A director is an individual who is appointed to manage the affairs, business and operations of the company. Under the Companies Act 2016, the term “director” includes any person occupying the position of a director by whatever name called and includes a person in accordance with whose directions or instructions the majority of directors are accustomed to act and an alternate or substitute director. For context, an “alternate director” or “substitute director” is an individual that is nominated by a director of the company to, among others, attend board meetings or perform the fiduciary and statutory duties on that director’s behalf.
Directors have fiduciary and statutory duties and responsibilities towards the company, and must always act in the best interests of the company and with reasonable care, skill and diligence. It is important for a person, who intends or consents to be appointed or to act as a director, to understand the implications and responsibilities of doing so, regardless of the type of directorship.
Qualifications of a Person as a Director of a Company
An individual must satisfy the statutory requirements under the Companies Act 2016 to qualify as a director of a company in Malaysia. These requirements include the following:
- A director shall be a natural person who is at least eighteen years of age;
- A director must not:
- Be an undischarged bankrupt;
- Have been convicted of an offence related to the promotion, formation or management of a corporation;
- Have been convicted of an offence involving bribery, fraud or dishonesty;
- Have been convicted of an offence under Section 213, Section 217, Section 218, Section 228 and Section 539 of the Companies Act 2016; or
- Have been disqualified by the Court under Section 199 of the Companies Act 2016.
If an individual does not meet the requirements above, the said individual is disqualified from holding office as a director of a company. In addition to the above, where a company has more than its required minimum number of directors, the company must ensure that:
- its minimum number of directors shall ordinarily reside in Malaysia by having a principal place of residence in Malaysia; and
- its minimum number of directors shall not include an alternate or substitute director.
Appointment of Directors
A company has a duty to notify its company secretary and the Registrar of the particulars of any director intended to be appointed. The appointment of a director must be set out in the prescribed forms, which must be supported by:
(a) In the case of the incorporation of a company, the resolution of the shareholders or, in the case of appointing a new director, the resolution of the board of the company; and
(b) The written notice from the individual consenting to his appointment as a director of the company.
Other supporting particulars include the individual’s personal information, contact details, and residential and service addresses of the individual. These documents must be submitted to the Companies Commission of Malaysia. A company can enlist the services of its appointed company secretary to prepare, advise on, complete and submit the relevant forms, documents and information to the Companies Commission of Malaysia.
Differences between Executive, Non-Executive and Alternate Directors
There are companies that classify their directors according to the different roles on the board of directors that they were appointed to contribute to the company. The most common classifications of directors made by companies are executive directors and non-executive directors. An individual who is called upon to act in place of a director for a particular matter is known as an alternate director. As each classification of directors involves a different role on the board of directors, it is essential to understand the roles and functions of executive directors and non-executive directors.
All directors have to adhere to and satisfy their fiduciary and statutory duties towards the company. The differences between executive directors and non-executive directors lie within their respective roles and functions. Executive directors are appointed to manage and run the operations of a company on a daily basis. While they sit on the company’s board of directors, they are also full-time employees of the company. In this regard, executive directors are paid salaries and benefits.
Non-executive directors are not employees of the company, and they are not involved in the daily management and operations of the company. Non-executive directors are commonly appointed for specific expertise, skill or knowledge that can contribute to the company’s board reserved matters, strategic plans and implementation. Such specific functions of non-executive directors often result in consultation on and criticism of, and opinion towards, the matters to be resolved by the company’s board of directors.
For their services and contributions rendered to the company, non-executive directors are remunerated in the form of fees and benefits that are different compared to those of executive directors. The remuneration of non-executive directors is typically lower than those of executive directors.
Alternate directors are persons who are called upon to act for and on behalf of the principal directors for a particular matter, such as attending a board meeting. Although alternate directors act only when called upon to do so, they are subject to the same fiduciary and statutory duties as a director when carrying out their functions as alternate directors. This is supported by the inclusion of alternate directors under the umbrella term of “directors” under the Companies Act 2016. It is worth noting that there is no specific provision in the Companies Act 2016 in relation to the appointment of alternate directors. Thus, the appointment of alternate shareholders can only be exercised if it is expressly provided in the company’s constitution (formerly known as the memorandum and articles of association).
As the saying goes, “with great power comes great responsibility.” Directors play a crucial role in promoting the success and good corporate governance of the company, and they all have fiduciary and statutory duties towards the company in which they are appointed. It is crucial for any person who intends or consents to, or is interested in, their appointment as a director of any company, whether executive, non-executive or alternate, to be aware of the degree of duties and implications of acting as a director.
By Tommy Wong