Directors’ Duties Under the Companies Act 2016: A Practical Guide

By Axecta Management Services, Kuala Lumpur · Last verified: 29 October 2026

What the law expects of a director

Every director of a Malaysian company, whether the company is a one-person Sdn Bhd or a large public company, carries the same core obligations. They sit in Subdivision 3 of the Companies Act 2016.pdf), sections 210 to 220, and they are enforced by criminal penalties as well as civil remedies. This guide explains each duty, the protections, and a routine you can follow.

Who counts as a “director” for these duties

Section 2 defines a director as anyone occupying the position of 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. Section 210 then widens the group for the duties provisions: it also covers the chief executive officer, chief financial officer, chief operating officer or any other person primarily responsible for the management of the company. In other words, a title on the SSM register is not the test. A “shadow” decision-maker or a senior manager running the business can be treated as a director for these sections.

The main duty: section 213

Section 213 has two limbs.

1. Proper purpose and good faith. A director must at all times exercise powers in accordance with the Act, for a proper purpose and in good faith in the best interest of the company.
2. Care, skill and diligence. A director must exercise reasonable care, skill and diligence with the knowledge, skill and experience reasonably expected of a director having the same responsibilities, and any additional knowledge, skill and experience the director in fact has.

The second limb is objective and personal. A first-time director cannot argue they did not understand a balance sheet, and an accountant or lawyer on a board is held to the higher standard their expertise implies.

Contravening section 213 is an offence: up to five years’ imprisonment, a fine of up to RM3 million, or both.

Other statutory duties at a glance

Sections 221 to 225 deal with conflicts and loans to directors in detail. See directors’ conflict of interest and disclosure for those.

The business judgment rule: section 214

Boards must take commercial risks, and hindsight makes every failed decision look careless. Section 214 gives a director who makes a “business judgment” (any decision on whether or not to take action on a matter relevant to the business) a deemed pass on the care-and-diligence duty in section 213(2), and on the equivalent common-law and equitable duties, if the director:

• makes the judgment for a proper purpose and in good faith;
• has no material personal interest in the subject matter;
• is informed about the subject matter to the extent the director reasonably believes appropriate in the circumstances; and
• reasonably believes the judgment is in the best interest of the company.

The protection is earned by process: a decision to sign a large contract or buy equipment is far easier to defend if the minutes show what information the board saw, who had an interest, and why it concluded the decision served the company.

Relying on others: section 215

A director may rely on information, professional or expert advice, opinions, reports or statements, including financial statements, prepared or presented by:

• an officer the director believes on reasonable grounds to be reliable and competent on the matter;
• a person retained by the company on matters the director believes on reasonable grounds to be within that person’s professional or expert competence;
• another director on matters within that director’s authority; or
• a board committee on which the director did not serve, on matters within its authority.

Reliance is deemed to be on reasonable grounds only if it is in good faith and follows an independent assessment of the information, having regard to the director’s knowledge of the company and the complexity of its structure and operations. Signing off accounts you have not read is therefore not reliance in the statutory sense.

Delegation: [section 216](https://www.ssm.com.my/Pages/Legal_Framework/Document/Companies%20Act%202016_Akta%20777_BI%20(1.8.2022).pdf)

Directors may delegate any power of the Board to a committee, director, officer, employee, expert or other person, unless the Act, the constitution or a resolution says otherwise. Under section 216(2), the directors remain responsible for the delegatee’s exercise of the power as if they had exercised it themselves. Section 216(3) provides the escape: they are not responsible if they believed on reasonable grounds at all times that the delegatee would act in conformity with the directors’ duties and the constitution, and believed on reasonable grounds, in good faith and after proper inquiry where the circumstances called for it, that the delegatee was reliable and competent.

A worked example (illustrative)

A two-director Sdn Bhd gives its finance manager sole authority over supplier payments. A director who never reviews the bank reconciliations, even after the auditor flags unexplained transfers, will struggle to say they had reasonable grounds to believe the manager was reliable. A director who set approval limits, received monthly management accounts, and acted promptly when an anomaly appeared is in a much stronger position under section 216(3).

Duties that matter most for filings and accounts

The Act places several compliance tasks on directors personally, and these are the ones most often missed in small companies.

• Accounting records (section 245.pdf)). The company, directors and managers must keep records that sufficiently explain transactions and financial position and allow the accounts to be prepared and audited. Entries must be made within 60 days of the transaction, and records kept for seven years after completion of the transaction. They must be kept at the registered office or another place the directors think fit, and be open to directors at all times.
• Financial statements (section 248.pdf)). Directors must prepare financial statements within 18 months of incorporation and then within six months of each financial year end. They must be audited before being sent to members, and a director who contravenes the section commits an offence (fine up to RM500,000, imprisonment up to one year, or both).
• Lodging with SSM (section 259.pdf)). Filings go through SSM’s MBRS platform, where the lodger must hold an active section 241 practising certificate. A private company lodges the financial statements and reports within 30 days from the date they are circulated to members. An extension can be sought if applied for before the period expires. Officers who contravene face a fine of up to RM50,000 and a continuing fine of up to RM1,000 a day.
• Annual return (section 68.pdf)). Lodge within 30 days of the anniversary of incorporation. See annual return vs financial statements.

What this means for different companies

One-director Sdn Bhd (often the owner-manager)

You are the board, so discipline has to come from process. Keep company money separate from yours and minute significant decisions even when you alone decide.

Foreign-owned companies with a resident director

A resident or local director appointed to meet the residency requirement is not a figurehead. The Act makes no distinction between a director who runs the company daily and one who sits on paper. If you appoint someone to that role, give them real access to the accounts and bank records. For the residency rule, see who can be a director.

Nominee directors

Section 217 is explicit: a director appointed by or on behalf of a shareholder, employer or lender must act in the best interest of the company, and must not subordinate that duty to the nominator if the two conflict. A parent company cannot instruct its nominee to prefer the parent’s interests over the subsidiary’s.

Common mistakes

1. Treating the secretary or accountant as a substitute for oversight. Section 215 requires an independent assessment, and section 216 keeps you responsible for delegated work.
2. Signing financial statements without reading them. The directors prepare them under section 248.
3. Mixing company and personal funds. It breaks the section 218 prohibition on using company property for personal benefit without consent or ratification, and it makes the accounts unreliable. See separating personal and business finances.
4. Decisions with no record. Without minutes you cannot show a judgment was informed.

Habits that show reasonable care

• Receive and read management accounts at least quarterly, and monthly if the company is growing quickly.
• Check what SSM holds on your company with a company profile, which lists directors and officers.
• Keep a compliance calendar. See the Sdn Bhd compliance checklist.
• Minute significant decisions. See how to hold a board meeting.
• Keep the accounting records in good order. See tax record-keeping requirements.
• Keep written advice on matters outside your expertise.

How Axecta helps

Axecta’s company secretarial team maintains the registers, prepares board papers and minutes, files director changes and annual returns, and flags deadlines before they pass. A clean paper trail is what makes sections 214 to 216 usable in practice.

Next steps

1. Read sections 213 to 221 of the Act once, end to end.
2. List what you have delegated and to whom, and note how you supervise it.
3. Check the filing dates for the annual return and financial statements.
4. Start minuting decisions if you do not already.
5. Ask for advice before any transaction in which you or a connected person has an interest.

Frequently asked questions