About Company Directors

A limited and Private Limited company in Malaysia must have at least two directors at all times. They must be a natural persons (living persons, not organizations) who must have their principal or only place of residence within Malaysia.

  • What Does It Mean By Directors?
    S122

    A company must have at least 2 directors, both of them must be residence of Malaysia

    No comprehensive definition of director but the term director include any person occupying the position of director by whatever name called

    S4(1)

    “Includes any person occupying the position of a director of a corporation by whatever name called and include a person in accordance with whose directions and instructions the director of a corporation are accustomed to act and an alternate or substitute director”

    A director is an officer of a company but he is not an employee unless he has separate contract of employment as a salaried executive.

  • Types of Directors
    Non-executive director

    Take part in the collective decision of the BOD

    He has no other function except by express delegation

    Managing or Executive Director

    Who is in addition to their function of attending board meeting (as full members)

    But also work, usually full-time, in the management of the company as employee

  • First Director

    S122(3)

    Memorandum Of Articles also contained names of the first directors of the company

    S16(7)

    The Registrar must not register a Memorandum Of Articles

    MOA / Articles Of Associations

    AOA unless it contain the names of at least 2 persons who are to be the first directors of the company

  • Definition of Director
    Definition of director under Section 4 of the Companies Act 1965:
    Any person who occupies the position of Director of a corporation described by

    Whatever name;

    Full age,

    sound mind,

    Not an un-discharged bankrupt.

    Includes Alternate / substitute.

    Person whose habitual directions/ instructions are habitually followed by the directors of the company though not formally appointed.

    A director is an officer of the company;12 as such he is liable to the prescribed penalties in the event of default in complying with the CA 1965. Every company must have at least two directors who each has his principal or only place of residence within Malaysia.13 Note that alternate director or substitute director would not be taken into consideration in determining the number of directors resident in Malaysia.

  • Criteria to be a Director

    Natural person

    Not Insane

    Not an un-discharged bankrupt

    Full age (18+)

    Principal or only place of residence within Malaysia [Sec.122 ]

    Holds qualifying shares [Sec. 122 and Article 71 Table A]

    Age not > 70 years for public company (S.129) unless sanctioned by 75% of shareholders at the AGM.

    Private Companies no age limitation

  • Who Cannot Become a Director

    Un-discharged bankrupt (Sec. 125) unless special leave granted by High Court.Convicted of offences connected with promotion and management of corporation, fraud & dishonesty punishable with imprisonment for 3 months or more, offence under Sec.132, 132A &303 of the Act. (within 5 years from his conviction unless with special leave by the court [Sec.130]

    The following persons are prohibited from being appointed or from acting as director without the leave of the court:

    A person who has been convicted of any offense in connection with the promotion, formation or management of a company

    A person who has been disqualified by a court order under s 130A for directorship in insolvent companies

    A person who has been convicted of any offence involving fraud or dishonesty on conviction with imprisonment for three months or more

    A person who has been convicted for failing to act honestly and use reasonable diligence in the discharge of the duties of directorship

    A person who has been convicted for improper use of any information acquired by virtue of his position as an officer or agent of the company or officer of the Stock Exchange to gain directly or indirectly an advantage for himself or for any other person or to cause detriment to the company

    A person (who is an officer, agent or employee of a company or officer of the Stock Exchange) who has been convicted for dealing in securities of the corporation by making improper use of specific confidential price sensitive information acquired by virtue of his position to gain advantage for himself or any other person

    A person who has been convicted for not keeping proper books of accounts throughout the period of two years immediately preceding the commencement of an investigation or winding up (or between the incorporation of the company and the commencement of the investigation or winding up if the company was formed for less than two years)

    An undischarged bankrupt

    The period of disqualification for cases of all the above is five years, i.e. within the period of five years after his conviction or if he is being sentenced to imprisonment, after his release from prison.

  • Directors' Duties & Responsibilities
    Directors owe a duty to act for a proper purpose and in good faith in the best interest of the company.

    They must manage the company’s affairs in accordance with:-

    Related statutes

    Principles of the common law

    The company’s memorandum & articles of associations

  • How Director Can Be Appointed?
    S122(3) & S123(1)

    First 2 directors must be appointed and named in Memorandum Of Articles – MOA

    Articles Of Associations – AOA

    It is more common that they are appointed by subscribers to the Memorandum Documents which are lodged with the Registrar

    It must include particulars of the first directors and their signed consent to act as such

    Subsequent appointments of directors are arranged by the AOA of the company. The AOA of most public or private company are in accordance with Table A (Article 63-71)

    S129

    Appointment & reappointment for director at age 70 years old or older

  • How Director Can Be Removed?
    In certain events directors may be removed from office by disqualification arising under the statutory provisions or under the terms of the articles. S28

    For public companies, general meeting may by ordinary resolution remove a director before the expiration of his or her period in office notwithstanding the provision of the articles of any other agreement between the director and the company

    The office of director then becomes vacant on the passing of the resolution

    This is not the case where the director was appointed to represent the interest of a particular class or shareholder or debenture holder. In such case, the resolution to remove the director does not take effect until a successor has been appointed.S123(2)&(3)

      Special notice to the director within 28 days must be given for him or her to defense himself both by written representation and by addressing the meeting before a vote is taken.S128(2)

      Independent right of removal without giving special notice

      A proper procedure must be followed whether a director is removed in accordance with the AOA or under section 128.

