A directorship is an office created by the Companies Act 2016, not a job. A service contract is the separate agreement under which a director personally performs services for pay. Section 231 defines that contract for public companies only, and ss.232–233 require a public company to keep copies available for inspection at its registered office. A private company has no equivalent inspection duty, but it does have s.230(3), which requires shareholders to be notified of board-approved directors' fees within fourteen days.
- Appointment as a director is an office; any pay for work done sits in a separate service contract
- s.231 defines a director's service contract in relation to a public company only
- s.232 requires a public company to keep copies for inspection at the registered office, and for at least one year after termination or expiry — fine up to RM1 million
- s.233 gives inspection rights to members holding at least 5% of paid-up capital, or at least 10% of members where there is no share capital
- Private company directors' fees and benefits are approved by the board subject to the constitution (s.230(2)), with shareholder notification within 14 days (s.230(3))
- s.230(4) lets members with at least 10% of voting rights force a resolution within 30 days of knowledge; without it, s.230(5) makes the payment a debt due from the director
- Any payment for loss of office needs member approval under s.227, or the director holds it on trust for the company
Who this applies to: Boards documenting what an executive director is paid, and anyone drafting or reviewing a director service contract in a Sdn Bhd or a public company.
On this page
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.
Is a director an employee?
Not by virtue of the office. Directorship is a statutory office; being paid for it does not by itself create an employment relationship. An executive director may separately be an employee under a service contract, in which case employment law consequences follow. Whether a particular director is an employee or a workman for the purposes of s.20 of the Industrial Relations Act 1967 is fact-sensitive and depends on the substance of the arrangement, not the label.
Does s.231 apply to a Sdn Bhd?
No. Section 231(1) defines a director's service contract for the purposes of that Division in relation to a public company. The inspection obligations in ss.232 and 233 run from that definition. Guidance that applies the inspection regime to private companies is applying a public-company provision.
Who approves what an executive director is paid in a private company?
Section 230(2) allows the board, subject to the constitution, to approve directors' fees and benefits including compensation for loss of employment. The approval must be recorded in the directors' minutes and the shareholders notified within fourteen days under s.230(3). Contravening the notification duty carries a fine of up to RM250,000 on the company and every officer.
Can we pay a departing director a golden handshake?
Only with member approval. Section 227(1) makes it unlawful for a company to pay a director compensation for loss of office, or in connection with retirement, unless particulars including the amount have been disclosed to members and the proposal approved by them. Where an unlawful payment is made, s.227(1) deems the director to hold the amount on trust for the company.
The following are deliberately unstated or described only qualitatively until confirmed by a subject-matter expert:
- Confirm the treatment of executive directors as workmen under s.20 of the Industrial Relations Act 1967 — this turns on case law, not on the face of the statute
Sources
- Companies Act 2016 (Act 777), reprint as at 1 August 2022 — SSM
- Companies Act 2016 (Act 777), AGC updated text — Attorney General's Chambers of Malaysia
Change history
| Version | Date | Change | By |
|---|---|---|---|
| 01.00 | 20 Jul 2026 | Approved and published. | — |