Being new to the entrepreneurship world means that there are a lot of business jargons to get used to, particularly if you register a company for the first time. In addition to determining the amount of paid-up capital and the number of shares for your company, you will need to appoint directors and shareholders. Who are the directors and shareholders of the company, and how do they contribute to the business in general?
Directors
Directors, also known as the board of the company, are individuals who are directly involved in decision making and the operation of the company. In Malaysia, all Sdn Bhd companies are required to have at least 1 director who resides in the country. The person must be at least 18 years old to become a director of a company and is not disqualified under Section 198 of the Companies Act 2016. A director is not necessarily a shareholder of the company. Directors are sometimes known as the promoters in the company registration process.
- Responsibilities of directors
Directors are expected to utilise their knowledge and experience when running the company and make well-informed decisions with the best interests of the company in mind. Due to their position as the management of the company, they should avoid any conflict of interest such as by engaging in businesses that compete with the company and should not take advantage of the company for their personal benefits.
The penalties of breaching their duty as a director of a company are imprisonment of up to 5 years, a fine of up to RM3,000,000, or both.
- Right of directors
With great responsibilities directors are holding, they are allowed to seek help from professionals such as lawyers, accountants and business advisors in gathering information to make decisions or prepare reports for the company.
Similar to employees of a company, directors may be paid a director fee, as approved by the board and shareholders. However, the company cannot provide a loan or become a guarantor of the loan to its director or anyone connected to the director, unless it is approved by the shareholders.
Shareholders
Shareholders, also known as members, are the owners of the company. They can be individuals or corporate bodies, such as a Sdn Bhd, who own part of the company through the subscription of shares (buy shares). A private limited company (sdn bhd) can have up to 50 shareholders. Since they financially back up the company, they have indirect control over the operation of the company. If there is only 1 shareholder in the company, it means that person is the sole owner of the company, holding 100% of the shares. Shareholders are sometimes known as subscribers in the company registration process.
- Responsibilities of shareholders
Even though shareholders do not directly manage the company, as owners of the company they hold liabilities too, especially on any amount of the unpaid shares held.
- Right of shareholders
Shareholders can request directors to hold shareholder meetings in order to discuss matters related to the business. They can raise concerns and questions regarding the decisions made by directors on behalf of the company.
Unlike directors, shareholders receive a percentage of dividends according to the annual profits of the company. If the company is issuing new shares, existing shareholders have the priority in buying these shares first before they are taken up by third parties.
The director and shareholder positions can be held by the same or different individuals. They have various roles in the company to ensure a smooth and profitable business operation. If you are not starting your own business, you may have received an invitation to become a director or shareholder for a company. It is therefore necessary for you to understand the roles and rights of these positions in order to ensure that you are able to accept the responsibility and liability for the company.