DUTIES OF DIRECTORS FOR PRIVATE LIMITED COMPANIES

A company is a separate legal entity, separate and distinct from its individual members/shareholders. Members of the company will appoint directors who will be entrusted with the power and authority to make decisions for the running of the company and manage the company's affairs.

For many small businesses, members of the company who have come up with their own capital to fund their businesses are often involved in the day-to-day management of the company. These members usually appoint themselves to be the directors of the company.

For larger businesses such as public listed companies, it is practically impossible for the shareholders to manage the company's affairs and therefore directors are empowered to operate the company.

What are the requirements of directors of a company?

There must be at least 2 directors who each have his/her principal or only place of residence within Malaysia.

To qualify to become a director of a company, he must be:

  1. A natural person

  2. Of full age (18 years old and above)

  3. Of sound mind

  4. Not disqualified under the Companies Act 1965

Directors are not required by law to have special knowledge, or experience to act in that capacity.

How to appoint directors?

For a newly incorporated company, the shareholders of the company have before or upon incorporation of the company decided who they want to be the directors of the company to manage the affairs of the company.

The first directors are named in the Memorandum of Association or Articles of Association (the incorporation documents) and they will hold office until the first annual general meeting where they will retire. A first director must lodge with the Companies Commissioner of Malaysia a Form 48A, which is a statutory declaration the director is not an undischarged bankrupt and has not been convicted of an offence.

Rules governing the subsequent appointment of directors are stated in the Articles of Association of a company. The Table A of the Companies Act provides that directors may appoint directors to fill casual vacancies as well as to appoint additional directors, as long as the number of directors does not exceed the number fixed by members and as stated in the Articles of Association of the company. For any changes in directors, the company must submit a Form 49 to the Companies Commission of Malaysia.

Who has the power to remove directors?

The removal of directors is also governed by the Articles of Association of a company. Usually, the removal of directors requires only an ordinary resolution. If there is no such provision, a director can be 'removed' by not re-electing him at the Annual General Meeting when he retires by rotation, provided that the articles require directors to retire by rotation.

What is the difference between executive and non-executive director?

An executive director is a salaried director who is full-time working and delegated with managerial or executive powers by the board to carry out day-to day management of the company's business.

Non-executive director is a director who does not work for the company on a full time capacity and receive a relatively smaller director's fees. The function of a non-executive director is to determine the overall policy of the company.

What is a managing director?

The managing director is the chief executive officer of the company. He is appointed by the board and is an executive director.

What are the duties and responsibilities of directors?

Directors who act as agents of a company have fiduciary duties towards the company. Their fiduciary duties include:

  1. Act bona fine in the interest for the company.

  2. Not to place himself/herself in a position where there is a conflict between their duty to the company and his personal interest or duties of others.

  3. Not to make any secret profit out of the position as director.

The statutory duties of the directors include:

  1. Act honestly at all times and use reasonable diligence in the discharge of duties.

  2. Not to make improper use of information obtained by virtue of office to gain advantage personally or to cause detriment to company.

  3. Not to make improper use of unpublished price-sensitive information to gain personal benefit.

  4. Seek approval of the company in general meeting before dispose of or execute any transaction for the disposal of a substantial portion of the company's undertaking or property.

  5. Disclose/give notice to the company disclosing his shareholdings and any changes thereof.

  6. Disclose interest in any contract or proposed contract made by the company.

  7. Make sure registers and statutory books are kept updated.

The directors are also responsible to ensure the following requirements are complied with:

  1. Holding of Corporate Meetings

  2. Registration of certain resolutions and agreements

  3. Recording minutes of all meetings

  4. Making the annual return and lodgement with the Companies Commissioner of Malaysia

  5. Keeping proper accounting records

  6. Tabling accounts, balance sheet and directors' report at AGM

  7. Circulation of accounts, balance sheet, directors report etc to members

  8. Appointment of first auditors

  9. Comply with restriction, limitation or prohibition of private company

  10. Appointment of qualified persons as secretaries

  11. Maintaining registered office

  12. Registration of transfer of shares

  13. Making declaration of solvency in the case of voluntary winding up by member

  14. Ensuring that payment of dividends is from profits only

  15. Registration of charges