Private Acquisition in Malaysia- Share Sale vs Business Sale

Private Acquisition in Malaysia: Share Sale vs Business Sale | Agreement

In Malaysia, the two most common ways of acquisitions of privately owned companies, businesses or assets are by way of (i) acquisition of shares in a company (“Share Sale”); or (ii) acquisition business or assets from a company (“Business Sale”).

A private acquisition in Malaysia may take three to six months to complete depending on factors such as the size of the target company, complexity of the transaction and time taken for the fulfilment of conditions precedent (if any). Usually, the process for a private acquisition involves the followings:-

1. Preparation and execution of preliminary agreements, ie, a memorandum of understanding, outlining the parties’ understanding and principal terms of the transaction.
2. Conduct of due diligence exercise by the buyer over the target company.
3. Drafting, negotiating and execution of definitive transaction documents.
4. Satisfaction of conditions precedent and completion of the acquisition.

Share Sale

If you are thinking of acquiring a business, this is the most popular way of private acquisition in Malaysia. It basically involves the sale of the shares of a company whereby an existing shareholder, the owner (“Seller”) of the company is selling his shares to another party/ buyer (“Buyer”). Upon completion of the transaction, the Buyer will become the new owner of the company.

1. Advantages

   The main advantages of a Share Sale are:-

   1. It will save more time and costs because there is no transfer of ownership is required for assets (such as land or buildings) in a Share Sale transaction. You do not need to spend extra monies on stamp duty or approval fees to be paid to the relevant authority.
   2. The business of the company (its employees, assets and liabilities) will remain with the company even though there is a change of ownership at the shareholder level. The Buyer can continue the business with no or very little disruption.
   3. The Buyer acquires the company together with its existing contracts, permits and licences, which are essential for the business to operate.
      The Seller and the Buyer shall check if any contractual restrictions or procedures needed to be observed under a Shareholders Agreement or the company’s Constitution before disposing its shares to the Buyer (such as pre-emption rights or right of first refusal).

2. Share Sale Agreement

   A Share Sale Agreement made between the Seller and the Buyer will set out the procedure or process involved in the Share Sale transaction. Imagine you do not have such an important agreement to set out the terms of purchasing the shares that could attract the potential liability that you are unaware of. For example, the company is owing millions of Ringgit to a creditor, and the Seller had not informed you this.
   Most Share Sale Agreements will include the following common clauses:-

   1. Identity of the Seller, Buyer and target Company;
   2. Total number of shares subject to sale and purchase (“Sale Shares”) and the Sale Shares shall be free from all encumbrances and with all rights attached to them;
   3. Purchase price of the Sale Shares and the payment of the purchase price;
   4. Condition precedent to be fulfilled prior to completion;
   5. Covenants, warranties and representations, undertakings and Indemnity by the Seller to the Buyer;
   6. Remedies for breach and termination; and
   7. Governing law of the contract.

Business Sale

On the other hand, Business Sale involved purchasing of a company’s business and/or its assets without buying over shares in the company. The contracting parties to the Business Sale Agreement will be the company itself (“Seller”) disposing the different components of the business and/or its assets owned by the company to the buyer (“Buyer”) who will become the new owner of the business assets. A company’s business includes all the tangible and intangible assets, such as equipment & machinery, inventory, real properties, goodwill, intellectual property, confidential information and personal data, and also ongoing contracts and may also include the company’s existing and contingent liabilities such as bad debts, tax liabilities etc.

1. Advantages

   One of the advantages of Business Sale is that the Buyer can select the assets and liabilities that it wishes to acquire and to exclude a particular asset or liability. As only selected components of a business are sold, the Seller may end up still being liable over the business’s existing obligations and liabilities (such obligations under contracts or loans), unless the obligations or liabilities have also been novated to the buyer pursuant to the Business Sale. Besides, the Buyer also has discretion to pick the employees whom it wishes to employ in a Business Sale, without any liability to the rest of the employees.

2. Sale of Business Agreement

   A Sale of Business Agreement made between the Seller and the Buyer will set out the procedure or process involved in the Business Sale transaction. A Memorandum of Transfer will also be executed between the Seller and the Buyer if the Business Sale entails a disposal of real property. Most Sale of Business Agreements will include the following common clauses:-

   1. Purchase of business and/or assets;
   2. Purchase price and the payment of purchase price;
   3. Condition precedent to be fulfilled prior to completion and procurement of all necessary approvals and consents from the relevant authority;
   4. Covenants, warranties and representations, undertakings and Indemnity by the Seller to the Buyer;
   5. Assignment or novation of contracts, intellectual property rights and employees;
   6. Remedies for breach and termination; and
   7. Governing law of the contract.

Conclusion

A private acquisition can be achieved either through Share Sale or Business Sale and both type of transaction carries its own risks and costs to the Seller and Buyer. It is important for both parties to understand and prepared for these aspects before entering into a transaction and to understand the key components for both types of transactions in order to select the most suitable type of transaction for the particular sale. Having a reputable and experienced team of lawyers is crucial in all private acquisition transactions to achieve the intended outcome in the best way possible. Hence, please do not hesitate to contact us should you require any further information or have any queries.