Call Option and Put Option Agreements in Malaysia: Locking a Future Exit or Buy-In Before Signing

A call option gives one party the right to buy shares from another at a price that is either fixed or capable of being fixed; a put option gives the other party the right to sell. Both are ordinary contracts under Malaysian law, and both fail for the same reason more often than any other: the price clause was left as "to be agreed later," which the Contracts Act 1950 treats as no agreement at all. This article covers when Malaysian businesses actually use put and call options, what makes the price and exercise mechanics enforceable, what has to happen once someone exercises, and what a court will do if the other side refuses to complete.

Most shareholders' agreements and joint venture agreements get negotiated while everyone is getting along, so the exit mechanics get a clause and a signature instead of real attention. The option clause only gets read closely once someone actually wants to invoke it — usually mid-deadlock, mid-departure, or mid-dispute, which is the worst possible time to discover it does not work.

What a call option and a put option actually do

A call option is a right held by the buyer: the option holder can force the other party to sell at the agreed terms, on notice, within the option period. A put option is the mirror image — a right held by the seller: the option holder can force the other party to buy. The same shareholders' agreement often carries both, held by different parties, so that either side can trigger a buy-out once a defined event occurs.

When Malaysian businesses actually use these

Joint venture and shareholder deadlock. A put/call pair is one of the standard deadlock-breaking mechanisms alongside Russian roulette and Texas shootout clauses — see our guide to resolving a joint venture deadlock for how the three compare. Deadlock exits move faster than the statutory route: an oppression petition under section 346 of the Companies Act 2016, or a winding-up petition under section 465(1)(h), both mean months in court before anyone gets paid.

Staged buy-in and buy-out. An investor takes a minority stake now with a call option to increase it later at a pre-agreed formula, avoiding a fresh valuation negotiation at a point when the company may be harder to value objectively.

Performance and compliance triggers. A call option that activates if a founder breaches a restrictive covenant or a material term gives the company or the other shareholders a clean route to remove that shareholder's economic interest without a separate oppression claim.

Consortium and project structures. Put/call rights are common where a project partner's continued involvement depends on a milestone — the option gives an exit that does not require unwinding the whole vehicle.

What makes a call or put option enforceable under Malaysian law

Two things sink more option clauses than anything else.

Consideration. Under section 26 of the Contracts Act 1950, an agreement made without consideration is void, subject to three narrow exceptions (an agreement made in writing and registered on account of natural love and affection between close relations; a promise to compensate someone for something already voluntarily done; and a written promise to pay a time-barred debt). An option sitting inside a shareholders' agreement usually has consideration built in through the mutual promises of the wider agreement, but a standalone option deed should recite its own consideration expressly, even if nominal, rather than relying on the main agreement by implication.

Certainty of price. Section 30 of the Contracts Act 1950 provides that "agreements, the meaning of which is not certain, or capable of being made certain, are void." A clause that leaves the exercise price to be "agreed between the parties at the time" is exactly the kind of term this section catches — if the parties cannot agree later, there is nothing for a court to enforce, because the court cannot write the price for them. An enforceable option needs one of three structures: a fixed price stated in the document; a formula the price can be calculated from without further negotiation, such as a multiple of audited EBITDA or net tangible assets at completion; or a mechanism for an independent third party, typically an accountant or valuer appointed by a named professional body if the parties cannot agree on one, to determine the price. All three make the price "capable of being made certain" without needing the parties to agree again once the relationship has already broken down.

Structuring the trigger events and the pricing mechanism so the clause survives a genuine falling-out, not just a friendly exit, is the core of what our Call Option and Put Option Agreement work does.

What has to happen once someone exercises the option

Exercise itself is usually a short, formal step: written notice, served within the option period stated in the agreement, that is unconditional and irrevocable once given. Completion is where the statutory clock starts running.

• Register of members. Once the transfer is executed, the company must enter the transferee in the register of members within 30 days of receiving the transfer instrument, under section 106(1) of the Companies Act 2016.

