter into the transaction (e.g. board resolution).
Subscription details
The number of shares to be issued, class of shares (ordinary or preference), and price per share.
Purchase price and payment terms
These clauses state how much the investor is paying, and when the payment is due. In some cases, payments are made in stages (also called ‘tranches’) depending on milestones.
Warranties and representations
Specific statements by the company about its legal standing, finances, and operations.
Indemnity
The right for an investor to be compensated for any loss due to breach of warranty or misrepresentation.
Restrictive covenants
Non-compete or non-solicitation clauses to prevent key shareholders from starting competing businesses.
Termination clause
The circumstances under which the agreement can be terminated before completion.
Governing law and dispute resolution
Specifies which country’s laws apply to the agreement. It may also specify arbitration or court as the method for resolving disputes.
Key benefits of an SSA
Considering how volatile fundraising can be for any company, having an SSA is incredibly beneficial for the following reasons:
Legal certainty
With the terms of the share allotment firmly recorded in black and white, risk of future disputes around share pricing, payment, and conditions for completion is significantly reduced.
Clear processes
With a timeline clearly outlined, you can ensure that all legal, regulatory, and commercial requirements are fulfilled before moving forward.
Statutory compliance
An SSA helps ensure compliance with Sections 75 and 76 of the Companies Act 2016 which require board and shareholder approval for share allotments. Without it, there’s a higher risk the share allotment skips necessary approvals or records.
Risk Management
Termination rights, dispute resolution clauses, and confidentiality obligations give your company a safety net against disputes or other complications.
Attracting investors
All those warranties, indemnities, and representations demonstrates your company’s transparency and reliability and makes you look significantly more investable.
The Companies Act 2016 does not make an SSA mandatory, but we sure wish it did!
Common use cases for SSAs
Most of the SSAs we’ve drafted have been for startups, but there have been many cases where established companies encountered situations in which an SSA was the right tool for the job.
Startup fundraising
Many of our startup clients turn to SSAs when raising capital from angel investors or VCs and need a clear way to issue new shares without affecting the existing cap table too much.
Strategic partnerships
We’ve helped clients receiving investments from larger companies or key players in their industry. These clients needed an SSA to set out special rights like board representation or veto powers tied to the investment.
Internal capital raising
Family-run businesses often prefer to raise funds internally and while this can a good thing, it carries risk of personal conflicts bleeding into business. For them, an SSA provides the structure to ensure everything stays professional.
Employee share schemes
When companies want to reward (and retain) key team members like co-founders or high-performing employees with equity, an SSA helps with share allocations tied to vesting schedules, KPIs, and long-term retention plans.
Mergers and acquisitions
Several of our clients have been involved in M&As where new shares were issued to merging entities or sellers. In these situations, an SSA helped clarify how much equity was being offered, and under what terms,
Restructuring or capital injection
When new investors, creditors, or even existing shareholders injected fresh capital to keep a struggling company afloat, SSAs can be used to document these investments clearly.
Share Subscription vs Shareholders’ Agreement
Here is a simple comparison between a Share Subscription Agreement (SSA) and Shareholders’ Agreement (SHA).
| Aspect | SSA | SHA |
| Purpose | For new investors to subscribe for newly issued shares | Governs relationship between shareholders |
| Nature | One-off | Ongoing |
| Focus | Issuing shares and receiving funds | Shareholder rights, duties, and governance |
| Timing | Signed before or during fundraising | Signed after subscription or together with SSA |
| Binding Effect | Becomes binding once signed | Binding on new shareholders after completion |
| Day-to-Day Matters | No | Yes |
Share Subscription vs Purchase Agreement
Here is a simple comparison between a Share Subscription Agreement (SSA) and Share Purchase Agreement (SPA).
| Aspect | SSA | SPA |
| Shares | Newly issued by the company | Transferred from existing shareholders |
| Funds | Go to the company | Go to the selling shareholder(s) |
| Share Capital | Increases the company’s share capital | No change to share capital; only change in ownership |
| Usage | Typically used in fundraising rounds | Typically used in mergers, acquisitions, or secondary sales |
| Approval | Board and shareholder approval under the Companies Act 2016 is required | Shareholder approval may be required depending on company constitution |
Conclusion
A Share Subscription Agreement is a strategic document that protects both the company and the investor.
Whether you are forming a business partnership, raising capital, or issuing preference shares, an SSA helps ensure the process is legally sound and clearly understood by all parties.
FAQs on Share Subscription Agreements in Malaysia
1. How much is the stamp duty on a Share Subscription Agreement?
RM10.00.
2. What is the difference between a Shareholder Agreement and a Share Subscription Agreement?
A Share Subscription Agreement relates to subscribing new shares. A Shareholder Agreement governs rights and obligations among shareholders after the shares are issued.
3. What is the difference between ordinary shares and preference shares?
Ordinary shares give voting rights and dividends if declared. Preference shares usually offer fixed and preferential dividends and priority on liquidation but limited or no voting rights.
4. Is there a difference between a Share Subscription Agreement and a Preference Share Agreement?
Yes. A Share Subscription Agreement sets out terms for any new share issuance, including ordinary or preference shares. A Preference Share Agreement focuses specifically on the terms unique to preference shares, such as dividend rights, conversion, and redemption. However, if preference shares are being issued, the SSA usually covers both the subscription and preference-specific terms, making a separate agreement unnecessary.
Venice Goh is a Pupil-in-Chambers at Edwin Lee & Partners. She was called to the Bar of England and Wales by the Honourable Society of Middle Temple in 2022. Venice holds a Bachelor of Laws (LLB) with First Class Honours from the University of Liverpool, where she was recognised for outstanding academic excellence. She later pursued the Bar Training Professional Course at City, University of London, specialising in Corporate Law and Practice, followed by the Legal Practice Course at BPP University, where she graduated with Distinction under a merit-based scholarship.
