Every company incorporated in Malaysia must meet one basic requirement under the Companies Act 2016: it must have at least one director who is "ordinarily resident in Malaysia". For Malaysian entrepreneurs, this is not an issue. For foreign investors, however, it can quickly become a roadblock.
Without a resident director, a new Private Limited Company (Sdn. Bhd.) cannot even be incorporated. If a company loses its only local director, it risks non-compliance, penalties, or even being struck off the register.
This article explains what the law requires, the risks foreign investors face when trying to meet this obligation, and how professional local director services provide a safe and compliant solution.
- Do you already know that you need a professional resident director in Malaysia? Fill up our Professional Resident Directors Form and we'll get in touch with you immediately to discuss how we can be of assistance.
- Do you already know the requirements for resident directors and want to set up a Sdn. Bhd. in Malaysia? See our advice on setting up a Sdn. Bhd. in Malaysia.
3. The Legal Requirement
What the law says
Section 196(4) of the Companies Act 2016 states:
"A private company shall have at least one director who is ordinarily resident in Malaysia by having his principal place of residence in Malaysia."
In practice, this means:
- a Malaysian citizen or permanent resident usually qualifies.
- an expatriate may qualify if they hold a valid work permit or residence pass and can demonstrate their principal place of residence is in Malaysia.
Why it matters
- without a local director, incorporation cannot proceed.
- if the last local director resigns or leaves Malaysia, the company has six months to appoint a replacement. Failing this, the Registrar of Companies (SSM) may move to strike off the company.
- Directors are not just figureheads: they owe fiduciary duties and statutory responsibilities. Appointing the wrong person can expose both the company and shareholders to legal risks.
Case Study: When a Compliance Shortcut Backfired
A European SME incorporated a Malaysian subsidiary and appointed one of its expatriate employees as the "resident director" to satisfy the legal requirement. The employee had little understanding of Malaysian corporate law and viewed the role as a formality.
When the company failed to lodge its annual return on time, penalties were imposed. Worse, when a dispute arose with a supplier, the employee-director was personally named in correspondence with the Companies Commission (SSM). Because the expatriate's work pass later expired, the company was left without a resident director and came close to being struck off.
The lesson: appointing someone as a "name-only" director is risky. Directors in Malaysia carry real fiduciary and statutory duties. Foreign investors are safer engaging a professional who understands the responsibilities and ensures continuity.
2. Common Risks for Foreign Investors
Many foreign businesses underestimate the requirement of having a resident director. The most common risks are:
Misinterpreting "ordinarily resident"
Some assume that appointing a non-resident foreigner with business ties to Malaysia will suffice. In fact, the person must legally reside in Malaysia and have their principal residence there.
Informal "nominee" arrangements
It is not unusual to see informal or low-cost service providers offering to "rent out" a local director. This carries major risks:
- The person may not understand their legal responsibilities as a director.
- They may not cooperate with regulatory filings, leaving the company exposed.
- In worst cases, they may exploit their position to exert control or demand additional fees.
Case Study: When the "Cheap" Nominee Was
Nowhere to Be Found
A foreign-owned trading company in Kuala Lumpur decided to save
costs by engaging a low-cost service provider who "rented
out" a local director. Everything appeared fine until the
company needed to renew its business licence, which required the
director to attend a government office in person.
The appointed "nominee" was uncontactable and refused to appear. As a result, the renewal application stalled for weeks, the company faced operational delays, and eventually had to replace the director at short notice. The disruption cost far more than any savings made on the initial appointment.
The takeaway: informal nominee arrangements may look inexpensive, but they often collapse at the very moment you need a director most.
Compliance exposure
Directors in Malaysia can be held personally liable for breaches of the Companies Act, tax laws, anti-corruption regulations and many other laws. Using an unqualified or irresponsible nominee puts the foreign parent at unnecessary risk.
Reputational and operational risk
If a director is unresponsive or not aligned with the parent company, it can delay bank account openings, licensing applications, or even immigration approvals for expatriates.
3. The Practical Solution: Professional Local Director Services
Because every foreign-owned Sdn. Bhd. must have a resident director, most investors engage professional service providers to fulfil this role. Done properly, this is a transparent and compliant arrangement – not a loophole.
What professional resident directors do
- Ensure statutory compliance: they ensure the company meets obligations under the Companies Act, including annual filings and board approvals.
