Reserved matters are decisions listed in a shareholders’ agreement that the company cannot take without the prior consent of a named investor, an investor majority or a specified percentage of shareholders. They give a minority investor a contractual veto over decisions it cares about, such as issuing new shares, taking on large debt or selling the business. In Singapore, the list works on top of the Companies Act 1967 and the company’s constitution. It cannot lower the statutory approval thresholds, and it does not remove the duties of investor-appointed directors. A well-drafted list protects the investor without stopping the founders from running the company day to day.
This guide is for founders negotiating a term sheet or shareholders’ agreement, and for angel, strategic and family office investors taking a minority stake in a Singapore private company.
What are reserved matters, and why do investors ask for them?
Under section 157A of the Companies Act 1967, the business of a company is managed by, or under the direction of, its directors. Shareholders vote only on matters that the Act or the constitution sends to a general meeting. A minority investor with 10% or 20% of the shares therefore has very little say by default. It cannot block an ordinary resolution (a simple majority) and, below 25%, it cannot block a special resolution either.
Reserved matters fix this by contract. The founders and the company agree that certain decisions will not be taken unless the investor consents. There are two common forms:
- Shareholder reserved matters: decisions that need the written consent of the investor (or holders of a set percentage of shares), whatever the board decides.
- Board reserved matters: operational decisions that need the board’s approval, including the vote of the investor’s nominated director.
The difference matters more than most founders realise, because an investor giving consent as a shareholder is free to consider its own interests, while a director must act in the interests of the company. We return to this below. For an overview of the other clauses a shareholders’ agreement usually contains, see our guide to the key clauses the model constitution leaves out.
Which decisions usually need the investor’s consent?
There is no standard list in Singapore law. The table below shows matters that commonly appear, and marks those where the Companies Act already requires shareholder approval. For those, the reserved matter adds a specific investor’s consent on top of the statutory vote.
| Decision | Statutory approval already needed? | Why the investor wants a veto |
|---|---|---|
| Issuing new shares, options or convertibles | Yes: prior approval in general meeting under section 161 | Protects against dilution and preserves the agreed cap table |
| Altering the constitution | Yes: special resolution under section 26 | Stops share rights or transfer rules being changed against it |
| Changing the company name | Yes: special resolution under section 28 | Usually minor, but often included with brand or rebranding decisions |
| Reducing share capital | Yes: special resolution and solvency requirements under section 78B | Prevents capital being returned to some holders first |
| Disposing of the whole or substantially the whole of the business | Yes: approval in general meeting under section 160 | Controls the exit and the price |
| Voluntary winding up | Yes: special resolution under section 160 of the Insolvency, Restructuring and Dissolution Act 2018 | Stops a premature closure |
| Borrowing or giving security above a set amount | No | Protects against the company being leveraged |
| Approving or departing from the annual budget | No | Keeps spending in line with the investment case |
| Changing the nature of the business | No | Protects the thesis the investor backed |
| Related-party transactions with founders | No (subject to directors’ disclosure rules) | Prevents value leaking to insiders |
| Hiring or paying senior staff above a threshold | No | Controls burn rate and founder pay |
| Declaring dividends | Depends on the constitution | Keeps cash in the business during growth |
For a refresher on the 50% and 75% thresholds that apply before any reserved matter is added, see ordinary vs special resolutions in Singapore companies.
How do reserved matters fit with the Companies Act and the constitution?
The statutory vote is a floor, not a ceiling
A reserved matter can add a further consent requirement, but it cannot replace the vote that the Companies Act requires. If the investor consents to a share issue, the company still needs the shareholder approval required by section 161. If the investor consents to a constitution change, the special resolution under section 26 (at least 75% of votes cast at a properly convened meeting, or the written resolution equivalent) must still be passed and lodged. Both steps should appear in the closing checklist for any reserved decision.
The agreement binds only the people who sign it
Under section 39, the constitution binds the company and every member. A shareholders’ agreement is a private contract that binds only its parties. That has two consequences:
- A new shareholder is not bound by the reserved matters unless it signs the agreement or a deed of adherence.
- As a general principle, a company cannot validly contract away its statutory power to alter its own constitution. Shareholders can, however, agree among themselves how they will vote. Well-drafted agreements therefore frame most reserved matters as obligations of the shareholders to procure (or not to procure) certain outcomes, rather than as a bare promise by the company.
Many investors also ask for the most important reserved matters to be written into the constitution as class rights or consent requirements, so that they bind every member. Section 26A goes further and allows an “entrenching provision” that can only be removed or altered if all members agree. Entrenchment is powerful but rigid, so it is usually reserved for a small number of core protections. Our guide on shareholders’ agreements versus the constitution explains how to keep the two documents consistent.
Investor-nominated directors still owe duties to the company
Investors often take a board seat as well as a consent right. A director must at all times act honestly and use reasonable diligence under section 157, and must not make improper use of their position or company information. A nominee director cannot simply vote as the investor instructs if that would not be in the company’s interests.
Two practical points follow:
- Put self-interested vetoes at shareholder level. Matters where the investor will rightly consider its own position, such as dilution or an exit price, sit more comfortably as shareholder consents than as board votes.
- Authorise information sharing. Section 158 allows a director to disclose company information to the person whose interests the director represents, but only with the board’s authorisation and if disclosure is not likely to prejudice the company. Investors who need reporting should ask for a standing board authorisation or a contractual information right.
Investors who want visibility without the duties of a director sometimes take an observer seat instead. See board observer rights in Singapore for how that compares.
How should the reserved matters list be drafted?
- Start from the business plan. List the decisions that would genuinely change the investment case. Avoid copying a long precedent list that covers routine operations.
