Duties and Responsibilities of Directors of a Private Limited Company

Since a company is a legal entity by itself, its shareholders are required to appoint directors, officers who are entrusted with the power and authority to make decisions for the running of the company and manage the company’s affairs.

For many private limited companies, the shareholders of the company are often involved in the daily operations and management of the company, and therefore, usually appoint themselves to be the directors of the company.

In all limited companies, 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. At least 18 years old
  3. Of sound mind
  4. Not disqualified under the Companies Act 1965

For a newly incorporated company, the first directors are named in the Memorandum of Association or Articles of Association and they will hold office until the first annual general meeting where they will retire. All persons who wish to be a director must first lodge with the Companies Commission of Malaysia (or SSM) a document called “Form 48A”. This form is a statutory declaration by the director, that he or she is not an undischarged bankrupt and has not been convicted of an offence.

Differences between executive and non-executive director

An executive director is a salaried director who works full-time and is appointed with managerial powers by the board to carry out the company’s daily operations.

A non-executive director does not work full time, receives a smaller director’s fees and functions as a policy maker for the company.

Duties and Responsibilities of Directors

Directors have fiduciary duties towards the company and their shareholders who appointed them. Fiduciary duties include:-

  • Act bona fide in the interest for the company. Bona fide means “in good faith”;
  • Avoid a situation where there is a conflict between duty to the company and personal interest; and
  • Not to make any secret profit out of the position as director.

The statutory duties of the directors include:-

  • Act honestly at all times and use reasonable diligence when discharging their duties;
  • Avoid improper use of information obtained by virtue of position to gain personal advantage personally or to cause detriment to the company;
  • Avoid improper use of sensitive, unpublished information to gain personal benefits;
  • Before disposing of or executing any transaction for the disposal of a substantial portion of the company’s undertaking or property, obtain approval from the members in a general meeting;
  • Disclose his shareholdings in the company and any changes thereof;
  • Disclose his interest in any contract or proposed contract made by the company; and
  • Ensure registers and statutory books are kept updated.

The directors’ responsibilities include ensuring the following requirements are complied with:-

  • Record minutes of all directors’ meetings;
  • Make annual return and lodge with SSM;
  • Keep proper accounting records;
  • Table accounts, balance sheet and directors’ report at AGM;
  • Circulation audited accounts to members;
  • Appoint auditors;
  • Comply with restriction, limitation or prohibition of a private limited company;
  • Appoint company secretary;
  • Make declaration of solvency in the case of voluntary winding up by member;
  • Ensure that dividend payments are from profits only