To govern the relationship between the vendor and the purchaser of shares in a private limited company, a share sale agreement (“SSA”) (or, sale and purchase agreement) will typically be entered into between the vendor (who is the registered shareholder in the Register of Company who intends to dispose his/her shares) and the purchaser (who will then become the new shareholder of the company). As a prudent purchaser of shares, you may want to enter into a well-scrutinised SSA before the share sale transaction is completed, as the SSA serves as an agreement between the vendor and purchaser of shares and sets out the parties’ obligations and intentions as to the nature of their relationship.

Here are some of the key terms or clauses to look out for in an SSA from a purchaser’s point of view:

  1. Parties.

Prior to the share sale transaction, it is important to carry out proper due diligence such as Companies Commission Malaysia (“CCM”) searches or credit reporting agency searches such as CTOS searches on the vendor and the target company to find out and to get confirmation on whether the potential vendor is the registered holder and beneficial owner of the percentage of the number of shares to be transferred. (As a purchaser, you wouldn’t want to be associated with someone who doesn’t have the actual power or capacity to transfer the agreed number of shares to you!). Generally, parties to an SSA can be either a natural person or a body corporate, i.e. a company incorporated under the Companies Act 2016 (“CA 2016”).

  1. Recitals.

The recitals of an SSA will typically set out the background facts of the transaction, provide context as to the of the sale and purchase of the shares and set out the intention of the parties in such transaction (e.g. intention of vendor to sell certain number of shares to the purchaser at an agreed purchase consideration).

  1. Conditions precedent.

Conditions precedents are the conditions or actions required to be fulfilled or to be done, generally by the vendor prior to the share sale transaction, by a particular date as specified in the SSA. Common example of conditions precedent in an SSA would include the approval of the shareholders of the target company of the sale of the shares at an extraordinary general meeting (“EGM”) or to obtain consent from the authorities (if any is required, e.g. written consent from financial institutions for change of shareholding structure in the target company subsequent to the transaction).

  1. Completion of the sale.

This clause will set out the date in which the transfer of shares will take place and the manner of transfer of the shares. Section 105(1) of CA 2016 provides that any shareholder (vendor) who intends to transfer his shares to another person (purchaser) shall sign a proper instrument of transfer (“Share Transfer Form”). The vendor or purchaser may then lodge the duly signed and stamped transfer form with the company. Generally, the completion clause shall require the vendor to deliver to the purchaser (or the purchaser’s solicitors) the duly executed Share Transfer Form and the original share certificates of the shares (if any). Pursuant to the new CA 2016, there is no need for the issuance of a share certificate to a transferee of shares by the company, unless such issuance is required under the company’s constitution, or unless the transferee applies for one (See section 97(1) of the CA 2016).

  1. Purchase consideration.

It is important to set out the amount of purchase consideration, and the manner of its payment. Other than cash payment, in certain circumstances, the purchase consideration will be paid by way of issuance or allotment of shares of the purchaser’s company. Of course, this depends on what was agreed upon between the vendor and the purchaser during the negotiation stage.

  1. Restrictions.

It is crucial to look out for any clause with restriction attached to the shares. This will determine the rights attached to the shares to be purchased by a purchaser. An example of such restriction would be right of pre-emption, i.e. a member/shareholder who wishes to dispose his/her shares must first offer them to the existing members.

This article was written by Tan Tong Fang ([email protected]), Associate in the Corporate Department of Chong + Kheng Hoe.


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