Their shareholders` pact should also determine the procedure when a shareholder wishes to sell some or all of its shares to a shareholder or a third party. Like the issuance of new shares, a shareholder must generally first offer his shares to existing shareholders if he wishes to sell his shares. In the case of a more punishable variant of the pay-to-play bill, an investor`s inability to participate in a future capital increase (dilution or not) will result in the conversion of that investor`s preferred shares into common shares. As a result, the investor loses not only the anti-dilution protection, but also all liquidation preferences and other special rights related to his preferred shares. “Good Leaver” and “Bad Leaver” clauses address the problem of what to do when shareholders leave the company in other circumstances, some less culpable than others. For example, the Bad Leaver clauses provide that when a shareholder is terminated as a result of a substantial breach of contract, a fault or before reaching a critical milestone, he must return his shares to the company, either at the price he paid for him or at his market value (depending on the lowest time). On the other hand, Good Leaver`s clauses may provide that when a shareholder is terminated or leaves the company without fault and/or after reaching certain milestones, he may be required to sell his shares at the market value of the company or other shareholders, or to retain the shares. The shareholders` pact may have a specific list of critical business decisions that a higher percentage of directors or shareholders must approve. Another important provision is the purchase price of the outgoing shares.
If the outgoing shareholder is not willing to part with the shares at the price they originally invested for them (in many impossible-to-do situations), it may be necessary to have some sort of valuation mechanism. However, note that evaluating a business may not be profitable. Leading audit firms in Kuala Lumpur can cite up to six figures, even if the company they evaluate is not worth as much! Automatic transfers are usually triggered when a shareholder dies; is convicted of a crime; is dissolved or liquidated (if the shareholder is a corporation); Insolvency claims resigned from his job in the company (where the shareholder is also an employee); against the SHA; other incidental restrictions that may harm the business; or, among other things, an obligation to the company. Shareholders can determine which acts or omissions trigger an automatic transfer and, as long as they are clearly defined in the SHA, they are binding.