Changes in Directors of a Company Incorporated in Malaysia
Section 2 of the Companies Act 2016 defines “director” includes 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 majority of directors of a corporation are accustomed to act and an alternate or substitute director.
In simple words, a director is a person who carries the responsibilities to run the affairs and management of the Company.
Once your company is incorporated, your company may have changes in the key personnel (namely, the director) from time to time, due to various possible reasons. For example, new key personnel joining your company as your company grows or existing directors may be leaving the Company.
Here we will cover a few commons changes in directors for your better understanding:
- Appointment of a director
- Resignation of a director
- Removal of a director
Appointment of a director
Under Sec 202 Companies Act 2016, the person named as a director in an application for incorporation of a Company (usually also known as First Director) shall hold office as a director from the date of incorporation until the person ceases to hold office as a director.
The Act also specifies that any subsequent appointment of a director may be made by ordinary resolutions.
If you wish to appoint a new director to your company, you must ensure:
- The person must be a natural person and aged 18 years old and above;
- The person must not be disqualified under sec 198 of CA 2016 to be a director of a Company.
- Is not an undischarged bankrupt
- have not been convicted whether within or outside Malaysia of any offense- in connection with the promotion, formation, or management of a corporation; or involving bribery, fraud, or dishonesty
- The person consented in writing to be a director
The process for the appointment of a director for a private limited company will usually be as follow:
- The Company secretary will usually prepare for the signing
- Board resolution for the appointment of a director [to be signed by the existing directors]
- Form Section 201 – Declaration and consent by the director [to be signed by the new director]
3. Once the searches are cleared, the company secretary will then proceed to lodge to Suruhanjaya Syarikat Malaysia (SSM)
- Form Section 58 – Notification of change in the Register of Directors, Managers, and Secretaries
Resignation of a Director
Under section 196 of the Companies Act 2016, a company shall have a minimum number of directors as follow:
- Private company -minimum one (1) director
- Public company- minimum of two (2) directors
As such director:
a) must ordinarily reside in Malaysia by having a principal place of residence in Malaysia; and
b) shall not include an alternate or substitute director.
A director shall NOT resign or vacate his office if, by his resignation, the number of directors of the company is reduced below the minimum number of directors for a company. Otherwise, the resignation shall be deemed to be ineffective.
The process of director resignation will usually be as the following manner:
- The resigning director may resign by giving written notice (or sometimes the director's resignation letter) to the company at its registered address to notify the company and its company secretary
- The company secretary will usually prepare a board resolution for the remaining directors to sign and approve the resignation and authorize the Company secretary to lodge the notification with SSM
- Once the documents are signed, the company secretary will then proceed to lodge to Suruhanjaya Syarikat Malaysia (SSM)
4. After the resignation is approved by SSM, you will receive a copy of Section 58 from SSM and the resigned director's name will be removed from the SSM database. You may purchase the SSM profile or Register of Director for your reference.
Removal of a Director
On certain occasions with disputes or conflicts among the shareholders/directors, a director may not be willing to submit his/her resignation. Under Section 206 of the Companies Act 2016, a director may be removed before the expiration of the director’s period of office, for a private company by ordinary resolution (subject to the company’s constitution).
The matter is more complicated and needs to be handled properly to comply with the laws and regulations. The Companies Act 2016 specifies that the removal of a director of a private company cannot be by a written resolution. The company must convene a general meeting with special notice to the shareholders of at least 28 days is required for a resolution to remove or replace a director in the meeting.
Under Section 310 of the Companies Act 2016, a general meeting may be convened by:
- The Board; or
- Any member holding at least ten per centum (10%) of the issued share capital of a company or lower % as may be specified in the constitution
Frequently asked questions
1. What are the duties and responsibilities of a director?
Under Section 213 of the Companies Act 2016, a director shall at all times exercise his powers in accordance with the Act, for a proper purpose and in good faith in the best interest of the Company. It further specifies that a director shall exercise reasonable care, skill, and diligence with:
- The knowledge, skill, and experience which may be reasonably expected of a director having the same responsibilities
- Any additional knowledge, skill, and experience that the director in fact has
- Income Tax Act 1967
- Employees Provident Fund Act 1991
- Employees' Social Security Act 1969
- Sales Tax Act 2018 and Service Tax Act 2018
- Stamp duty act 1949
- Employment Act 1955
- and many more (depending on the business and activities your company is involved in)
2. Am I still liable for any liability after resigning as a company director?
Even a person may have resigned as a company director, this does not mean that a director is absolved from all liabilities. A director is not absolved from all liabilities by virtue of his/her resignation, if such liabilities were incurred as a result of his/her breach of director’s duties to the company, prior to the date of resignation.
3. How can shareholders remove a director?
At times of dispute, a shareholder may remove a director of a Company by convening a general meeting to resolve the removal of a company director. Under Section 301, any member holding at least ten per centum (10%) of the issued share capital of the company or lower % as may be specified in the constitution, may call for a general meeting with special notice of 28 days to table the resolution to remove a director. If the resolution is voted for with a majority vote, then the director shall be removed from his/her office.
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