Legal Requirements for Directors’ Fees and Benefits in Malaysia

Company Law

One common issue I encounter in both M&A deals and IPO exercises relates to compliance with the legal requirements for the payment of director’s fees and benefits. Additionally, the legal obligations regarding director’s service contracts should not be overlooked.

Here are the key points:

Constitution

1. If a company, whether public or private, intends to pay fees and benefits to its directors, its constitution must allow for such payment. If not, the constitution should be amended to authorise the payment.

Approval for private company

1. For a private company that is not a subsidiary of a listed company, the director’s fees and benefits must be approved by its board of directors.

2. The director’s approval must be recorded in the minutes of the directors’ meeting.

3. The board must notify the shareholders of the approval of the fees within 14 days from the date of the approval.

(s230(2) and s230(3), Companies Act 2016)

Approval for public company (listed or unlisted) and subsidiary of listed company

1. Director’s fees and benefits for directors of a public company, whether listed or not, or a subsidiary of a listed company must be approved by shareholders in a general meeting.

2. Any shareholders’ resolution for a public company, whether listed or not, must be passed by way of a meeting, and not via a written resolution.

(s 230(1) and s 290(1), Companies Act 2016)

Directors’ service contract

1. Generally, there is no legal requirement for a company to enter into a director’s service contract with its directors.

2. If a public company or any of its subsidiaries does enter into a director’s service contract, the public company must keep and maintain a copy of the director’s service contract available for inspection at the registered office by members holding at least 5% of the total paid up capital. Copies of contracts must be made available for inspection for at least one year from the date of termination or expiry of the contract. This applies as well to variations of a director’s service contract.

(s 232 and s 233, Companies Act 2016)

#malaysiancorporatelawyer

This post was first posted on LinkedIn on 2 November 2023.

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