After incorporating a company, the next step is for the company to appoint their directors. According to the Company Act 2016, there are a few sections that explained in detail what a director is to a Company.

Section 2 explains that a “Director” includes any person occupying the position of director of a corporation by whatever name called. It is also the person in accordance to which the directions or instructions the majority of directors of a corporation are required to act.

Section 196 states that a private Company must have at least 1 director (2 directors for public Companies) who must be a resident of Malaysia.

Section 210 explains that “Director” includes chief executive officer, chief financial officer, chief operating officer or any other person primarily responsible for the management of the Company.

In layman’s term, a director is a person appointed by the owner of a corporation in order to carry out his duty towards the Company’s daily operations and make the necessary decision on behalf of the owner.

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Note: A director does not necessarily mean he is also the owner of said corporation. However, for small medium scale businesses, the director is commonly also the shareholder of the Company, which in the end means he also owns said Company.

The role and responsibilities of Board of Directors

It is stated clearly in the Company Act 2016, Section 211 (1) that the business and affairs of the Company shall be managed by, or under the direction of the Board of Directors.

Essentially, the appointed board of directors are responsible to assess the overall direction and strategy of the business. They are also deemed as the agents of the Company and is bound by specific duties to ensure the Company achieve its goal.

All actions taken must be beneficial towards the Company

The appointed board of directors are normally a group of people with special skills, talents, and have an excellent background which is beneficial for the Company to attain its goal. Hence, it is only logical for them to exercise their powers in accordance with the Company Act 2016 for the best interest of the Company. When they exercise their duties, they must always consider the interest of the Company and no one else.

Avoid conflict of interest

It may not seem easy for smaller businesses where the director is also normally the shareholder (owner), but it is expected for every director to exercise their duties and avoid any conflict of interest as much as possible.

The law has treated a Company as a “legal person” which means that it can own assets and is liable towards its own liabilities without affecting the shareholders’ personal wealth. However, some directors nonchalantly abuse these regulations and treat the Company’s assets or private information as his own, which directly leads to conflict of interest.

Exercise its duties with care, skilfully and diligently

The director must always ensure that the decisions made are the highest standard and is always in the best interest for the Company.

Act within designated powers

A board of directors may consist of those people in charge for specific task such as the chief finance officer (CFO), who oversees the Company’s financial activities, while a chief technology officer (CTO) is in charge to ensure the Company is always up to date when it comes to technological advancements. These people are expected to adhere to the Company’s constitution and comply with the policy accordingly.

Promote the Company’s success

Finally, the board of directors are expected to actively exercise the dissemination of the Company’s values and success to garner longevity and Company scalability. They are the people where the shareholders will look for answers when it comes to the report of the Company’s performances.

What are the skills a director must have?

  • Experience – Directors must have the experience which are beneficial for the Company to attain its goal
  • Extensive Networks – Directors with multiple connections are always seen as beneficial to the Company as it can indirectly promote the Company further and gain acknowledgement for the business itself
  • Fresh perspective – In order to ensure the Company is sustainable for the long run, fresh perspectives and ideas for the Company to remain competitive through the ever changing of times are crucial
  • Long-term view – Shareholders always expect for their investment in an entity to have positive returns. Hence, having a director who is able to share his insights for the betterment of the Company in the long run is always a good thing
  • Conformance – A team of directors is expected to monitor the performance of their respective management team in terms of running the Company in the interest of shareholders, community, and government accordance with the law
  • Performance – Since the objectives and goals are set by the team of directors, then they are expected to ensure their team delivers the Company’s vision and is accordance to the business plan

Filing Obligations

Aside from the day-to-day operational decision making, the board of directors are also responsible towards the fulfilment of the Company’s annual filing obligations. Some of the annual filing includes:

  • Annual return
  • Financial statement preparation
  • Tax return filing

Financial Responsibilities

The board of directors are expected to act in a manner that will not pose the Company with significant risks or severe loss to the creditors. They are also expected to avoid such conflicts as much as they can.

Any chance to reduce the impact of financial difficulties against the shareholders, employees, and creditors are also expected from the appointed directors. For an instance, if the Company seems to be making losses for a period of time, it is advisable for the board of directors to think through what the initial cause is. Then, they are expected to prepare a proposal on how to curb such problems.

