Directorship in Malaysia: Roles, Duties & Requirements

Director – General Framework

  1. A company needs to have at least 1 director who is:-
    1. At least 18 years old
    2. Ordinarily resides in Malaysia
  2. Reference: (Section 196)

Section 196 – Minimum Number and Qualification of Directors

Section 196 of the Companies Act 2016 sets out the minimum requirements relating to the appointment and qualification of directors in a company. The provision is intended to ensure that every company has a responsible individual who can be held accountable for the management and administration of the company.

Firstly, every company must have at least one director at all times. This requirement applies to both private and public companies and reflects the fundamental principle that a company, being an artificial legal person, can only act through natural persons.

Secondly, the director must be a natural person who is at least 18 years of age. This ensures that the director has legal capacity and maturity to undertake the duties, responsibilities, and fiduciary obligations imposed under the Act.

Thirdly, the director must ordinarily reside in Malaysia. The purpose of this requirement is to facilitate regulatory oversight, enforcement, and accountability by the Companies Commission of Malaysia (SSM). A director who ordinarily resides in Malaysia is more easily subject to legal proceedings and compliance requirements under Malaysian law.

Failure to comply with Section 196 may result in the company and its officers being in breach of the Act, which may attract statutory penalties or enforcement action by SSM.

In summary, Section 196 establishes the basic eligibility and residency requirements for directors and ensures that every company maintains at least one qualified and locally resident director to safeguard proper corporate governance.

Appointment of Director

  • First Directors
    Appointed upon incorporation (Section 201)
  • Subsequent Appointments
    Done by members in general meeting or by the board of directors (Section 202)
  • Consent to Act
    A person must not act as a director unless he has provided a written consent to act as a director (Section 201)

 

Section 201 – Appointment of Directors

Section 201 of the Companies Act 2016 governs the appointment of directors, particularly in relation to the first directors of a company and the requirement of consent to act.

Firstly, the first directors of a company are appointed upon incorporation. These directors are usually named in the incorporation documents lodged with the Companies Commission of Malaysia (SSM). Upon registration of the company, the named individuals automatically assume office as directors. This ensures that the company has a properly constituted board from the moment it comes into existence.

Secondly, Section 201 expressly provides that a person shall not act as a director unless he has given his written consent to be appointed as a director. This requirement is crucial as it prevents individuals from being appointed or held responsible as directors without their knowledge or agreement. It also reinforces accountability, as the person is deemed to have accepted the duties and statutory obligations imposed on directors under the Act.

The written consent to act must be properly documented and is typically lodged with SSM together with the relevant appointment forms. Failure to obtain such consent may render the appointment invalid and expose the company and its officers to regulatory consequences.

In essence, Section 201 ensures that:

  • the company has directors in place immediately upon incorporation; and
  • only individuals who have knowingly and willingly accepted the role may act as directors.

This provision plays an important role in promoting transparency, certainty, and good corporate governance within Malaysian companies.

Section 202 – Appointment of Directors after Incorporation

Section 202 of the Companies Act 2016 governs the appointment of directors after the incorporation of a company, commonly referred to as subsequent appointments.

Under this provision, directors appointed after incorporation may be appointed:

  • by the members in a general meeting, or
  • by the board of directors, if the company’s constitution expressly confers such power on the board.

This section ensures flexibility in corporate administration while maintaining adherence to the company’s constitutional framework.

Any person appointed as a director under Section 202 must satisfy the statutory requirements prescribed under the Act, including the eligibility criteria under Section 196 and the requirement to give written consent to act under Section 201.

Once a director is appointed, the company is required to notify the Registrar of Companies (SSM) within 14 days of the appointment in accordance with Section 58 of the Companies Act 2016. Failure to lodge the notice within the prescribed period constitutes an offence and may expose the company and its officers to statutory penalties.

In essence, Section 202 regulates how directors are appointed after incorporation, ensuring that such appointments are conducted in a lawful, transparent, and constitutionally compliant manner.

Lodgement with SSM

  1. The company must lodge notice of appointment of a director with SSM within the prescribed period (14 days) (Section 58)
  2. Failure to lodge will constitute an offence

Section 58 – Notification to the Registrar

Section 58 of the Companies Act 2016 imposes a statutory obligation on a company to notify the Registrar of Companies (SSM) of certain corporate information, including the appointment of directors.

Under this section, when a director is appointed, the company must lodge a notice of appointment with SSM within the prescribed period of 14 days from the date of appointment. This requirement ensures that the public register maintained by SSM remains accurate, up to date, and reliable for regulatory, commercial, and public reference purposes.

The duty to lodge the notice lies with the company, and the responsibility is typically carried out by the company secretary or authorised officer. Timely lodgement is essential as directors are key officers of the company and their details are material information under the Act.