- Attend to corporate governance: they participate in board meetings, review documents, and provide oversight.
- Interface with regulators: they act as a point of contact for the Companies Commission of Malaysia (SSM) or other agencies.
- Safeguard continuity: if a foreign shareholder or expatriate director leaves Malaysia, the company remains compliant.
Case Study: Professional Support Made the
Difference
A European company incorporated a Malaysian subsidiary to
manage its ASEAN operations. They appointed one of our
professionals as the local resident director. Within the first
year, the company faced an unexpected compliance challenge: the
authorities required the director to attend in person to clarify
certain filings with the Companies Commission (SSM).
Because the company had engaged a professional local director, the process was handled smoothly. The director attended the meeting and held all discussions in Malaysian (Bahasa Melayu), ensured that all statutory obligations were explained and met and the matter was resolved without disruption to the business. The foreign shareholders remained fully in control of operations while knowing their Malaysian entity was legally safeguarded.
The lesson: appointing a professional resident director is not just about meeting a formality – it ensures that when issues arise, there is someone competent and accountable to protect the company's interests.
What professional resident directors do not do
- They do not interfere with the day-to-day management of the business, which remains under the control of the foreign parent and its appointed executives.
- They do not take commercial decisions unless expressly required or instructed by the board.
If you need a reliable resident director, fill up our two-minutes Professional Resident Directors Form. We'll get in touch with you immediately to discuss how we can be of assistance.
4. How Our Local Director Services Work
We provide resident director services specifically tailored for foreign-owned companies in Malaysia. Our approach emphasizes compliance, transparency, and client control.
Step 1: Needs assessment
We begin by understanding your business structure, ownership and objectives. This ensures that our appointment as local director fits seamlessly into your governance model.
Step 2: Appointment as resident director
We formally accept appointment as resident director of your Malaysian entity. All necessary resolutions and statutory filings with SSM are prepared and lodged.
Step 3: Ongoing compliance support
We ensure that your company remains compliant with local laws, including timely filing of annual returns, attending to board approvals, and monitoring changes that may affect the company's obligations.
Step 4: Alignment with your business
Our role is to provide a professional safeguard, not to interfere in your operations. The foreign parent and its representatives retain full control of strategy, management, and decision-making.
5. Why Choose Professional Director Services Instead of Informal Nominees?
Foreign investors often ask why they should engage a professional firm instead of appointing an individual acquaintance or low-cost nominee. The reasons are clear:
- Compliance expertise: we understand the legal framework, from the Companies Act to tax and anti-bribery rules.
- Reliability: professional directors are contractually bound to act in the best interest of the company and to maintain confidentiality.
- Continuity: a professional service ensures that even if staff changes occur abroad, the Malaysian company remains compliant without disruption.
- Reputation: regulators and banks recognize professional appointments as credible, reducing friction in approvals.
6. Frequently Asked Questions (FAQs)
Q: Can foreigners be directors in
Malaysia?
Yes, foreigners can be appointed directors, provided they are not
disqualified under the Companies Act. However, at least one
director must be ordinarily resident in Malaysia.
Q: What does "ordinarily resident" mean in
practice?
It means having one's principal place of residence in Malaysia.
Malaysian citizens and permanent residents usually qualify
automatically. Expatriates with valid work passes may also
qualify.
Q: What happens if a company has no local
director?
The company will be in breach of the Companies Act. If the
situation persists for more than six months, the Registrar may move
to strike off the company from the register.
Q: Is appointing a local director just a
formality?
No. Directors owe fiduciary duties and statutory responsibilities.
Appointing the wrong person can expose the company to legal and
reputational risks.
7. Conclusion
For foreign investors, Malaysia offers a welcoming environment for business. But incorporation of a Sdn. Bhd. comes with one unavoidable requirement: at least one director must be resident in Malaysia.
This requirement should not be seen as a hurdle, but as an opportunity to ensure your company has a professional compliance safeguard on the ground.
Engaging a trusted partner for local director services means you can:
- Incorporate quickly and compliantly.
- Avoid risks from informal nominee arrangements.
- Maintain control of your business while meeting all statutory obligations.
The original article was published on Aqran Vijandran's website at Resident Director Requirement In Malaysia: How Foreign Investors Can Comply Safely.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
