Many business owners incorporate companies in Malaysia without much thought to governance arrangements or rights attached to their shareholding. This is especially relevant where there is no separate Shareholders’ Agreement in place.
This article highlights the key default shareholder rights under the Companies Act 2016 (CA) in private companies, and how they can be supplemented to provide better protection.
Default rights under the Companies Act 2016
Generally, shareholder rights in a private limited company include:
- voting rights (if applicable)
- receiving notice of meetings
- attending and participating in meetings
- receiving dividends (if declared)
- sharing in surplus assets
- transferring shares, and
- inspecting certain company records where permitted
The practical effect of shareholder rights often depends on ownership percentage, as set out below together with respective sections of the CA.
| Shareholding Voting Threshold | Default Rights Attached |
|---|---|
| 5% or more |
|
| 10% or more |
|
| More than 25% |
|
| More than 50% |
|
| 75% or more |
|
| 90% or more |
|
Shareholding percentages may change over time through internal restructuring or fundraising which may reduce a shareholder’s practical influence. A Shareholders’ Agreement (SHA) can help preserve agreed rights and expectations beyond the shareholding itself.
We have also covered related practical issues in our article on shareholder exits, and the risks of not having a Shareholders’ Agreement.
Supplementing default rights
To mitigate the practical risk of being diluted over time and losing control, it is also important to maintain a cap table setting out the company’s evolving equity structure.
With a SHA, the commonly customised provisions include:
- reserved matters
- share transfer restrictions
- dividend policies
- drag and tag-along rights
- exit rights
- deadlock resolution
Let ELP tailor your shareholder rights
Putting a SHA in place can feel unfamiliar, especially where shareholders are unsure what terms should be included or how to begin the process. We assist clients not only with drafting, but also with advising on suitable structures, practical options and key commercial terms. If you would like to review your SHA or put one in place, contact us for an initial consultation.