- Set monetary thresholds. “Any borrowing” will catch a supplier credit line. “Borrowing that would take total indebtedness above an agreed amount” is workable. Link thresholds to the approved budget where possible.
- Define the group. State whether the list applies to subsidiaries. Otherwise the founders could take a reserved decision through a subsidiary.
- Say whose consent counts. With several investors, specify an “investor majority” by shareholding, and how consents are given (for example, written consent by email from a named representative).
- Add a deemed-consent mechanism. If the investor does not respond within a fixed number of business days after a complete request, consent is treated as given. This stops silence becoming a veto.
- Build in carve-outs. Typical carve-outs include anything already in the approved budget, share issues under an approved employee option plan, and steps required by law.
- Add a fall-away. The rights should end, or shrink, if the investor’s holding drops below an agreed percentage or on a listing.
- Align the constitution. Check that the constitution does not contradict the agreement, and that any rights intended to bind future members are in the constitution, properly passed by special resolution and lodged with ACRA.
- Record consents properly. Keep each written consent with the board or shareholder resolution it relates to, so a later investor or buyer can confirm the decision was validly taken.
What happens when the investor says no?
A veto is a right to stop a decision, not a right to make one. If the founders need a decision to keep the business going (for example, an urgent bridge loan) and the investor refuses, the company can be stuck. Long lists in a company with two equal blocs make this more likely.
Good agreements deal with this in advance through a deadlock clause: escalation to senior representatives, mediation, an independent expert for valuation questions and, as a last resort, a buy-sell mechanism. Without one, the dispute may end up in court. A shareholder who is unfairly treated may apply under section 216 of the Companies Act, and the court has power under section 125(1)(i) of the Insolvency, Restructuring and Dissolution Act 2018 to wind up a company where it is just and equitable to do so. Our article on deadlock between shareholders explains when courts take that step.
What should founders and investors negotiate?
| Issue | Founder’s usual position | Investor’s usual position | Common middle ground |
|---|---|---|---|
| Length of list | Short, fundamental matters only | Broad, including operations | Fundamental list at shareholder level, short operational list at board level |
| Thresholds | High, linked to budget | Low | Thresholds that rise as revenue grows |
| Response time | Short, with deemed consent | Longer, no deemed consent | Fixed period with deemed consent after a reminder |
| Future rounds | No veto over rounds at higher valuation | Veto over all issues | Pre-agreed parameters for a new round, with veto only outside them |
| Fall-away | Rights end below a modest holding | Rights continue while any shares held | Fall-away at an agreed percentage |
| Exit | No veto over a sale above an agreed return | Consent to any sale | Drag-along that overrides the veto above a price floor |
Example: a seed investor and an urgent loan
Example (hypothetical): Two founders each hold 40% of a Singapore software company. A family office invests and takes 20%. The shareholders’ agreement lists “any borrowing” as an investor reserved matter, with no threshold and no deemed consent.
Eight months later, the company needs a short working capital facility to cover a delayed customer payment. The family office’s investment committee meets only quarterly, and the bank’s offer will lapse. The founders cannot accept it without breaching the agreement.
In the next funding round, the parties renegotiate. Borrowing is now reserved only above an agreed amount outside the approved budget, consent is deemed given if no reply is received within a fixed number of business days after a reminder, and the investor’s rights fall away if its holding drops below an agreed level. The constitution is updated by special resolution so that the share issue consent also binds the new investors.
Document checklist before signing
- Term sheet setting out the agreed reserved matters and thresholds
- Current constitution, and any proposed amendments with the special resolution
- Approved budget or business plan referred to in the carve-outs
- Cap table before and after the investment
- Board resolution authorising information sharing with the investor’s nominee director (if needed)
- Deed of adherence form for future shareholders
- Consent request template and the contact details of each investor’s representative
Frequently asked questions
Is a decision taken without the investor’s consent invalid?
Not automatically. If the statutory and constitutional requirements were met, the decision may still be valid as a matter of company law. Taking it without consent is usually a breach of the shareholders’ agreement, which can lead to a claim for damages, an injunction if the investor acts quickly, or a dispute under the agreement. Where the consent requirement is also in the constitution, the position can be different, so check both documents.
Can a 10% investor really block a share issue?
Under the Companies Act alone, no: approval under section 161 is by the company in general meeting. With a reserved matter in the shareholders’ agreement, the other shareholders have agreed not to proceed without its consent, so in practice yes, as long as the agreement binds them.
Should the investor’s director or the investor itself give consent?
For matters affecting the investor’s own economic position, consent by the investor as a shareholder is cleaner. For operational matters, a board-level approval involving its nominee director may be appropriate, but that director must still act in the company’s interests under section 157.
Do reserved matters need to be filed with ACRA?
No, not if they are only in the shareholders’ agreement, which is private. If they are added to the constitution, the special resolution and the amended constitution must be lodged with ACRA.
Can founders remove reserved matters later?
Only with the agreement of the parties whose consent the agreement requires for amendments, usually including the investor. Provisions entrenched in the constitution under section 26A can only be removed if all members agree.
Need help with reserved matters in a shareholders’ agreement?
If your company, or you as a director or shareholder, is dealing with reserved matters, investor consent rights or a disagreement over an investor veto, contact the Raffles Corporate Services team at [email protected] or on WhatsApp at +65 8501 7133 or +65 9018 0072. We will help you understand the documents and deadlines. Where your matter needs a lawyer, we will refer you to a firm on our panel of Singapore law firms that regularly handles shareholder agreements and investment terms. Raffles Corporate Services is a corporate services provider, not a law firm, and this article is general information, not legal advice.
Willie Tan, Raffles Corporate Services