What is Reserved Matters?

For SDN BHD or PLT, when you have many shareholders, you will need a Shareholder Agreement or Partnership Agreement to ensure the company can run well for now and longer term...

10/11/20242 min read

Reserved matters in a company like SDN BHD or Limited Liability Partnership (LLP) are specific actions or decisions that cannot be undertaken without the approval of a designated group of shareholders or partners or a specified majority.

These matters are designed to protect the interests of all shareholders or partners, especially minority stakeholders, by ensuring that significant decisions require broader consent.

Common Examples of Reserved Matters in a company

1. Amendments to the Shareholder or LLP Agreement: Any changes to the foundational agreement governing the company must receive approval.

2. Changes in Capital Structure: This includes issuing new shares, altering existing share rights, or modifying capital contributions.

3. Approval of Major Transactions: Decisions related to mergers, acquisitions, or disposals of significant assets require consent.

4. Declaration of Dividends: The distribution of profits must be agreed upon by the designated shareholders or partners.

5. Entering into Loans or Guarantees: Borrowing money or guaranteeing obligations of third parties needs prior approval.

6. Appointment and Removal of Director or Partners: Changes in the composition of partners must be approved by existing partners.

7. Business Strategy Changes: Significant alterations to the business direction or operational strategies require consensus.

8. Winding Up or Liquidation: Decisions regarding dissolving the company or liquidating its assets must have partner approval.

9. Intellectual Property Management: Any actions related to acquiring, selling, or licensing intellectual property assets need prior consent.

10. Employment Terms for Key Personnel: Hiring, firing, or changing terms for critical management positions should be reserved for partner approval.

Importance of Reserved Matters

- Protection for Minority Partners: Ensures that minority partners have a say in significant decisions that could impact their investment.

- Strategic Control: Allows partners to maintain control over essential aspects of the business and its direction.

- Risk Management: Helps in mitigating risks associated with unilateral decisions that could adversely affect the LLP's operations and financial health.

Conclusion

Incorporating a well-defined list of reserved matters into an shareholder or LLP agreement is crucial for maintaining balance and protecting the interests of all shareholders or partners.

It ensures that significant decisions are made collectively, fostering transparency and accountability within the corporate / partnership structure.

Citations:

[1] https://www.startuplawblog.my/what-are-reserved-matters-how-does-it-work-for-startups/

[2] https://www.mertonlawyers.com.au/blog/reserved-matters-in-shareholders-agreements

[3] https://zegal.com/blog/post/reserved-matters-list/

[4] https://www.fslaw-asia.com/5-key-considerations-for-a-reserved-matters-list-in-a-shareholders-agreement/

[5] https://lpplaw.my/insights/e-articles/mastering-shareholder-agreements-unveiling-the-impact-of-reserved-matters/

[6] https://www.netlawman.co.uk/ia/reserved-matters

[7] https://www.morrlaw.com/corporate-finance-law/shareholder-agreements/

[8] https://www.ssm.com.my/bm/Pages/Publication/Booklet/document/LLP_bkengLS_update.PDF