Use the Lexology Navigator tool to compare the answers in this article with those from other jurisdictions.


Preliminary agreements What preliminary agreements are commonly drafted? Exclusivity agreements Exclusivity agreements prohibit undertakings from the seller or buyer from negotiating with a third party in order to sell or deal with the subject matter of the sale for a prescribed period. Remedies may be limited to damages only for breach of the agreement. An exclusivity agreement or arrangement can be part of a letter of intent or term sheet.

Letters of intent  A letter of intent or term sheet is usually entered into before the signing of any formal contract. Letters of intent or term sheets are often described as not legally binding. They typically set out:

  • the parties’ understanding, principal terms of the transaction and other provisions to allow the buyer to carry out due diligence and investigate the target’s assets and liabilities; and
  • the relevant timeframe for completion and signing of the formal contract.

Non-disclosure agreements  Under a non-disclosure agreement, a party agrees not to disclose any information received from the other party to an unauthorised third party. These agreements are typically entered into in order to protect the prospective seller from unauthorised use of information made available to the prospective buyer during the transaction. However, it may be necessary for the prospective seller or buyer to make disclosures and announcements to certain authorities, pursuant to requirements under the applicable securities law or the Bursa Malaysia Listing Requirements. Injunctive relief is usually sought for a breach of a non-disclosure agreement.

Principal documentation What documents are required? The main documents for a share sale include:

  • the share sale agreement;
  • tax indemnity; and
  • a disclosure letter qualifying warranties (typically prepared by the seller).

The main documents for an asset sale include:

  • the asset sale agreement;
  • disclosure letter qualifying warranties (typically prepared by the seller);
  • relevant deeds/agreements for the transfer of the identified contracts; and
  • notices and letters in relation to the employment of employees. 

Which side normally prepares the first drafts? The solicitors or the buyer or seller may prepare the first draft. 

What are the substantive clauses that comprise an acquisition agreement? The substantive clauses in an acquisition agreement include:

  • subject to any price adjustment, payment of the purchase consideration on completion. A price adjustment mechanism for a share acquisition usually involves preparation of completion accounts. A price adjustment for an asset acquisition may require verification of stock or fixed assets on completion, where the value of lost or damaged stock or assets will be taken into account for adjustment purposes;
  • a requirement that the purchase of shares or assets be free from all encumbrances and with all rights attached to them;
  • fulfilment of conditions precedent before completion, including satisfactory due diligence results and procurement of all necessary approvals and consents;
  • covenants by the seller not to encumber, transfer or dispose of the shares or assets. Other common covenants include not to:
    • vary contracts (including terms of employment);
    • depart from the ordinary course of business;
    • borrow money;
    • incur capital expenditure exceeding a certain threshold; or
    • issue or grant any option in respect of shares (some of the covenants that apply to share acquisitions may not apply to asset acquisitions);
  • for share sales, a requirement for indemnity by the seller to the buyer for undisclosed tax liabilities of the company, arising from any acts or omission occurring before completion of the share acquisition. This does not usually apply to asset sales;
  • a non-competition agreement by the seller for a period of time after completion. Non-competition agreements may be void or unenforceable under Section 28 of the Contracts Act, which provides that agreements which restrain someone from exercising a lawful profession, trade or business are to that extent void. However, an agreement not to carry on business under which goodwill is sold is exempted under this section;
  • retention of part of the consideration for an agreed period which may be used to set off claims arising from a breach of the seller’s warranties, indemnities or undertakings; and
  • the governing law of the contract.

Further, the completion of share acquisitions typically involve:

  • appointment of the buyer's nominees as directors;
  • resignation of existing directors;
  • delivery of share certificates; and
  • transfer and delivery of statutory records.

Warranties are generally more extensive in a share sale. The warranties in an asset sale are generally specific to the assets being acquired.

Completion of asset acquisitions typically involve:

  • delivery of assets, together with all title certificates and documents;
  • assignment of contracts and IP rights; and
  • offers of employment to employees, on terms no less favourable than those previously granted by the company.

Finally, if the assets include real property, the transfer must be stamped and presented at the relevant land office or registry. 

What provisions are made for deal protection? The provisions made for deal protection include:

  • exclusivity to ensure that the target does not solicit or accept competing bids; and
  • break-up fees. 

Closing documentation What documents are normally executed at signing and closing? Signing Documents commonly produced and executed at signing include a share/asset sale agreement and a disclosure letter qualifying warranties (typically prepared by the seller).

Closing Share purchase

Documents commonly produced and executed at closing for a share purchase include:

  • a board of director resolution approving the share transfer;
  • original share certificates;
  • instrument of share transfer;
  • duly signed letters of resignation from the existing directors;
  • duly signed letters of resignation from the company secretary;
  • a board of director resolution appointing the buyer's nominee(s) to the board;
  • a board of director resolution approving the change of bank signatories; and
  • tax indemnity (if this is not already provided in the share sale agreement).

Asset purchase Documents commonly produced and executed at closing for an asset purchase include:

  • assignment of contracts;
  • assignment of IP rights;
  • instruments of transfer for the assets (if relevant);
  • title documents to the assets (if any);
  • records of the company;
  • the originals of the identified contracts; and
  • notices and letters in relation to employment of employees.

Are there formalities for the execution of documents by foreign companies? Typically, a foreign company can execute documents in accordance with the formalities laid down by its articles of association or constitution, unless otherwise required by the relevant statutes, regulations or guidelines in Malaysia. Certain statutes typically require the execution of documents by a foreign company or its authorised representatives to be attested or authenticated by certain designated persons (eg, a commissioner for oaths or notary public).

Are digital signatures binding and enforceable? Digital signatures created in accordance with the Digital Signature Act 1997 are deemed to be legally binding. A document signed with a digital signature in accordance with the Digital Signature Act 1997 is as legally binding as a document signed with a thumbprint, handwritten signature or any other mark.

Legislation that requires a signature or provides for certain consequences in the absence of a signature can be satisfied by a digital signature if the following are met:

  • The digital signature is verified by reference to the public key listed in a valid certificate issued by a licensed certification authority.
  • The digital signature is affixed by the signatory with the intention of signing the message.
  • The recipient has no knowledge or notice that the signatory either does not rightfully hold the private key used to affix the digital signature or has breached a duty as a subscriber.

The Electronic Commerce Act 2006 recognises “any letter, character, number, sound or symbol or any combination thereof created in electronic form adopted by a person as a signature” as an electronic signature. A document in the form of an electronic message can be executed by way of an electronic signature which is:

  • attached to or is logically associated with the electronic message;
  • adequately identifies the person and adequately indicates the person's approval of the information to which the signature relates; and
  • appropriately reliable as given the purpose for which, and the circumstances in which, the signature is required. 

An electronic signature is reliable if:

  • the means of creating the electronic signature is linked to and under the control of that person only;
  • any alteration made to the electronic signature after the time of signing is detectable; and
  • any alteration made to that document after the time of signing is detectable.

Click here to view the full article.