Cross Purchase Agreement for Malaysia

Cross Purchase Agreement Template for Malaysia

A Cross Purchase Agreement under Malaysian law is a legally binding document that establishes the framework for existing shareholders to purchase the shares of a departing shareholder upon specific trigger events such as death, disability, or retirement. The agreement, governed by Malaysian corporate and contract law, particularly the Companies Act 2016 and Contracts Act 1950, sets out detailed procedures for share valuation, transfer mechanisms, and payment terms. It includes provisions for regulatory compliance, shareholder obligations, and specific requirements under Malaysian jurisdiction, ensuring smooth transition of ownership while maintaining business continuity.

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What is a Cross Purchase Agreement?

The Cross Purchase Agreement is a crucial document for Malaysian businesses seeking to establish clear succession planning and ownership transition mechanisms. It is particularly relevant for closely-held companies and family businesses operating under Malaysian jurisdiction where maintaining control over ownership is essential. The agreement typically comes into play when shareholders want to ensure business continuity and prevent shares from being transferred to unwanted third parties. It addresses key aspects such as trigger events (death, disability, retirement), valuation methodologies, funding mechanisms (often through insurance policies), and compliance with Malaysian regulatory requirements including the Companies Act 2016. The document serves as a protective measure for both the company and its shareholders, ensuring orderly transition of ownership while maintaining compliance with local laws and regulations.

What sections should be included in a Cross Purchase Agreement?

1. Parties: Identification of all shareholders participating in the cross purchase agreement

2. Background: Context of the agreement, including company details and current shareholding structure

3. Definitions and Interpretation: Definitions of key terms and interpretation rules for the agreement

4. Purchase Obligation: Core obligation of surviving/remaining shareholders to purchase shares upon trigger events

5. Trigger Events: Specific events that activate the purchase obligation (death, disability, retirement, etc.)

6. Purchase Price and Valuation: Method for determining share value and purchase price calculation

7. Payment Terms: Terms and conditions for payment, including timing and installment provisions

8. Share Transfer Procedure: Process and requirements for executing the share transfer

9. Representations and Warranties: Standard warranties about share ownership and authority to sell

10. Regulatory Compliance: Compliance with Malaysian laws and regulations regarding share transfers

11. Confidentiality: Provisions for maintaining confidentiality of company and transaction information

12. Governing Law and Jurisdiction: Specification of Malaysian law as governing law and jurisdiction for disputes

13. General Provisions: Standard boilerplate clauses including notices, amendments, and severability

What sections are optional to include in a Cross Purchase Agreement?

1. Insurance Funding: Provisions for life insurance policies to fund the purchase obligation, if insurance funding is used

2. Disability Definition: Detailed definition of disability if disability is included as a trigger event

3. Tag-Along Rights: Rights of minority shareholders to join in the sale under certain conditions

4. Drag-Along Rights: Rights of majority shareholders to force minority shareholders to join in a sale

5. Dispute Resolution: Alternative dispute resolution procedures if parties prefer mediation/arbitration

6. Competition Restrictions: Non-compete and non-solicitation provisions for selling shareholders

7. Foreign Ownership Compliance: Additional provisions if any shareholders are non-Malaysian entities

What schedules should be included in a Cross Purchase Agreement?

1. Schedule 1 - Current Shareholding: Details of current shareholders and their shareholding percentages

2. Schedule 2 - Valuation Formula: Detailed formula and methodology for share valuation

3. Schedule 3 - Insurance Policies: List of insurance policies and details if insurance funding is used

4. Schedule 4 - Company Information: Key company details including registration number, registered address, and business activities

5. Schedule 5 - Transfer Forms: Pro-forma share transfer forms and other required documentation

6. Appendix A - Deed of Adherence: Template for new shareholders to agree to the terms of the cross purchase agreement

7. Appendix B - Valuation Expert Terms: Terms of reference for independent valuation expert if required

Authors

Alex Denne

Head of Growth (Open Source Law) @ Genie AI | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents | Serial Founder & Legal AI Author

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What is a Cross Purchase Agreement?

What sections should be included in a Cross Purchase Agreement?

What sections are optional to include in a Cross Purchase Agreement?

What schedules should be included in a Cross Purchase Agreement?

Authors

Alex Denne

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