Responsibilities of a company director

Why is it important to understand the responsibilities of a company director? Because the directors are entrusted by the shareholders to drive the company a great success.

Many people reading this will no doubt already be company directors, while a few may be thinking about establishing a company (sdn bhd) and becoming its director.

The beginning point for any company’s director, and consequently the starting point for any company’s director, is to learn a little bit more in detail about the roles and duties of the directors.

Please note that the company mentioned herein this articles is referred to “Sdn Bhd” or “Berhad” companies in Malaysia. To know more what is Sdn Bhd, please click here.

Trusts from shareholders to director

Although a sdn bhd company is owned by its shareholders, they entrust the administration of the company to the directors (even though in most cases, the shareholders and the directors are the same people).

Clear and reasonable duties for the directors are essential both to safeguard the interests of the shareholders as well as the directors themselves.

Consequently, the directors understand what is required of them, what they are to do and what not to do. Should the directors fail in their duties, the consequences could be serious.

Responsibilities of a company director

General duties that apply to all directors as laid out by the Companies Act 2016:

  • A responsibility to function within their powers, as laid out in the company’s Constitutions
  • A responsibility to improve the company’s success
  • A responsibility to apply independent judgements
  • A responsibility to apply realistic diligence, skill and care
  • A responsibility to circumvent clash of interests
  • A responsibility to reject benefits from any third party
  • A responsibility to unveil interests in a planned arrangement or transaction

Even though it has no advantaged status in law, the obligation to promote the company’s success lies at the heart of a director’s responsibilities.

In increasing the company’s success for the benefit of its shareholders as a whole, the Companies Act states that the company directors need to think about the effect of decisions on the reputation of the company and the interests of other stakeholders including workers, shareholders, clients, suppliers, as well as the community at large.

Limitation of a director

Generally, the directors may apply all the powers of the company.

However, the company’s Constitutions may set limitations on the powers of the directors in some areas– a common instance includes the limitation on new shares allocation in the company among others.

Thus, it is typical of the directors to offer new shares to the current shareholders prior to inviting applications more widely.

Company director empowered to run company

Additionally, the company’s Constitutions will define how decisions should be made.

Although limited company directors will, as a board, jointly bind the company, the Constitutions generally give power to the board of directors to entrust powers to each director as they deem fit.

Role of a director

The specific role of each director within a company may vary based on the company size, the number of directors, and the nature of the company’s business.

The role, expertise and experience of a director will likewise have an impact on their areas and influence their areas of responsibility and coverage.

Knowing the role will ensure that the responsibilities of a company director be taken care of.

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