MALAYSIA Law and Practice Contributed by: Munir Abdul Aziz, Ee Von Teo and Addy Herg, Wong & Partners
The leaver provisions will typically deal with the follow - ing issues and concepts, among others: • Good leaver/bad leaver – good leavers are individ - uals who leave the company on good terms, such as through resignation, retirement, death or disabil - ity. In contrast, bad leavers will be individuals who are terminated for cause. • Vesting – unvested shares are typically forfeited by management shareholders upon their departure from the company, especially if they are bad leav - ers. Vesting schedules might also be accelerated for certain types of good leavers, allowing them to retain more shares to the extent that they have helped the company to hit or surpass the relevant targets set prior to a pre-determined deadline. • Forfeiture – the forfeiture of vested shares is typi - cally done at a discounted price for bad leavers, while good leavers will be entitled to receive the full fair market value of their shares. 8.4 Restrictions on Manager Shareholders Restrictive Covenants Restrictive covenants such as non-compete and non- solicitation of employee provisions are fairly common and are typically imposed on management sharehold - ers. Such provisions are usually featured in sharehold - ers’ agreements and/or employment agreements. However, post-termination non-compete provisions (ie, after the management shareholder has exited the portfolio company via the sale of their shares in the company and resignation from their executive role in the company) are generally not enforceable in Malay - sia. 8.5 Minority Protection for Manager Shareholders Minority protection for manager shareholders involves implementing mechanisms to safeguard their rights and interests. Given that the equity stake typically granted to man - agement shareholders is relatively minimal, the minor - ity protection rights granted are typically relatively limited and will vary depending on the company’s structure, the agreements already in place, the impor - tance of the role of these managers in the company and the amount of equity held by these individuals.
Terms such as the following will be built into the share - holders’ agreement entered into between the parties: • board representation or executive role in the port - folio company; • a short list of reserved matters and veto rights; • anti-dilution protections; • information rights; and • exit rights such as drag-along/tag-along rights. 9. Portfolio Company Oversight 9.1 Shareholder Control and Information Rights The private equity fund shareholder usually has rep - resentation on the board of the company if it wishes to have a say in the management and direction of the company. Representation on the board may also include a presence on the audit and compensation committees. A shareholders’ agreement or the constitution of a tar - get company will entrench the private equity fund’s right to appoint a majority of members to the board for private limited companies. The private equity fund may also create particular cor - porate governance and approval authority workflows to impose restrictions on management undertaking any fundamental matters (such as a major acquisition or disposal) or large projects without board approval. 9.2 Shareholder Liability A key principle of the common law system is that the liability of a shareholder in a limited company is restricted to the value of the shareholder’s investment. As such, the private equity fund will not be held liable for the actions of its portfolio, except under very lim - ited circumstances. The courts’ ability to override that principle and pierce the corporate veil to impose liability on a private equity fund shareholder is limited to where there is an ele- ment of fraud involved.
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