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:

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

Type 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:

Who periodically attend Board meetings but do not play an active role in the management of the company;
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
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:

Is not formally appointed by the company;
Are usually the ones who are controlling/ commanding the formally appointed directors (de jure directors) in the background; and
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.