# Director Service Contracts — Office, Employment, and the s.231 Disclosure Rule

> Why a director's office is not employment, what a service contract adds, and why the Companies Act 2016 inspection regime in ss.231–233 applies to public companies only.

- Category: business
- Language: en
- Status: published
- Updated: 2026-07-20
- Canonical: https://negaraku.md/en/business/director-service-contracts

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Ask a Malaysian company for its executive director's employment contract and you will
usually be handed one document. Ask what happens to that person's pay if the shareholders
remove them as a director next month, and the room goes quiet.

The two things are separate. Directorship is an **office** conferred by the members and
governed by the Companies Act 2016. A service contract is the **contract** under which a
person personally performs services for the company for reward. Removing someone from the
office does not automatically end the contract, and terminating the contract does not
vacate the office.

## What s.231 actually covers

Section 231(1) defines a director's service contract, for the purposes of that Division,
**in relation to a public company**, as a contract under which:

- a director undertakes personally to perform services, as a director or otherwise, for the
  public company or for a subsidiary; or
- services the director undertakes personally to perform are made available to the public
  company or a subsidiary **by a third party**.

Limb (b) is the anti-avoidance limb. Routing an executive through a management company does
not take the arrangement outside the Division.

Section 231(2) adds two extensions: the Division applies to the terms of a person's
appointment as a director, and it is not limited to services outside the ordinary duties of
a director.

Then the machinery, all of it public-company machinery:

| Duty | Section | Detail |
| --- | --- | --- |
| Keep copies of every service contract with the company or a subsidiary available for inspection | s.232(1) | Including variations — s.232(6) |
| Keep them at the registered office | s.232(2) | Notify the Registrar of any other place, and of changes — s.232(4) |
| Keep them for at least one year after termination or expiry | s.232(3) | The retention clock runs after the contract ends |
| Penalty | s.232(5) | Fine up to **RM1 million** on the company and every officer in default |
| Member inspection | s.233(1) | Members holding at least **5%** of total paid-up capital, or at least **10%** of members where there is no share capital |

Most Malaysian commentary presents ss.231–233 as general company law. It is not. A private
company limited by shares has no inspection duty of this kind at all.

## What a private company owes instead

The private-company controls sit in s.230 and s.227.

**Section 230(2):** the board may, subject to the constitution, approve directors' fees and
any benefits payable, including compensation for loss of employment of a director or former
director. That is a real difference from a public company, where s.230(1) sends the same
decision to a general meeting.

**Section 230(3):** the approval must be recorded in the directors' minutes and the
shareholders notified **within fourteen days**. Failure is an offence carrying a fine up to
RM250,000 on the company and every officer.

**Section 230(4)–(5):** members holding at least **10%** of total voting rights who consider
the payment unfair to the company may, **within thirty days of knowledge**, require the
company to pass a resolution approving it, by written resolution or in general meeting.
Unless that approval is obtained, the payment **constitutes a debt due by the director to
the company**.

**Section 227(1):** it is not lawful for a company to pay a director compensation for loss of
office, or as consideration for retirement, unless particulars including the amount have
been disclosed to members and the proposal approved by them. An unlawful payment is deemed
received in trust for the company. In a public company, s.227(2) requires the interested
director and connected persons to abstain from voting.

## What to put in the contract

- **Separate the roles.** State that termination of employment does not itself vacate the
  office, and that removal from office is a termination event under the contract, with the
  consequence spelled out.
- **Handle removal.** In a private company, removal is by ordinary resolution subject to the
  constitution (s.206(1)(a)); a public company director can be removed notwithstanding any
  agreement (s.206(2)). A contract cannot buy protection a public-company director does not
  have.
- **Price the exit in advance.** A severance formula agreed at the start is a payment for
  loss of office, so plan for the s.227 approval rather than discovering it later.
- **Do not import a post-termination non-compete.** Section 28 of the Contracts Act 1950
  voids agreements restraining the exercise of a lawful profession, trade or business, and
  none of its three exceptions covers an employer or a company restraining a departing
  executive.

## Common mistakes

**Applying s.231 to a Sdn Bhd.** It is defined by reference to public companies. The private
company obligations are s.230(3) notification and s.227 approval.

**Assuming the board can simply vote itself a payoff.** Section 227 makes that unlawful
without member approval, and s.230(5) turns an unapproved private-company payment into a
debt owed by the director.

**Treating a directors' resolution as sufficient and stopping there.** Section 230(3)
requires shareholder notification within fourteen days on top of the board approval.

**Assuming an executive director automatically gets unfair-dismissal protection.** The office
itself is not employment. Whether the individual is a workman with recourse under s.20 of
the Industrial Relations Act 1967 depends on the substance of the relationship.

## What's next

If the director is also a shareholder, the exit terms interact with the shareholders
agreement and with the oppression remedy in s.346 — a removal that is procedurally correct
can still be attacked as conduct in disregard of a member's interests. And if the company
is public, the inspection file under s.232 needs to exist before anyone asks for it.

## Sources

- Companies Act 2016 (Act 777), reprint as at 1 August 2022 — https://www.ssm.com.my/Pages/Legal_Framework/Document/Companies%20Act%202016_Akta%20777_BI%20(1.8.2022).pdf (SSM)
- Companies Act 2016 (Act 777), AGC updated text — https://lom.agc.gov.my/act-detail.php?act=777 (Attorney General's Chambers of Malaysia)

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