Term Sheet (Malaysia)
TERM SHEET
[Round Name] Investment in [Company Name]
Date: [Term Sheet Date]
This Term Sheet summarises the principal terms of the proposed [Round Name] investment in [Company Name] ("Company") by [Investor Name] ("Lead Investor"). The terms set out in this Term Sheet are non-binding except for the Exclusivity, Confidentiality, and Governing Law sections, which are legally binding. This Term Sheet does not constitute an offer to subscribe for shares and is subject to satisfactory completion of due diligence and execution of definitive legal documentation.
1. INVESTMENT ECONOMICS
Pre-Money Valuation: [Pre-Money Valuation] (fully diluted, including all outstanding options, warrants, and convertible instruments).
Investment Amount: [Investment Amount] to be subscribed by the Lead Investor (and any co-investors agreed with the Company).
Post-Money Valuation: [Post-Money Valuation].
Share Class: [Share Class].
Liquidation Preference: [Liquidation Preference]. On a liquidation, deemed liquidation (change of control), or winding up, preference shareholders shall first receive the liquidation preference amount before any distribution to ordinary shareholders.
2. INVESTOR RIGHTS
Anti-Dilution: Broad-based weighted average anti-dilution protection for down-round issuances, calculated using the standard NVCA/MVCA formula.
Pro-Rata Right: The Lead Investor shall have the right to participate in future financing rounds to maintain its percentage ownership on a fully diluted basis.
Board Representation: [Board Seat]. Any investor-appointed director shall comply with the duties set out in Part IV of the Companies Act 2016 (Act 777).
Information Rights: The Company shall provide monthly management accounts (within 30 days of month end), audited annual accounts (within 90 days of year end), and annual budget/business plan.
Drag-Along: Shareholders holding 75% or more of issued shares may require all other shareholders to sell their shares in a bona fide third-party acquisition on the same terms.
Tag-Along: Minority shareholders shall have the right to participate in any transfer of 50% or more of issued shares by majority shareholders at the same price and on the same terms.
3. CONDITIONS PRECEDENT TO INVESTMENT
The investment is conditional on: (a) satisfactory completion of legal, financial, and commercial due diligence by the Lead Investor; (b) board and shareholder approvals of the Company under the Companies Act 2016 (Act 777); (c) execution of definitive legal documentation (Share Subscription Agreement, Shareholders Agreement, and any required amendments to the Company's Constitution) by [Long-Stop Date]; (d) waiver of pre-emption rights by existing shareholders under Section 85 of the Companies Act 2016; and (e) any required regulatory approvals including Foreign Investment Committee clearance.
4. EXCLUSIVITY (LEGALLY BINDING)
From the date this Term Sheet is countersigned by the Company, the Company agrees not to, and shall procure that its directors and shareholders do not: solicit, initiate, encourage, or enter into discussions with any third party regarding any competing investment, acquisition, or financing proposal for a period of [Exclusivity Period] days ("Exclusivity Period"). If the Company breaches this exclusivity obligation, the Lead Investor shall be entitled to recover all due diligence costs and legal fees incurred as damages under the Contracts Act 1950 (Act 136).
5. CONFIDENTIALITY (LEGALLY BINDING)
Each party agrees to keep the existence and terms of this Term Sheet confidential and not to disclose them to any third party without the prior written consent of the other party, except to professional advisers on a need-to-know basis, as required by law, or as required by any regulatory authority.
6. GOVERNING LAW (LEGALLY BINDING)
This Term Sheet (to the extent binding) is governed by the laws of Malaysia. The parties submit to the non-exclusive jurisdiction of the courts of Malaysia for the binding provisions.
This Term Sheet is non-binding (except as expressly stated above) and does not constitute a commitment to invest. Definitive legal documentation is required before any binding investment commitment is made.
Lead Investor
________________
Signature
Company (authorised signatory)
________________
Signature
What Is a Term Sheet (Malaysia)?
A Term Sheet in Malaysia records the parties' shared intentions and the framework for a contemplated transaction.
A Term Sheet in Malaysia is not a binding contract under the Contracts Act 1950 (Act 136) in respect of the investment itself, because the parties expressly preserve the right to negotiate and finalise definitive agreements. However, certain provisions of the term sheet are typically expressed to be legally binding: the exclusivity or no-shop clause (preventing the company from soliciting competing offers during a defined period), the confidentiality clause, and the governing law clause. Malaysian courts have upheld obligations arising from the binding provisions of term sheets — for example, the obligation to negotiate exclusively is enforceable as a contractual obligation if clearly stated.
In the Malaysian startup and venture capital context, term sheets typically follow conventions established by the Malaysian Venture Capital and Private Equity Association (MVCA) and are influenced by Sequoia Capital, Y Combinator, and international VC practice. A term sheet for a Series A or later round in Malaysia ordinarily covers: pre-money valuation and post-money valuation; investment amount and share class (preference shares with liquidation preference being most common for institutional rounds); anti-dilution provisions; board composition; information rights; pro-rata rights for future rounds; and drag-along and tag-along rights.