Failure to comply with Section 58 constitutes an offence under the Companies Act 2016. Where a company fails to lodge the required notice within the stipulated timeframe, the company and every officer in default may be subject to statutory penalties or enforcement action by SSM.

In summary, Section 58 reinforces transparency and corporate accountability by requiring prompt notification of changes in directorship, thereby enabling effective regulatory oversight and public confidence in corporate records.

 

Resignation of directors – When is a director’s resignation legally effective?

  1. Director has the right to resign and may resign by giving notice to the Company (Section 208)
  2. Wong Kok Meng v Preserver Bina Sdn Bhd [2019] mentions that the resignation of directors does not require acceptance or consent by the Company.
  3. The resignation will take effect on the date specified in the notice or if there is no date, the date where the notice is received.
  4. However there is a minimum director requirement and the resignation will be invalid if the sole director resigns with no replacement or no appointment of director in replacement – (Section 209)

Section 208 – Resignation of Director

Section 208 of the Companies Act 2016 provides for the right of a director to resign from office. Under this provision, a director may resign at any time by giving written notice to the company. The law recognises resignation as a unilateral act, meaning that the director does not require approval or acceptance from the company for the resignation to be valid.

The resignation of a director takes effect:

  • on the date specified in the notice of resignation, or
  • if no date is specified, on the date the notice is received by the company.

This position was affirmed in the case of Wong Kok Meng v Preserver Bina Sdn Bhd [2019], where the court held that a director’s resignation is effective upon proper notice and does not require the consent or acceptance of the company.

However, the right to resign under Section 208 is subject to compliance with other provisions of the Act, particularly the requirement that a company must maintain a minimum number of directors at all times. Where the resignation would result in the company having no director, such resignation may be rendered invalid under Section 209 unless a replacement director is appointed.

In essence, Section 208 ensures that directors are not compelled to remain in office against their will, while balancing this right with the need for continuity and proper management of the company.

Section 209 – Resignation of Sole Director

Section 209 of the Companies Act 2016 specifically addresses the situation where a company has only one director. This provision operates as a restriction on the right of resignation provided under Section 208, in order to ensure that a company is never left without a director.

Under Section 209, where a company has only one director, that director shall not resign unless:

  • the director appoints another person as director, and
  • the appointment of the new director takes effect before the resignation of the sole director.

If the sole director tenders his resignation without first appointing a replacement, such resignation is invalid and has no legal effect. The law treats the sole director as continuing in office until the minimum requirement under Section 196 is satisfied.

The rationale behind Section 209 is to maintain continuity of management and accountability. Since a company can only act through its directors, allowing a sole director to resign without replacement would render the company incapable of functioning and complying with statutory obligations.

In summary, Section 209 ensures that:

  • a company always has at least one director at all times; and
  • the statutory minimum requirement under Section 196 is not breached through resignation.

Removal of Directors

  1. A director removal would require a special notice to be given by the shareholders to the Company. – Section 206
  • The director concerned must be given the special notice and an opportunity to make representations. The director has the right to be heard in the meeting or to submit written representations to the members.
  • Powers to remove the director falls upon the shareholder and if the constitution does not explicitly provides the directors with the power to remove, the directors are not allowed to remove another director.
  • Removal of director has to be done by way of special resolution and not by way of written resolution.

Section 206 – Removal of Director

Section 206 of the Companies Act 2016 governs the removal of a director by shareholders. This provision reflects the principle that directors derive their authority from the members of the company and may therefore be removed by them, subject to compliance with statutory procedures.

Under Section 206, a director may be removed from office by the company by way of a resolution passed at a general meeting, provided that special notice of the intention to remove the director has been given to the company. The requirement of special notice ensures transparency and prevents arbitrary or sudden removal of directors.

Rights of the Director Concerned

Section 206 further safeguards the rights of the director proposed to be removed. The director must:

  • be informed of the proposed removal, and
  • be given a reasonable opportunity to make representations, either orally at the general meeting or in writing to the members.

Where written representations are submitted, the company is required to circulate them to the members before the meeting, or if this is not practicable, to read them out at the meeting. This reflects the principles of natural justice and procedural fairness.

Authority to Remove

  • The power to remove a director under Section 206 lies with the shareholders, not the board of directors. Unless expressly provided in the company’s constitution, the board has no authority to remove a fellow director.

Method of Removal

  • The removal of a director must be carried out at a general meeting and cannot be effected through a written resolution. This ensures that members are given the opportunity to deliberate and vote on the matter in a formal meeting setting.

In summary, Section 206 balances the shareholders’ right to remove directors with the need to protect directors from unfair or improper removal through clear procedural safeguards.

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