The director must also ensure that the Company is financially able to pay all the debts accumulated as it is part of their financial responsibility. Hence, having a team of such expertise within an organisation is crucial, not only to ensure the Company can sustain for a long period of time but to also mitigate any internal conflicts.

Person disqualified from being a director

According to the Company Act 2016, Section 198, there are 5 main reasons for a person to be disqualified from being a director in Malaysian registered Company:

  • The person is an undischarged bankrupt
  • The person has been convicted of an offence relating to the promotion, formation, or management of a corporation
  • The person has been convicted of an offence involving bribery, fraud, and dishonesty
  • The person has been convicted of an offence under sections 213, 217, 218, 228 and 539
  • The person has been disqualified by the Court under section 199

Section 213 – a director of a Company shall at all times exercise his powers for a proper purpose and in good faith in the best interest of the Company. Any abuse of such power will make him disqualified to be a director.

Section 217 – a nominee director shall act in the best interest of the Company and in the event of any conflict between his duty to act in the best interest of the Company and his duty to his nominator, he shall not subordinate his duty to act.

Section 218 – the directors are prohibited from making secret profits by using the corporate information.

Section 228 – is a non-cash asset transaction of the requisite value involving directors and shareholders approval. The threshold value is a minimum of MYR 50,000. An abuse of such action will disqualify the person to be the director.

Section 539 – An offence committed by the director in the course of winding up the Company or any proceedings against a Company.

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FAQs

Is a Malaysian Company allowed to have more than one Director?2020-04-28T16:59:34+08:00

According to the Companies Act, Malaysian companies must have at least one director who is at least 18 years old; this director is not required to reside in Malaysia. However, it does not specify an upper limit on the number of directors which a company based in Malaysia may have. Thus, it can be concluded that a Malaysian company may have as many directors as it desires.

Can a Foreigner be a Director in Malaysia?2020-04-28T16:58:47+08:00

A minimum of one director is required by all companies based in Malaysia. It is also a statutory requirement that the director must be at least 18 years old but does not have to be currently residing in Malaysia.

According to the Companies Act, every director in Malaysia is to be contactable. This is to be done through the use of a service address. Therefore, a foreigner who stays overseas can be the sole director of a company; however, this is only true if the director is contactable through a Malaysia residential service address.
It is also possible for a foreigner to serve as the director of a Malaysia-based company through proper use of certain work visas. This is because holding such a visa grants certain rights to a foreigner, one of which is the ability to lead a company as its sole director.

Can shareholders remove Directors?2020-04-28T16:58:03+08:00

The Companies Act does not specify any requirements for the removal of a director when done by shareholders. This is the case because shareholders are not required to have a particular reason to remove a director. Shareholders of a company have the right to do so if a majority of them agree to take such an action. Directors are to serve in such a way as to satisfy shareholders; therefore, shareholders may choose to remove a director at any time. It is also for this reason a decision made by the majority of shareholders to remove a director from the board of directors is not to be reviewed by a court unless the shareholders have ben found to either have acted fraudulently or in bad faith.

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4 Discussions

  1. mohd arif May 3, 2021 at 9:32 am - Reply

    Hi, can a practicing solicitors become a director or appointed be a director in a company but he/she is not holding any shares?

  2. Natasya November 20, 2020 at 11:26 pm - Reply

    Hi. can shareholders/members of the company be appoint as directors?

    • Tiwi November 23, 2020 at 11:33 am

      Hi Natasya
      Yes, a shareholder CAN be appointed as the director of the company. According to the Companies Act of Malaysia, an individual is not allowed to serve as a director of a company or either directly or indirectly be involved with the management of a company if
      – He/she is undischarged bankrupts
      – He/ she has been convicted of an offense relating to the creation or management of a business, fraud, dishonesty, or bribery;
      – He/she has been convicted of an offense under any other relevant sections of the Companies Act, or has been disqualified by a court.

      Please contact us via Paul Hype Page to discuss further.
      Thank you for your question.
      Warm regards
      Paul

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