Introduction to Type of Director in Malaysia

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What is a director?

Directors are individuals appointed by the shareholders of the company to manage the affairs and business of the company. They are basically agents of the company- put in place to promote the success of the company for the benefits of the members of the company as a whole.

Who can / cannot be a director?

In order to be qualified as a director in Malaysia, a person:

  1. Must be a natural person and  is at least 18 years of age1;
  2. Must ordinarily reside in Malaysia by having a principal place of residence in Malaysia2;
  3. Must not be an undischarged bankrupt3 (as defined under Section 38 of the Insolvency Act4);
  4. Must not be convicted of an offense relating to the promotion, formation, or management of a corporation5;
  5. Must not be convicted of an offense involving bribery, fraud, or dishonesty6;
  6. Must not be convicted under section 213, 217, 218, 228 and 539 of the Companies Act7; and
  7. Must not be disqualified by the court under section 199 of the Companies Act8.

Read more here about the do’s and don’ts of a company director.

Types of Director in Malaysia

Section 2 of the Companies Act defines a director to include any person occupying the position of director of a corporation by whatever name called and includes a person in accordance with whose directions or instructions the directors of a corporation are accustomed to act and an alternate or substitute director9.

A quick glance at the section will tell you that directors come in different shapes and sizes. Below are some of the more common titles given to a director that we come across in Malaysia.

Sleeping Director

Sleeping directors, also commonly known as non-executive directors are directors:

  1. Who periodically attend Board meetings but do not play an active role in the management of the company;
  2. Who are usually appointed to prerequisite numbers of directors as required by the law10. In this regard, they are usually the parents, family members, or friends of the active directors (also known as executive directors) of the company; and
  3. Who usually do not receive any remuneration from the company unless the constitution of the company states otherwise.

Shadow Director

A shadow director is a director who:

  1. Is not formally appointed by the company;
  2. Are usually the ones who are controlling/ commanding the formally appointed directors (de jure directors) in the background; and
  3. The instructions given by them are usually followed and carried out by members of the board of directors of the company.

The court11 further described such person12 as a rather sinister individual who is in actuality a ‘puppeteer’, who pulls the strings and his puppets will dance to the music/ tune he played.

De Facto Director

A de facto director, as noted by the court, is a person who assumes to act as a director. He is held out as a director by the company, and claims and purports to be a director, although never actually or validly appointed as such.

Nominee Director

A nominee director is a director appointed by a particular group of people who have an interest in the company to represent their interest in the company. This usually occurs in parent-subsidiary companies, where the parent company will nominate a person to represent their interest/ act on their behalf in the subsidiary company.

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1. Section 196 (2), Companies Act 2016.
2. Section 196 (4)(a), Ibid.
3. Section 198(1)(a), Ibid.
4. 
1967.
5. Section 198(1)(b), Companies Act 2016.
6. Section 198(1)(c), Companies Act 2016.
7. Section 198(1)(d), Ibid.
8. Section 198(1)(e), Ibid.
9. Section 2, Ibid.
10. Section 196 (1), Companies Act 2016.
11. Sazean Engineering & Construction Sdn Bhd v Bumi Bersatu Sdn Bhd [2018] 1 LNS 898.
12. Walter Woon, Company law, Second Edition.

Image source – Business photo created by yanalya (Freepik)

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