For deals involving Cradle Fund Sdn Bhd, MAVCAP Sdn Bhd, or other government-linked investors, term sheets must also address any Bumiputera equity requirements, mandatory reporting to the Malaysian Venture Capital Development Council (MVCDC), and grant conditions that may affect the terms of the investment.
The legal framework governing the Term Sheet (Malaysia) in Malaysia draws on several key statutes and regulatory bodies. Under Malaysian law, the Contracts Act 1950 (Act 136) governs contractual obligations. The Companies Act 2016 (Act 777) regulates corporate entities through the Companies Commission of Malaysia (SSM). The Employment Act 1955 (Act 265) and the Department of Labour govern employment matters. The Personal Data Protection Act 2010 (Act 709) and the Personal Data Protection Department protect personal data. The Inland Revenue Board of Malaysia (LHDN) administers tax obligations. The Industrial Court adjudicates employment disputes under the Industrial Relations Act 1967 (Act 177). Parties executing a Term Sheet (Malaysia) in Malaysia should confirm the document reflects current law, including any amendments enacted since the original drafting date. The Financial Services Act 2013 (Act 758) sets the foundational requirements.
When Do You Need a Term Sheet (Malaysia)?
A Term Sheet in Malaysia is used at the outset of a structured investment or acquisition transaction, before formal legal documentation commences.
A Term Sheet is needed when a Malaysian startup seeking Series A funding of RM5,000,000 to RM20,000,000 from a venture capital fund receives a non-binding offer setting out the lead investor's proposed valuation, share class, and key investor rights — allowing the founders to evaluate the terms before incurring legal fees on definitive documentation.
A Term Sheet is required when a Malaysian company accepts a strategic investment from a corporate venture capital arm (such as Telekom Malaysia's TMVentures or Axiata's Axiata Digital Innovation Fund), with the term sheet capturing the agreed commercial parameters that the lawyers will translate into a Share Subscription Agreement and Shareholders Agreement.
A Term Sheet is needed when two or more co-investors in a syndicated round want to confirm aligned economics and governance terms before each investor's legal counsel drafts the investment documents.
A Term Sheet is required in a mergers and acquisitions context when a Malaysian acquirer and target company agree on the headline terms — purchase price, payment mechanism, conditions precedent, and exclusivity — before the due diligence process and definitive Sale and Purchase Agreement are prepared.
A Term Sheet is needed when a Malaysian company seeks debt financing from a bank or private credit fund, with the term sheet confirming the principal amount, interest rate, security, covenants, and repayment schedule before the formal Facility Agreement is prepared by the lender's legal counsel.
A Term Sheet is used when MAVCAP or Cradle Fund confirms the terms of a government co-investment alongside a lead private investor, with the government investor's term sheet conditions subject to internal investment committee approval.
Parties in Malaysia should prepare a Term Sheet (Malaysia) proactively rather than waiting for a dispute to arise. Courts interpret agreements based on the written terms rather than oral representations. Under Malaysian law, the Contracts Act 1950 (Act 136) governs contractual obligations. The Companies Act 2016 (Act 777) regulates corporate entities through the Companies Commission of Malaysia (SSM). The Employment Act 1955 (Act 265) and the Department of Labour govern employment matters. The Personal Data Protection Act 2010 (Act 709) and the Personal Data Protection Department protect personal data. The Inland Revenue Board of Malaysia (LHDN) administers tax obligations. The Industrial Court adjudicates employment disputes under the Industrial Relations Act 1967 (Act 177). Where the transaction involves regulated activities, prior approval from the relevant authority may be required before execution.
What to Include in Your Term Sheet (Malaysia)
A Malaysia Term Sheet for an equity investment must include the following key provisions.
Parties and Transaction Summary: Identify the company (with SSM registration number), the lead investor, and any co-investors. State whether the transaction is a primary subscription (new shares) or secondary acquisition (existing shares), and the proposed closing timeline.
Valuation: State the pre-money valuation and the resulting post-money valuation after the investment. For preference share rounds, specify whether the valuation is on a fully diluted basis (including all outstanding options, warrants, and convertible instruments).
Investment Amount and Share Class: State the total investment amount in RM, the number of shares to be issued, and the share class. For institutional rounds, preference shares with liquidation preference (1x non-participating or participating) are standard. Ordinary share rounds are more common for angel investments.
Liquidation Preference: Specify the liquidation preference multiple (e.g., 1x non-participating preferred) and whether preference shares participate with ordinary shares after repayment of the preference amount.
Anti-Dilution: State the anti-dilution protection — broad-based weighted average anti-dilution is standard in Malaysian VC practice; full ratchet is more investor-friendly but less common.
Board Composition: Specify the post-investment board size and each investor's right to appoint a director, subject to Section 196 of the Companies Act 2016 (Act 777).
Information Rights: State the company's obligation to provide monthly management accounts, audited annual accounts, and budget projections to the investor.
Exclusivity: State the duration (typically 30–60 days) during which the company agrees not to solicit or accept competing investment proposals. This clause is expressed to be legally binding.
