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Learn more about Business Contracts in Malaysia

To successfully safeguard your organization, pay close attention to the provisions and phrases that comprise business contracts. Commercial contract writing is a complex procedure that needs the expertise of a professional in order to protect your rights and foresee issues with your business partners. Aside from the drafting of the legal act, Themis Partner advises and supports you by supplying all of the business contracts you require for the operation of your company: Shareholders Agreement, Non-disclosure Agreement (NDA), Sales ContractService Agreement, and many more. With all of our services, you may upload your document in English in word format or get help from Malaysian lawyers that specialize in company law.

Table of contents

What is a Business Contract?

The Malaysian Contracts Act is divided into many sections that deal with contract performance, contractual relationships, liability for breach of contract, guarantees, and the appointment of agents and principals.

The contractual terms must be properly described in the business contract, according to the law, and this agreement may and should be used as a tool to direct the relationship between two parties in terms of what each of them should achieve or do under the contract. If they want to create legally bound contacts with another party, all types of enterprises in Malaysia must conclude written agreements that qualify as enforceable contracts when carrying out their operations and creating commercial interactions.

What are the essentials Business Contracts?

The following are some of the most common contracts used by companies conducting business in Malaysia:

Non-Disclosure Contract (NDA): A lot of the information you have as a firm is covert and highly sensitive. By requiring employees/clients to sign an NDA prior to interviews or discussions, you can ensure that confidential information does not escape the building/meeting room.

Shareholders Agreement: Explains shareholders’ rights and duties as well as how the firm should be run.

Share Purchase Agreement: Used to sell a defined number of shares of a target firm to a buyer for a set price.

Partnership Agreement: Use this agreement to define all of your full-time or salaried employees’ rights and responsibilities.

Consulting Agreement: Specifies the services that a consultant or independent contractor will provide for a customer and guarantees that he is compensated.

Loan Agreement:When a lender lends money to a borrower in exchange for repayment plus interest, a Loan Agreement is utilized.

Minutes of meeting: Assists you in keeping track of all significant resolutions at shareholder or directors meetings.

How to draft a Business Contract?

The following six criteria must be met in order to constitute a legally effective Business Contract:

Offer or proposal: An offer can be either oral or written, as long as it is not obliged by law to be written.
Acceptance is what gives rise to the contract.
Consideration: must be precise and adequate to back up the pledge to do or not do anything.
Intention to come into legal relations: there must be mutual consent.
Capacity to contract:The individual who enters into the contract must be of full legal age (>18) and mind.
Unrestricted consent

What are the commercial laws in Malaysia?

The Contract Act of 1950 governs and enforces contract law in Malaysia. Specific performance requires the existence of a legitimate business contract between the parties to the dispute. The contract’s terms must be definitive and definite. This is significant because equity cannot be expected to enforce an invalid contract or one whose provisions are so ambiguous that equity cannot discern exactly what each party should execute.

As a general rule, contract performance must be exact and precise, and it must be in the business contract with what the parties promised. According to Section 38(1) of the Contracts Act of 1950, the parties to a contract must either fulfill or propose to perform their respective commitments, unless such execution is prohibited by law.

What are important clauses to include?

Because every firm is unique, your requirements in Malaysia may fluctuate based on industry and business strategy. However, because your contracts control the interactions between your company and its workers, contractors, and clients, it is critical that they be intended to protect your company and limit risk. The following are some common provisions found in business contracts:

1. Indemnification clause

It outlines what the indemnifying party intends to do to pay the indemnified party for specific expenses and fees. In brief, the indemnity language in your company contract is a risk-adjustment mechanism. It allows both parties to:

➤ Change the amount of danger they are willing to take
➤ They should protect themselves from litigation and damages
➤ In the event that something goes wrong, hold the other party or parties responsible

Because an indemnity clause in a contract can have a significant influence on both parties, it is frequently the most intensively contested element of the deal.

2. Force majeure clause

Force majeure releases either party from obligation for unforeseeable and unanticipated occurrences that are beyond either side’s control. These are some examples:

➤ Hurricanes, tornadoes, tsunamis, typhoons, explosions, pandemics, and earthquakes are examples of "acts of God."
➤ War, explosions, strikes, lockdowns, lockups, or a lengthy energy supply shortfall
➤ Government acts that limit or prevent any party from completing its contractual responsibilities.

