Why “Trust” in a Business Sale Can Cost You Millions
We’ve all seen it happen. Two SME owners shake hands on a deal. “I’ll buy your 30% stake for RM150,000.00”, one says. “Great, let’s sign the board resolution and transfer the shares today so you can start running things. You can pay me next month”, the other replies. Because they’ve known each other for years, they skip the legal fees for a formal Share Sale Agreement. After all, a proper agreement isn’t legally compulsory in Malaysia to change company ownership. Then, next month becomes next year. The money never arrives, but the buyer is now legally on the CCM/SSM registry, enjoying company dividends and voting on decisions.
Even with a contract, things can go wrong
You might think, “I’ll just write a simple contract that says they owe me the money.” But here is the catch – Even with an agreement, if you transfer the shares before receiving the money, you lose your leverage. If they refuse to pay, your only option is to sue them in court. That means spending thousands in legal fees and dragging the dispute out for years just to get what is yours.
The Golden Rule – Use a Stakeholder
Under Malaysian law, there is no fixed rule dictating whether the money or the share transfer must happen first. To protect yourself, you should treat selling company shares exactly like buying a house. Instead of relying on blind trust, a proper agreement sets up a clear, step-by-step timeline using an independent stakeholder (usually a law firm):-
- Step 1 – The Deposit & Agreement
Both parties sign the Share Sale Agreement. The buyer pays an initial deposit (either directly to the seller or to the stakeholder law firm’s account) to lock in the deal. - Step 2 – Balance Payment
The buyer transfers the full balance amount to the stakeholder law firm’s account. The seller does not get the cash yet, but knows it is secure and ready. - Step 3 – The Share Transfer
Knowing the money is secured, the seller executes the transfer documents and updates the CCM/SSM registry. - Step 4 – The Final Release
Once the shares are officially in the buyer’s name, the stakeholder law firm releases the money to the seller.
What Else Does the Agreement Clean Up?
Saving on legal costs upfront often means paying double to fix the mess later. A simple, well-drafted agreement doesn’t just protect the payment, it answers the awkward questions before they become fights:-
- The Dividend Cut-Off – If the company declares profits tomorrow, who gets the money? The contract sets an exact “cut-off date” for liabilities and rewards.
- The Hidden Skeletons – The buyer gets “Warranties”, promises from the seller that the company doesn’t have hidden tax debts or pending lawsuits.
- The Exit Button – What happens if the buyer fails to get corporate approval? The agreement outlines exactly how to terminate the deal safely.
The Takeaway
In business, a good contract isn’t a sign of distrust. It is a roadmap that ensures both sides get exactly what they shook hands on, without ending up in court.