Conditions Precedent: List key conditions before signing definitive documents — typically: satisfactory due diligence; board and shareholder approvals; FIC or regulatory clearances; and pre-emption waiver by existing shareholders under Section 85 of the Companies Act 2016.
Governing Law: Specify Malaysian law. Note that the non-binding provisions of the term sheet do not create a binding obligation to proceed with the investment.
Additional compliance elements for a Term Sheet (Malaysia) used in Malaysia include: Under Malaysian law, the Contracts Act 1950 (Act 136) governs contractual obligations. The Companies Act 2016 (Act 777) regulates corporate entities through the Companies Commission of Malaysia (SSM). The Employment Act 1955 (Act 265) and the Department of Labour govern employment matters. The Personal Data Protection Act 2010 (Act 709) and the Personal Data Protection Department protect personal data. The Inland Revenue Board of Malaysia (LHDN) administers tax obligations. The Industrial Court adjudicates employment disputes under the Industrial Relations Act 1967 (Act 177). Forms-legal.com provides this template as a starting point for Malaysia-compliant documentation.
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note = {Free legal document template. Based on Financial Services Act 2013 (Act 758)}
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Frequently Asked Questions
A Term Sheet in Malaysia is generally non-binding in respect of the proposed investment transaction itself — the parties are free to walk away without completing the deal. However, specific provisions that the term sheet expressly identifies as legally binding are enforceable under the Contracts Act 1950 (Act 136): these typically include the exclusivity or no-shop clause, the confidentiality obligation, and the governing law clause. Malaysian courts will enforce a binding no-shop obligation if the company solicits competing offers during the exclusivity period, with the investor entitled to damages for breach. The term sheet should clearly identify which provisions are binding and which are non-binding to avoid disputes. Once definitive legal documents — such as a Share Subscription Agreement and Shareholders Agreement — are executed, the term sheet is superseded by those documents.
In Malaysian venture capital practice, a 1x non-participating liquidation preference is the most widely used structure for Series A and later rounds. A 1x non-participating preference means that on a company exit (sale or winding up), preference shareholders first receive an amount equal to their original investment (1x), and if the remaining proceeds distributed to ordinary shareholders imply a higher per-share value, the preference shareholders convert their preference shares into ordinary shares to participate in the higher proceeds — but do not receive both the preference amount and the participation amount. Participating preference shares (where the investor receives the 1x return and then also participates in the remaining proceeds as if converted) are more investor-friendly but less commonly accepted by Malaysian founders. Multiple liquidation preference multiples (2x, 3x) are rare in Malaysian early-stage deals and can significantly impair founders' returns in moderate exit scenarios.
A Term Sheet and a Letter of Intent (LOI) serve similar purposes in Malaysian transactions — both document the preliminary commercial terms of a proposed deal before definitive legal documentation — but the terms are used in different contexts. A Term Sheet is most commonly used in equity investment and venture capital transactions to set out investment terms, share economics, and investor rights. A Letter of Intent is more commonly used in mergers and acquisitions, real estate transactions, and commercial agreements to express a party's intention to proceed with a transaction on agreed heads of terms. Both documents can be structured as non-binding (subject to contract), partially binding (specific clauses such as exclusivity and confidentiality are binding), or fully binding. In Malaysian M&A practice, a Letter of Intent is typically issued by the buyer and accepted by the seller, whereas a Term Sheet is typically issued by the investor (or their legal counsel) to the investee company.
After signing a Term Sheet in Malaysia, an investor typically conducts legal, financial, and commercial due diligence on the target company during the exclusivity period. Legal due diligence covers: review of the company's SSM incorporation documents and Constitution; verification of share ownership and cap table; review of existing material contracts; employment and IP ownership verification; litigation and regulatory compliance checks; and review of any existing Shareholders Agreement or investor rights. Financial due diligence covers: review of audited accounts lodged with SSM under Section 258 of the Companies Act 2016 (Act 777); management accounts; tax compliance with LHDN; and EPF and SOCSO contribution records. Commercial due diligence assesses the company's market position, customer base, and competitive landscape. The depth of due diligence varies with the investment size — seed rounds may involve two to three weeks of review, while Series B and later rounds can take 60 to 90 days.
A Malaysian startup can generally reject a Term Sheet after signing it if the term sheet's investment provisions are expressed as non-binding, because non-binding provisions do not create a contractual obligation to proceed under the Contracts Act 1950 (Act 136). However, the startup must comply with any binding provisions — particularly the exclusivity clause, which prevents the startup from soliciting or accepting competing investment offers during the exclusivity period. If the startup breaches the exclusivity clause by accepting a competing offer, the investor may claim damages for the legal and due diligence costs incurred in reliance on the exclusivity. In practice, Malaysian startups that reject a term sheet after the investor has commenced due diligence may face reputational consequences in the local VC community, which is relatively small and well-connected. Founders are advised to review term sheet terms carefully and seek legal advice before signing.
This template is provided for informational purposes only and does not constitute legal advice. Laws vary by jurisdiction and change over time. Consult a qualified attorney for advice specific to your situation.Full disclaimer
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