    • What Are The Three Types of Director's Duties

      Fiduciary Duties

      Duties of skill, care and diligence

      Statutory duties

      The role of a director is often likened to that of a trustee/quasi trustee (as directors being the holders of the company assets they owe fiduciary duty of loyalty and good faith to the beneficiaries (company & its stakeholders) of that trust).

    • Director's Fiduciary Duties
      Directors stand in a fiduciary relationship to the company in the performance of their duties.
      New sections 132(1), (1A), (1B), (1C),(1D), (1E), (1F) (1G) and 132(2) of CA provides for statutory fiduciary duties upon directors.

      S.132(6) & S. 4 of CA define ‘officer’ as to include:

      Any director, secretary or employee

      A receiver & manager appointed under an instrument

      A liquidator appointed in voluntary winding up

      The role of a director is often likened to that of a trustee/quasi trustee (as directors being the holders of the company assets they owe fiduciary duty of loyalty and good faith to the beneficiaries (company & its stakeholders) of that trust).

    • What Duties Included Under Fiduciary Duties?
      Duty to exercise power in good faith and in the interest of the company

      The directors occupy a fiduciary position and must therefore exercise their power in good faith and in the interest of the company as a whole.S132

      “ A director shall at all times at honestly…”

    • Can a Company Loaned Fund to Its Director?
      S133

      A Company shall not make a loan to a director of the company and vice versa

      S6

      Deemed to be related to the company, or enter any guarantee or provide any security in connection with a loan made to such a director by any other person.

    Directors code of ethics in Malaysia

    Corporate Governance

    Should have a clear understanding of the aims and purpose, capabilities and capacity of the company;

    Should devote time and effort to attend meetings and to know what is required of the board and each of its directors, and to discharge those functions;

    Should ensure at all times that the company is properly managed and effectively controlled;

    Should stay abreast of the affairs of the company and be kept informed of the company’s compliance with the relevant legislation and contractual requirements;

    Should insist on being kept informed on all matters of importance to the company in order to be effective in corporate management;

    Should limit his directorship of companies to a number in which he can best devote his time and effectiveness; each director is his own judge of his abilities and how best to manage his time effectively in the company in which he holds directorship;

    Should have access to the advice and services of the company secretary, who is responsible to the board to ensure proper procedures, rules and regulations are complied with;

    Should at all times exercise his powers for the purposes they were conferred, for the benefit and prosperity of the company;

    Should disclose immediately all contractual interests whether directly or indirectly with the company;

    Should neither divert to his own advantage any business opportunity that the company is pursuing, nor may he use confidential information obtained by reason of his office for his own advantage or that of others;

    Should at all times act with utmost good faith towards the company in any transaction and to act honestly and responsibly in the exercise of his powers in discharging his duties; and

    Should be willing to exercise independent judgment and, if necessary, openly oppose if the vital interest of the company is at stake.

    Relationship with Shareholders, Employees, Creditors and Customers

    Should be conscious of the interest of shareholders, employees, creditors and customers of the company;

    Should at all times promote professionalism and improve the competency of management and employees; and

    Should ensure adequate safety measures and provide proper protection to workers and employees at the workplace.

    Social Responsibilities and the Environment

    Should ensure that necessary steps are taken in accordance with the law to properly wind-up or strike off the company register if the company has not commenced business or has ceased to carry on business and is not likely to commence business in the future or resume business as the case may be;

    Should adopt an objective and positive attitude and give the utmost cooperation for the common good when dealing with government authorities or regulatory bodies;

    Should ensure the effective use of natural resources, and improve quality of life by promoting corporate social responsibilities;

    Should be more proactive to the needs of the community and to assist in society-related programmed in line with the aspirations of the concept of ‘Caring Society’ in Vision 2020; and

    Should ensure that the activities and the operations of the company do not harm the interest and well-being of society at large and assist in the fight against inflation.

    Offence By Directors

    • Convening of annual general meeting
    • Submission of company‟s annual return
    • Company accounting records
    • Tabling of accounts at AGM
    • False or misleading statements
    • Transactions involving directors and shareholders
    • Interests other than shares
    • Statutory obligations of substantial shareholders
    • Company auditors
    • Conflict of interests

    Directors have heavy responsibilities. They are not only expected to conform but also to perform effectively. Common law and statutory duties impose upon the directors‟ burdens so heavy and responsibilities so great that it would not be farfetched for me to say that had they being made aware of their duties and responsibilities and the consequences of infringing the same, they would hesitate to accept the office.

    But on the other hand it is important to bear in mind that men who assume the complete control of a company‟s business must remember that they are not at liberty to sacrifice the interests which they are bound to protect, they have to discharge their duties in the best interests of their company.


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