One of the terms you will generally find in a shareholders' agreement is the reserved matters clause. Reserved matters refer to control provisions that grant specific shareholders the authority to veto certain actions by the company. More often than not, reserved matters are designed to protect minority shareholders or investors by requiring their prior consent before certain company decisions can be made. Having said that, they are not exclusively employed to protect minority shareholders; they can also serve as a means for the company founders to safeguard their interests.

What are the decisions made as a reserved matter?

Reserved matters are typically important decisions in connection with the company's direction, operations, and long-term strategy that are outside the ordinary course of business. Given their importance, shareholders often seek to reserve veto rights over these matters to ensure their involvement and influence in such critical decisions.

Why do we include them?

Reserved matters often serve as a safeguard for minority shareholders, requiring special approval beyond the general majority voting for these matters so as to ensure higher scrutiny and safeguard their interests.

While our Companies Act 2016 of Malaysia sets the default minimum approval requirements for certain matters, these requirements may be made more stringent by contract between shareholders through the use of reserved matters in a Shareholders' Agreement by increasing the required majority threshold or requiring the approval of a specific shareholder for such matters. This effectively means that decisions related to reserved matters cannot be approved by the company unless the specified threshold is met or the specific shareholder gives their consent.

Therefore, if an investor holding a minority stake is protected by reserved matters, he has the ability to exercise control over such matters through the use of their veto right as they are empowered to effectively block decisions that would otherwise be approved by the majority of the board or shareholders.

In venture deals, it is common for sophisticated investors, such as venture capitalists, to negotiate and secure veto rights as part of their investment agreements. These rights provide them with the ability to block or veto certain decisions, giving them more control and protection over their investment in the company since many of the decisions are left to the majority shareholder or the board (which is controlled by the majority shareholder) in the absence of reserved matters. To prevent decisions being made at the expense of their interest as the minority, they want to have control through their involvement in the decision-making process to approve these matters as a board member or as a shareholder.

Categories of reserved matters

Customarily, reserved matters can fall into 2 categories: shareholders' reserved matters and board reserved matters.

  • Board Reserved Matters

Board reserved matters are a set of specific decisions that typically require the unanimous approval of the board of directors or the approval of minority-elected board members. These decisions are related to the operational aspects of the business that ordinarily fall within the purview of the board's management responsibilities. Examples of such matters include:

  • approval of, or any amendment to, the business plan
  • approval of, or any amendment to, the annual budget
  • borrowings in excess of a stated limit per annum
  • granting of mortgages, charges and other security over the company's assets or guaranteeing the obligations of third parties
  • incurring of capital expenditure beyond a certain amount per annum
  • appointment, dismissal or alteration of the terms of employment of key employees, including increase in the total compensation to key employees beyond a certain annual percentage
  • entering into collaborations or joint ventures with third parties
  • conducting or settling litigation or claims
  • Shareholders' Reserved Matters

Shareholders' reserved matters are matters that are of significant importance to the company or have a substantial impact on the rights of shareholders, which therefore would generally necessitate unanimous or the minority group's consent. These decisions usually pertain to investment protection and strategic corporate decisions that go beyond the company's usual operations. Examples of such matters include:

  • changing the capital structure of the company
  • varying the rights attached to the shares
  • amending the constitution of the company
  • paying or declaring a dividend
  • winding up the company or other similar actions
  • any merger, acquisition, change in control or consolidation of the company
  • any decision to make a public offer or list the shares of the company on any stock exchange
  • liquidation, dissolution, sale, license or transfer of substantial undertaking or assets of the company

The examples provided above are just some common reserved matters that we have encountered or recommended to our clients in shareholders' agreements. It is important to note that this list is not exhaustive and can vary depending on the specific circumstances and requirements of each company. While we have observed that the list of reserved matters has become somewhat standardised over time, the inclusion and scope of reserved matters is ultimately a matter for negotiation between the parties involved. For example, the materiality qualifier or monetary limit in respect of certain reserved matters above which a vote is required can be customised and agreed upon by the parties during the negotiation process.

It is also worth noting that some of the shareholders' reserved matters listed already require a special resolution under Companies Act 2016 whereas some other reserved matters above require a mere ordinary resolution. Section 291 of Companies Act 2016 describes an "ordinary resolution" as a resolution passed by a simple majority of more than half (i.e. more than 50%) of voting members. Section 292 of Companies Act 2016 describes a 'special resolution' as a resolution of which is passed by a majority of not less than 75% of voting members. Nevertheless, these requirements can be made more stringent by way of reserved matters whereby certain matters may be made subject to a higher level of approval beyond the standard consent percentages.

Do reserved matters only protect the minority?

While it is true that reserved matters typically protect minority shareholders, they can be used as a means to safeguard the control of the founders (whom, in most cases, are the majority shareholders) over the company's direction and operations. This becomes particularly relevant when the founders' equity stake is diluted over time due to the entry of new investors in the subsequent fundraising rounds undertaken by the company. By including a founder's reserved matters in the shareholders' agreement, founders can maintain their control and influence over important decisions via exercising their approval rights notwithstanding that their shares are diluted to less than the requisite majority under the usual company law. These reserved matters grant founders approval rights for key actions such as issuing new shares, conducting fundraising activities, selling assets, and other significant matters.

Things to consider when drafting reserved matters

When drafting reserved matters, care will need to be taken in defining what matters are important enough to be defined as reserved matters that warrant the veto-level approval, and what is the appropriate approval threshold for this purpose.

On one hand, reserved matters are essential for protecting the interests of investors or minority shareholders since they are not involved in the operations the company on a daily basis and they want to have a say in actions that could materially affect their investment.

On the other hand, it is equally important to ensure that the decision-making process of the company is not unreasonably hindered or delayed by imposing excessive veto powers beyond the intended scope. A poorly drafted list of reserved matters can disrupt the company's day-to-day operations if too much veto power is given out.

There are no hard and fast rules dictating the specific reserved matters or the extent of control that can be exercised. The determination of reserved matters depends on the circumstances and the respective bargaining positions of the parties. All in all, the aim is to strike a fair balance that takes into account the interests of all stakeholders involved, which allows for meaningful involvement while ensuring the smooth functioning and progress of the business.


Reserved matters are an integral part of the shareholders' agreement, which should be weighed expertly. In practice, reserved matters are amongst the most heavily scrutinised and negotiated terms of a shareholders' agreement on which lawyers focus much energy in a negotiation, as the outcome will have a direct impact on the level of control and decision-making authority bestowed upon the shareholders. Given how important these clauses are, it is imperative for the list of reserved matters to be well thought out and finalised. So, make sure you properly define what constitutes reserved matters and give this only to what your investors or minority shareholders regard as important based on their investment.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.