Buying Shares in a Malaysian Company: What Should the Buyer Negotiate in the Share Purchase Agreement?

A buyer should negotiate a share purchase agreement around one central fact: after completion, the buyer owns the company with its history attached.

The SPA therefore has to do more than record the price and transfer the shares. It needs to decide who bears the risk of what happened before completion, what must be true before the buyer is required to close, how the price can change, what happens if the business deteriorates between signing and completion, and what remedies the buyer has if an important assumption proves wrong.

For a buyer, the important negotiation is not “how buyer-friendly can the document be?” It is: which risks are material enough to change price, conditions, recourse or the decision to complete?

If you need the fundamentals of the document itself first, see our guide to share purchase agreements in Malaysia.

Start by confirming exactly what you are buying

Before negotiating warranties or indemnities, confirm the acquisition perimeter.

The SPA should identify:

• the seller or sellers;

• the exact number and class of shares being sold;

• the percentage of the company the buyer will own after completion;

• whether any options, convertible instruments or other rights could dilute that ownership;

• whether the shares are free from security interests or competing rights; and

• whether the buyer is also acquiring shareholder loans or other claims against the company.

A buyer that intends to acquire “100% of the company” but leaves an option, nominee arrangement or shareholder loan unresolved may not receive the economic position it thought it negotiated.

If you are still deciding whether a share acquisition is the right structure, read our comparison of asset purchase vs share purchase in Malaysia.

Negotiate the purchase price mechanism, not just the headline number

The price in the term sheet is only the starting point.

The SPA has to say whether the consideration is fixed or adjusts for items such as cash, debt, working capital, leakage, completion accounts or other agreed financial measures.

The buyer should ask:

• What balance-sheet position is the agreed price based on?

• Who prepares any completion accounts?

• What accounting policies apply?

• What happens if the parties disagree?

• Are shareholder loans repaid, assigned or left in place?

• Are transaction bonuses, seller costs or unusual pre-completion payments treated as leakage?

A poorly defined adjustment mechanism can turn a negotiated purchase price into a second negotiation after completion.

Conditions precedent should reflect the risks that actually matter

A condition precedent should protect the buyer from being forced to complete before a critical requirement is satisfied.

Typical examples can include regulatory approval, third-party consent, financing, internal corporate approval, restructuring steps, release of security or resolution of a specific due-diligence issue.

Not every outstanding item should become a condition precedent. Some are better dealt with by a covenant, price adjustment or indemnity.

The buyer should focus conditions on matters that genuinely affect whether the transaction should close at all or whether the buyer can lawfully and commercially take control.

Control the period between signing and completion

Where signing and completion do not happen on the same day, the buyer is exposed to what the seller and target do in the interim.

The SPA should consider restrictions on material actions outside the ordinary course, such as:

• new borrowing or security;

• material capital expenditure;

• disposals of important assets;

• new long-term contracts or termination of key contracts;

• dividends or other value extraction;

• changes to senior management remuneration;

• settlement of significant disputes; and

• changes to share capital.

The point is not to let the buyer run the company before completion. It is to prevent the economic subject of the acquisition from being materially changed while the buyer is already committed to the deal.

Use warranties to allocate unknown factual risk

Warranties are statements about the company and business that give the buyer contractual recourse if they are inaccurate, subject to the agreed disclosure and liability regime.

They commonly address corporate records, accounts, tax, material contracts, employment, litigation, intellectual property, regulatory compliance, assets and other transaction-specific matters.

The buyer should not simply ask for the longest possible warranty schedule.

The better question is whether the warranties cover the issues that matter to this target and whether the seller’s disclosure process allows the buyer to understand the exceptions before signing.

For the warranty framework itself, see our guide to warranties in a share purchase agreement.

Use specific indemnities for known risks

A known due-diligence problem should not always be left inside a general warranty.

If the buyer already knows about a tax exposure, regulatory breach, litigation matter, unpaid employment entitlement or specific contractual claim, the SPA may need a tailored indemnity or another direct economic solution.

The distinction matters because a known issue is no longer merely a risk that a warranty might later prove false. It is an identified exposure that the parties can price and allocate now.

Our guide to due diligence in M&A and business transactions explains the wider investigation process.

Do not let disclosure neutralise protections you thought you had

The seller will usually qualify warranties through a disclosure letter or disclosure process.