In the absence of a force majeure provision, parties would be forced to rely on common law theories such as “frustration of purpose” and “impracticability,” which are unlikely to absolve liability.

3. Limitations on liability clause

Limitation of liability agreement is a clause that restricts the amount of money that one party must pay to the other party if the latter suffers losses as a result of the commercial contract. It also restricts the forms of compensation that one party might seek from the other. Typically, this provision covers damages incurred by the following:

➤ Negligence occurs when one of the parties breaches a reasonable duty of care and causes injury to another
➤ A breach of contract occurs when one party fails to fulfill its contractual obligations
➤ Infringement of intellectual property rights: One of the parties violates the intellectual property rights of the others (i.e., patent, copyright, design right, or trademark)
➤ Misrepresentation: When a party makes a false statement that misrepresents an aspect of the contract, such as the quality of the items they're selling, this is referred to as misrepresentation

4. Confidentiality

A confidentiality clause, often known as a non-disclosure agreement, is essential for preserving trade secrets, sensitive information from clients, sales methods, and anything else you wish to keep private. If the other party will be exposed to confidential information that you wish to remain secret, include this condition in your business contract.

5. Copyright clause

If your business transaction involves the use or sale of your intellectual property, you should include a copyright provision in your contract. This provision informs the opposing party that your intellectual property is protected under copyright and other intellectual property laws.

6. Use restrictions

A limitation clause allows you to further control how the other party utilizes your trade secrets, inventions, and other private information. This section specifies when the other party may use your confidential information and the procedure they must follow if they wish to reveal your confidential information to third parties.

Here are some examples of use constraints you can impose on the other party:

➤ Modification, reverse engineering, and creation of derivative works based on your product or idea
➤ Receiving, storing, accessing, viewing, or exploiting sensitive information for purposes other than those allowed

7. Termination

A termination provision describes how the parties’ agreement can be terminated and establishes how each party can terminate within a given notice time and requires little to no change.
Read it through and discuss it with the other party to see whether the termination conditions are appropriate for both of you. If they are not reasonable, you must negotiate until both parties agree on how each party can terminate and what the notice period should be.

8. Warranties and disclaimers

This provision will shield you from accountability if the other party has a terrible experience with what you’ve provided them in order for them to uphold your end of the bargain. The warranties and disclaimers clause, like the limit of liability clause, limits how much the other party may claim if they are displeased with what you’ve given them.
By signing this contract, the other party acknowledges that: they may experience issues while utilizing your product or service. If this occurs, they will not take any action against you.

9. Privacy

This is a brief statement demonstrating that you comply with the applicable privacy rules and regulations. A privacy provision will improve your company’s reputation and demonstrate to the other party that you value privacy rights.

This clause does not need to be extremely specific. Just remember to demonstrate that you are in compliance and that you have taken precautions to secure the personal information of your clients and staff. If you already have a privacy policy, simply reference it in your privacy clause.

How to avoid disputes in Malaysia?

A dispute resolution clause establishes how the parties intend to resolve any disputes that may arise from their business contract. Depending on both parties’ feelings on the issue, you can include one or more different methods of dispute resolution, including:

Negotiation This is the least formal type of dispute resolution. Negotiation allows the parties to come to a consensus on their own with the help of a neutral third party called a negotiator. At the end of the negotiation, parties can initiate litigation to get a legally enforceable judgment.
MediationThis is the second least formal type of dispute resolution. Mediation is a lot like negotiation, only that it involves a professional mediator as the neutral third party.
ArbitrationThis is the most formal type of dispute resolution. It’s overseen by professional arbitrators and parties must follow the rules in their arbitration agreement. The outcome of an arbitration is usually binding, which means that parties typically can’t initiate litigation after arbitration.

What is a Breach of Business Contract?

The tort of inducement of breach of a business contract is established when the plaintiff can demonstrate that the defendant acted with the necessary knowledge of the existence of the contract and with the desire to interfere, break, or render the contract’s performance.

A warranty is a guarantee that a statement or condition is truthful and that the other party will be compensated if the claim or condition is wrong. A warranty is simply a contractual statement that an assertion or condition is and will be true when made and/or for a set length of time. In the event of a breach of warranty, the aggrieved party may cancel the contract and seek contractual damages. Section 74 of the Contracts Act of 1950 expressly allows a contractual party who is harmed by a breach of contract to sue for damages.

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