According to Section 2 of the Company Act 2016, a director is any person occupying the position in a registered corporation which includes a person in accordance with whose instructions the majority of directors of the corporation are accustomed to act and an alternate or substitute director.

What are Directors and Why is there a need for them? Are they important?

According to Section 2 of the Company Act 2016, a director is any person occupying the position in a registered corporation which includes a person in accordance with whose instructions the majority of directors of the corporation are accustomed to act and an alternate or substitute director.

The Company Act 2016 requires a Company to have a minimum of at least one (1) director at the age of 18 above. Such is the case because only the director of a company is granted the permission to perform certain tasks which are necessary to be completed for the company to function in a proper manner.

In any private limited company or a business entity in Malaysia, the director of a company plays a critical role in the company’s operations and leadership.

In general, the director serves as the leader who is in charge of a company.

In summary: Directors are essential, powerful and important. Without one, you will be unable to set up a company!

How a Director of a Malaysian Company is laid off?

Based on Company Act 2016, a director may be removed before the expiration of the director’s period of office subjecting to the constitution or by ordinary resolution.

In certain situations, the removal of the director of a Malaysian company must take place. Such situations occur if the director breaches his duties, which includes:

  • Not acting in the best interest of the company
  • Not avoiding conflict of interest
  • Not exercising due diligence
  • Misuse of power and information

Let’s use a simple case of John. John is a managing director of a construction firm in Malaysia. John however, abused his power and allegedly obtained eight condominiums under the Company’s name for his personal use.

He was then deemed to have abused his power in doing so by the government. John was trial in court, fine and jailed.

When such course of events occurs, the director of the company would be removed by those of higher powers and responsibilities who are also among the shareholders of the company.

Such instances not only bring shame to the company, but it also hurts the company as their reputation is now ruined. With business image ruined, it will bring about severe adverse effects to the business itself.

Ramu
Tip: Before appointing an independent or nominee director, you can request for them to pre signed their resignation letter hence when needed, you can lay them off easily. This not only secure the Company from being taken advantage by the appointed director but also to ensure the appointed director understand their responsibility and consequences following any irresponsible decisions.

What Must Be Done Before Firing the Director of a Malaysian Company?

It is important to note that there are different procedures when it comes to firing a director from a public company and a private company.

Let us see a comparison between the two:

Public CompanyPrivate Company
Main Reference to:Constitution – Memorandum of Article (MoA)Subject to Company Act 2016 – ordinary resolution

Public Company

Notwithstanding anything in the constitution or any agreement between a public Company and a director, the Company may by ordinary resolution at a meeting to remove the director before the expiration of the director’s tenure in the office.

For a director who was appointed to represent the interest of any particular class of shareholders or debenture holders, the resolution to remove the director shall not take effect until the director’s successor has been appointed.

Private Company

A director may be removed before the expiration of the director’s period of office, subject to Company Act 2016 by ordinary resolution. Such resolution must be passed at a meeting of members as a resolution under Company Act 2016 to remove a director cannot be passed as a written resolution even if it is a proposed by the Board of any members within the private Company.

For both public and private Companies, a special notice of at least 28 days is required for a resolution to remove or replace a director at the same meeting (according to Section 203(3), Company Act 2016). However, no such notice is required if the power to remove the director is exercised under the constitution.

Important note!

During instances in which the removal of a director from office is through an annual general meeting, the shareholders are not permitted to make a written resolution. Instead, a general meeting ought to be convened for the purpose of the removal of the director.

Memorandum and Articles of Association (M&A)

Under the Company Act 1965, every Company is required to have a Memorandum and Articles of Association (M&A). However, pursuant to the Company Act 2016, the M&A are now collectively known as the constitution and a Company may choose not to have it and adopt the Company Act 2016 as a whole.

The Memorandum and Articles of Association can be amended to aligned with the Company Act 2016. For instance, a Company modified its M&A to mention just how any of the company’s directors could potentially be fired. A company which has adopted a set of customized M&A is permitted to use such Articles as a means which may provide various ways by which a director of a Malaysian company might be fired from such an important position.

For instance, the M&A may state what has been bestowed on the members of the board of directors is the power to remove the director of the company from office through the results of a vote by the members of the company.

However, if there is no mention within the M&A regarding the clear definition of the removal of a Malaysian company’s director from office, the shareholders of the company are permitted to remove a director from office before the expiration of the director’s term during one of the company’s annual general meetings.

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Under what situation can you force a director to relinquish his position or forbid one from taking on the role?

Relinquish his position

Once the company has found out through its management that the director has either committed offenses which are in violation against of company’s policies or engaged in any illegal or flagrantly unethical conduct, the director must be terminated immediately, and another director must be appointed to the position to allow continuity in the leadership of the company. As a guide, a director should not commit the following:

  • Not acting in the best interest of the company
  • Not avoiding conflict of interest
  • Not exercising due diligence
  • Misuse of power and information

Forbidden from taking on the role

A director of a company based in Malaysia can be forced to relinquish the position of director if the director has failed to have attained the minimum age requirement. The minimum age requirement is 18 years old.

If the director becomes or is declared to be bankrupt, he should also be forbidden from taking on the role and should not be appointed.

Other situations which ought to bring about the firing of a company’s director include a situation in which a director does not own a certain percentage of the company’s shares as dictated by the M&A of the company as well as during instances of the director’s frequent absence from important company meetings.

Of course, if a director of a company chooses to resign, the director will immediately cease to serve as one of the directors of the company.

What will happen to the Director’s position after he is fired or resigned? Is it open? Will there be a need to fill it again?

After the director has been fired, another person will have to replace the previous director in the position. In this case, you will need to select a Nominee Director who has fulfilled all of the directorial qualifications of a Malaysian Company. This person will fill this important role until a Full-time director is appointed.

Conclusion

In summary, a company’s director is a crucial person who is there to ensure the success of any Malaysian company. However, there are certain instances during which it can clearly be seen that the director ought to be removed from the position. A director is an important leader to the company and should be replaced as soon as the director is fired from the company.

Looking to incorporate a company in Malaysia or require company secretarial services? Reach out to us for a free consultation today.

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FAQs

Can shareholders remove Directors?2021-10-01T22:46:56+08:00

The Company 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 been found to either have acted fraudulently or in bad faith.

What is the minimum number of directors which may be possessed by a Malaysian Company?2020-04-29T11:56:23+08:00

According to Malaysia’s Companies Act, every company which has been incorporated in the country is required to have a minimum of one director. This director is also to have a primary place of residence within Malaysian borders.

Are Foreigners allowed to serve as Company Directors in Malasyisa?2020-04-29T11:55:20+08:00

It is legally permissible for certain foreigners to serve as company directors of Malaysian companies; however, only specific foreigners are permitted to do so. Such foreigners include permanent residents (PRs), those who are in Malaysia through a Resident Talent Pass, and those who are in Malaysia through the Malaysia My Second Home (MM2H) program.

What is the Maximum Number of Directors which may be possessed by a Malaysian Company?2020-04-29T11:53:42+08:00

The Companies Act does not state a maximum number of directors for any company in Malaysia. Therefore, it can be concluded that there is no upper limit to the number of directors which may be employed by any company based in the country.

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