The buyer should negotiate what counts as effective disclosure.

Key questions include whether disclosure must be specific enough to identify the nature and scope of the exception, whether disclosure against one warranty counts against all warranties, and what data-room information is deemed disclosed.

A disclosure regime that treats every uploaded document as full disclosure of every issue can materially reduce the practical value of the warranties.

Retention, escrow and deferred consideration can bridge risk

Sometimes the buyer and seller agree that a risk exists but disagree on its value.

Part of the purchase price can potentially be retained, placed in escrow or deferred so there is a pool of money available if an agreed issue crystallises.

The buyer should negotiate:

• how much is retained;

• who holds it;

• which claims can be paid from it;

• how claims are notified;

• when undisputed amounts are released; and

• whether the arrangement is the buyer’s exclusive remedy or sits alongside other rights.

Security for recourse is often as important as the wording of the recourse itself.

Completion deliverables should give the buyer actual control

Completion is not complete merely because money has been transferred.

The buyer should identify every document and action required to put it in the agreed legal and practical position, including where relevant:

• executed share-transfer instruments;

• share certificates or agreed evidence concerning them;

• board and shareholder resolutions;

• updates to statutory registers;

• director and secretary changes;

• bank mandates and signing authorities;

• releases of shareholder security or guarantees;

• delivery of books, records, passwords and corporate information; and

• documents implementing any shareholder-loan treatment.

SSM’s current Companies Act materials continue to recognise the formal share-transfer instrument framework under section 105. The SPA should align the commercial completion list with the corporate steps required to put the transfer into effect.

Consider restrictive covenants and transition support

Where the seller is closely associated with the goodwill, customers, staff or know-how of the business, the buyer may need post-completion protections or transition obligations.

These can include carefully drafted non-solicitation, confidentiality, handover, customer-introduction or transition-support obligations where legally and commercially appropriate.

The scope should be proportionate to the transaction and reviewed against Malaysian law. Boilerplate restrictions copied from another jurisdiction may not achieve the intended result.

Negotiate buyer exit rights before you need them

The SPA should say when the buyer can terminate before completion.

Potential triggers can include failure of conditions precedent, material seller breach, defined deterioration in the target, illegality or regulatory refusal, depending on the deal.

The buyer should also know what happens on termination: whether the deposit is refunded, which clauses survive, whether confidentiality continues and whether any break cost applies.

A walk-away right that is unclear or commercially impossible to exercise is not much protection.

Do not use warranties as a substitute for due diligence

Warranties provide contractual rights after a problem is discovered. Due diligence helps the buyer decide whether to buy, how much to pay and what protections to require before completion.

The buyer needs both processes to work together.

If due diligence identifies a problem, the SPA should change. That may mean a lower price, a condition precedent, a specific indemnity, escrow, a covenant or the decision not to proceed.

Buyer-side SPA checklist

• Acquisition perimeter and ownership percentage confirmed

• Purchase price mechanism fully defined

• Debt, cash and shareholder loans addressed

• Conditions precedent limited to genuinely critical matters

• Interim conduct restrictions agreed

• Warranties tailored to the target

• Disclosure standard defined

• Known risks converted into specific protections

• Retention/escrow/deferred consideration considered where useful

• Completion deliverables listed precisely

• Seller guarantees, security and releases addressed

• Transition or restrictive covenants considered where appropriate

• Termination and deposit consequences clear

• Post-completion filings and integration steps allocated

Frequently asked questions

Should the buyer draft the first SPA?

It depends on bargaining position and transaction process. The more important point is that the buyer’s key commercial positions are identified before it reacts clause-by-clause to someone else’s draft.

Are warranties enough if due diligence is incomplete?

No. Warranties provide contractual recourse; they do not tell the buyer whether the target is worth buying on the proposed terms.

Should every known problem have an indemnity?

No. Some issues are better solved by a price adjustment, condition precedent, covenant, retention or walking away. The remedy should match the risk.

What happens after the SPA is signed?

If signing and completion are separated, the parties satisfy conditions, observe interim covenants and prepare completion deliverables. For the wider process, see our guide to completion and post-completion integration in Malaysian M&A.

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.

Legal That Works advises buyers on structuring, reviewing and negotiating Malaysian share acquisitions through our Share Sale and Purchase Agreement service.