Duties of Directors in Private Limited Companies (Sdn. Bhd.) [Updated 2025]

Updated: 25 Apr 2025

The Compa​nies Act 2016 brought significant reforms to Malaysia's corporate governance framework, particularly concerning the roles and responsibilities of directors in private limited companies (Sdn. Bhd.). This article outlines the updated duties and requirements for directors under the current legal framework.

Legal Status of a Company

A company is recognized as a separate legal entity, distinct from its shareholders. Shareholders appoint directors to manage the company's operations and affairs. In small businesses, shareholders often serve as directors, actively engaging in daily management. In contrast, larger enterprises typically delegate management responsibilities to appointed directors due to the impracticality of shareholder involvement in day-to-day operations.

Requirements for Directors

Under the Companies Act 2016, the criteria for appointing directors are as follows:

• Minimum Number
  A private company must have at least one director who ordinarily resides in Malaysia, with a principal place of residence in the country.
• Qualifications
  A director must be:
  • A natural person
  • At least 18 years old
  • Of sound mind
  • Not disqualified under the Companies Act 2016 (e.g., undischarged bankrupt or convicted of certain offences within the past five years)

The Act does not mandate specific professional qualifications or experience to be appointed as a director.

Appointment of Directors

The appointment procedures for directors are outlined as follows:

• First Directors
  Individuals named as directors during the incorporation process hold office from the date of incorporation until they cease to hold office in accordance with the Act.
• Subsequent Directors
  Additional directors can be appointed by ordinary resolution, subject to the company's constitution. Each appointed person must consent in writing and confirm that they are not disqualified under the Act.

Removal of Directors

Under the Companies Act 2016, the process for removing a director from a private company follows a clear statutory procedure, unless otherwise specified in the company’s constitution:

1. 28-Day Special Notice
   A special notice of at least 28 days must be provided before proposing a resolution to remove a director.
2. Physical Members’ Meeting Required
   The resolution must be passed at a physical general meeting of members. Written resolutions are not permitted for director removal.
3. Ordinary Resolution
   The removal is effected through an ordinary resolution, passed by a simple majority of votes from members entitled to vote.

This process ensures proper governance, allowing both shareholders and the affected director to engage with the matter transparently.

Types of Directors

• Executive Directors
  Full-time employees involved in the daily management of the company, drawing a salary and other benefits.
• Non-Executive Directors
  Not involved in daily operations. Their role focuses on oversight, policy direction, and strategic guidance. They typically receive directors’ fees.
• Managing Director
  Appointed by the board, the managing director (often also the CEO) is responsible for the overall business operations and strategy execution.

Duties and Responsibilities of Directors

Directors of a company carry both fiduciary and statutory duties under the Companies Act 2016.

Fiduciary Duties

• Act in good faith and in the best interest of the company.
• Avoid conflicts between personal interests and company duties.
• Not make secret profits from their position.

Statutory Duties

• Exercise reasonable care, skill, and diligence.
• Not misuse company information for personal gain or to the company’s detriment.
• Disclose any interest in contracts or proposed contracts.
• Ensure proper accounting records and statutory registers are maintained.

Additional Responsibilities

Directors are also responsible for ensuring:

• Proper calling and conduct of board and general meetings
• Timely lodgment of annual returns and financial statements with the Companies Commission of Malaysia (SSM)
• Maintenance of a registered office and accurate record-keeping
• Appointment of auditors and company secretary as required
• Compliance with company law provisions concerning dividends, share transfers, and solvency declarations (in the event of voluntary winding-up)

Conclusion

Being appointed as a director in Malaysia carries significant legal responsibilities. By understanding and fulfilling these obligations, directors contribute not only to the company’s compliance but also to its long-term success and sustainability. Regularly reviewing the company’s constitution and staying informed on updates to the Companies Act are essential steps in upholding sound corporate governance.

Source

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