• Notifying the Registrar. The company must notify the Registrar of Companies (SSM) of the change in shareholding within 14 days of the change taking effect, under section 51(1) of the Companies Act 2016.

• Stamp duty. The instrument of transfer attracts ad valorem stamp duty under Item 32(b) of the First Schedule to the Stamp Act 1949, generally 0.3% (RM3 per RM1,000) of whichever is higher: the consideration paid, or the shares' value on a net-tangible-asset or price-earnings basis, following LHDN's usual valuation practice. The option agreement itself, as a contract rather than an instrument of transfer, typically attracts only nominal duty as a general agreement — LHDN has not published specific guidance on this point for an unexercised option, so it is worth confirming with LHDN or through stamping adjudication before relying on it for a large transaction.

What if the other side simply refuses to complete

A shareholder who is called on to sell, or who tries to put shares to a buyer who will not pay, is not limited to a damages claim. Under section 11(1)(c) of the Specific Relief Act 1950, a court can order specific performance where monetary compensation would not be adequate relief, and the Act's own illustrations use exactly this situation: shares that are limited in number and not always available on the open market. Private company shares usually fit that description, which is why specific performance is realistically available in a way it is not for a contract to sell an off-the-shelf commodity. The better drafting answer is still to make court unnecessary: a well-built option gives the company or the other shareholders a power of attorney, or a deemed-execution mechanism, to complete the transfer on the defaulting party's behalf if they do not sign within a set number of days of exercise.

A badly priced or badly triggered option does not remove risk — it adds a second dispute on top of the first, usually at the exact moment the relationship can least absorb it. The parties end up litigating what the option meant instead of using it to do the one thing it was built for: get one side out cleanly.

Frequently Asked Questions

Is a put and call option enforceable in Malaysia if the exercise price is not fixed yet?

Yes, as long as the price is capable of being made certain without further negotiation, through a stated formula or an independent valuer mechanism. A clause that leaves the price to be agreed later, with no fallback, risks being void for uncertainty under section 30 of the Contracts Act 1950.

Does the option need its own agreement, or can it sit inside the shareholders' agreement?

Either works. Most Malaysian SHAs and JVAs build the option into the main agreement. A standalone option deed is more common where the option is granted separately from the main investment, for example an option granted to a new investor after the SHA is already signed, and should recite its own consideration.

How long can an option stay open before it lapses?

There is no statutory limit — it is whatever the parties agree. Most commercial options carry a defined exercise window and a longstop date, because an option with no expiry leaves a cloud over the company's shareholding indefinitely and can complicate a future fundraising or sale.

Does stamp duty apply even if the option is never exercised?

The option agreement itself, as a contract, generally attracts only nominal duty. The ad valorem duty under Item 32(b) of the Stamp Act 1949 applies to the actual instrument of transfer, which only comes into existence if and when the option is exercised.

Can a call option be used to force a shareholder out, not just to let an investor buy in?

Yes — a call option triggered by a defined event, such as breach of a restrictive covenant, a material default, or a deadlock mechanism, is a common way to remove a shareholder's economic interest without pursuing an oppression claim under section 346 of the Companies Act 2016. It only works if the trigger and the price mechanism were drafted before anyone needed them.

Getting the trigger and the pricing mechanism right before you need them

A put or call option is only as good as the day someone actually tries to use it — that is the day a vague price clause or an undefined trigger gets tested. Legal That Works advises Malaysian businesses on Call Option and Put Option Agreements, from structuring the trigger and pricing mechanism through to the completion and stamping steps. If you are negotiating a shareholders' agreement, joint venture, or investment round now, get the option clause reviewed before it is signed, not after someone tries to invoke it.

This article is for general information only and does not constitute legal advice. Every transaction and every set of facts is different. Obtain specific advice from a qualified adviser before acting on any part of it.

Related guides

• Joint Venture Deadlock: How to Exit When Your Partner Won't Move

• Shareholders Agreements in Malaysia: Essentials for Business Owners and CEOs

• How to Amend and Update Your Shareholders Agreement in Malaysia

• Share Transfer Stamp Duty For Private Company