Because family businesses often operate on informal arrangements and personal relationships, disputes can quickly become difficult to resolve.
A Shareholders’ Agreement (SHA), if put in place, serves as an impartial reference point to guide decision-making, preventing emotions from driving business decisions.
What if there’s no agreement?
Without a SHA, a company relies on default rules under the Companies Act 2016 which deals with governance and procedural matters such as meetings, resolutions, and directors’ powers.
It does not address commercial realities typically faced by family businesses, nor does it cater to specific family dynamics.
A SHA fills these gaps by dealing with issues that the law does not.
Key inclusions
Below are common areas in a Shareholders’ Agreement that are relevant to a family-owned business.
| Key Area | Why It Matters |
| Control and decision-making | Clarifies who has authority over key matters and how decisions are made when family members disagree |
| Share transfers | Sets out restrictions on share transfers, including transfers to existing shareholders or third parties |
| Roles and responsibilities | Sets boundaries on which family members have different levels of involvement, rights and powers in the business |
| Profit distribution | Clarifies how profits are dealt with, including dividend policies and reinvestment decisions |
| Company buy-out | A drag-along right enables majority shareholders to compel the minority shareholders to exit together in a full company sale |
| Conflict resolution | Sets out mechanisms to deal with disputes when informal family discussions no longer work |
| Succession planning | Restrictions and buy-out or transfer mechanisms to preserve effective control and continuity if a shareholder dies or becomes incapacitated Note: Particularly important where the first generation intends to pass down ownership / control to their second generation. It is also highly recommended to ensure that any will or trust arrangement does not conflict with the SHA. |
When to put a SHA in place
There is no perfect time, but common situations include:
- when family relationships are still amicable
- the business starts to scale
- before new investors come into the picture
- when planning for future transitions, or
- the family wants to preserve founding control
Ideally, it should be set in place to prevent problems rather than in response to one
Final thoughts
As around 85% of SMEs to listed companies in Malaysia are mainly controlled by family members and quite likely to be passed down to the next generation, a tailored Shareholders’ Agreement helps family businesses put a clearer governance structure in place.
If your family business is growing or if shareholder arrangements have never been formally reviewed, we’d love to help assess if your current setup still works for the business today – get in touch!
