The prospect of acquiring a company or a small business in Malaysia can be one that is both exciting and daunting, especially for those that are purchasing for the first time, whether as a foreigner or a local. After identifying the type of business to purchase, the question of “Should I purchase the seller’s existing company, OR, should I form my own new company to purchase the ongoing business?” will invariably be considered.

As a potential buyer of a business, the points below should be considered at length and addressed as part of the ongoing negotiations with the seller.

Share Purchase or Asset Purchase

There are 2 ways to purchase a business in Malaysia:

Asset Purchase: purchasing a collection of the underlying assets and elements of the business rather than the business vehicle, and possibly taking over the liabilities, of the target business.

Share Purchase: purchasing all or the majority of the shares in the company being the business vehicle which owns the target business.

A short summary of the pros and cons of the 2 models are as set out below:

Share Purchase Pros

  • Assets in a business do not need to be transferred individually, unlike in an asset purchase;
  • Purchasers will acquire as part of the transaction, all employees (and their work permits), vendors, providers, and customers;
  • Purchasers will acquire as part of the transaction the company’s existing brand name, assets, goodwill, contracts, data;
  • The target company’s existing licenses (including business premise & signage licence, wholesale & retail trade licence, manufacturing licence), some of which may be difficult to secure or may take considerable time to apply afresh. The purchaser should nonetheless check if it is able to satisfy the ongoing criteria for the renewal of such licences;
  • Purchasers may benefit from carrying forward the target company’s past tax losses to be set off against future taxable profits, which is with effect from the year of assessment of 2018, limited to only 7 consecutive years;
  • Transactional costs such as stamp duty on the share transfer form (0.3% of the purchase price or market value) may be lower than an asset purchase (1-3% of the purchase price or market value); and
  • Generally, the total time taken to transact and complete a share purchase will be shorter than an asset purchase, with fewer post-transaction action items to attend to which allows the purchaser more time to focus on running the business.

Share Purchase Cons

  • All known and unknown liabilities of the company will be transferred with the target company as part of the transaction;
  • Any existing legal disputes or court matters against the target company brought by third parties or former employees will likely continue against the target company;
  • Purchasers will not be able to pick and choose the assets and liabilities of the target company that they wish to acquire; and
  • Purchasers will not be able to pick and choose the employees whom they wish to keep employed in the business.

Asset Purchase Pros

  • Purchasers can pick and choose which assets or liabilities to obtain as part of the transaction;
  • Purchasers can pick and choose which employees to offer new terms of employment to, and which employees to remain in the employ of the seller;
  • Transactional costs such as stamp duty will be charged depending on the exact type of assets that will be transferred. Some specific assets such as intellectual property and moveable items are exempted. An astute advisor will therefore be able to structure and document your purchase effectively to legally minimize the purchaser’s unnecessary exposures to stamp duty.

Asset Purchase Cons

  • Assets in the business will need to be transferred individually through contractual provisions and in the deed of ownership (e.g. real estate and vehicles). This process will generally require more time and resources to effect, especially if it involves real estate or dealing with third parties;
  • Purchasers may not necessarily be able to keep or obtain the business’ existing employees (who may not wish to accept the new offer of employment), vendors, service providers (who may not wish to continue or renegotiate their service terms), and customers;
  • Certain contracts, employee work permits, and business licenses, may not be assigned or transferred to the purchasers or a different entity. These licences may take time and additional resources to secure afresh by the purchaser; and
  • Generally, the total time taken to transact and complete an asset purchase will be longer than a share purchase, with more post-transaction action items to attend to.
Proof of Ownership of Assets

Regardless of the models above, one of the most essential elements of an acquisition would be the assets of the target business.

Therefore, it is essential that the purchasers are able to ensure that the assets actually belong to the vendors. Failing which, there is a risk that assets might not belong to the supposed vendor and instead, to third parties such as equipment leasing companies, banks, or even the individual owners of the business.

Due effort must be put in to trace and confirm the ownership through due diligence, e.g. by reviewing the proof of ownership. For tangible assets, it would be looking at the title or deed, invoices and receipt for proof of purchase and payment, leasing agreements.

For intangible assets like intellectual property or technology, this would involve reviewing the development agreement, signing IP assignment agreements, proof of registration, changing the ownership of registered trademarks, changing of account passwords etc.

The Human Element

The sale or acquisition of a business will inevitably affect employees, and the sale of a business does not absolve the seller of the seller’s responsibility towards the employees.

In a purchase of shares, the purchaser will “take over” the entity that employs the employees. As such, the employer remains the same, and any signed employment agreements and employment relationships remain intact.

In an asset purchase, the purchaser will need to decide on whether or not to re-employ the existing employees under its own company and on terms that are no less favourable than their existing terms.

If the purchaser does not intend to hire the existing employees, or if the existing employees do not accept the offer from the purchaser, the vendor is obligated to retrench the employees in accordance to Malaysian employment laws.

We have written more about retrenchment here.

Personal Data

Vendors typically keep records of personal data, whether from its employees, its vendors and providers, or its customers (“data subjects”). Acquisition of businesses in certain industries such as healthcare, education or fintech, just to name a few, may include the taking over of sensitive personal data.

Vendors will inevitably be requested to disclose such personal data to the purchasers, whether during the due diligence stage or upon completion.

Doing so without first obtaining the consent of the data subjects, particularly in an asset purchase where the data user did not previously obtain such consent, may be a breach of the Personal Data Protection Act 2010 (“PDPA”).

As we have written here, the Department of Personal Data Protection of Malaysia charge offenders of the PDPA, and such charges will attract fines of up to RM500,000 or up to 3 years in jail.

As such, vendors should be mindful of their personal data protection procedures, and ensure that:

  • the personal data notices should provide for the possibility of such disclosures; and/or
  • consent from personal data subjects for such disclosures is first obtained and recorded.


This article was written by Shawn Ho (Partner) & Ian Liew (Associate) from the corporate practice group of Donovan & Ho.  Feel free to contact us if you have any queries.


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