9 FAQs About Appointing Nominee Directors In Malaysia

Appointing a nominee director is a common solution for legal entities (human or corporate) that want control over a company’s operations without public participation. Once appointed on behalf of the legal entity, the nominee director acts as a proxy, carrying out their instructions.

Behind the scenes, the legal entity pulls the strings just like a James Bond villain.

Having helped source nominee directors and overseeing their appointment process, the MISHU team routinely answers questions on this topic. These questions are quite predictable, so we thought we’d put it down in writing to help you too: here are the nine most commonly asked questions about appointing a nominee director in Malaysia.

1. What is the purpose of a nominee director in Malaysia?

At a high level, this depends on whether you’re a Malaysian resident or foreigner.

As a foreigner

According to the Companies Act 2016, companies in Malaysia must have at least one director and shareholder who resides in Malaysia. Without an existing local network, a foreign party may find it more convenient to appoint a local nominee director (usually also as nominee shareholder) rather than delaying incorporation.

Of course, this can be both a short or long-term solution, giving the foreign party freedom to build a network and find a more permanent local partner.

As a Malaysian resident

There may be situations where it would be beneficial for an entrepreneur to keep ownership of a company from becoming public information. This is not the same as withholding information from the authorities, and SSM must in fact be notified of their status as a Beneficial Owner (more on that below).

For example, businesses in highly competitive industries will closely scrutinise competitors for possible competitive advantages. If ownership structures were public knowledge, these advantages would be much easier to spot and counter.

2. What are a nominee director’s responsibilities?

A nominee director is usually appointed to meet statutory compliance requirements.

Under a typical arrangement, a nominee director has no executive powers and cannot run day-to-day financial or operational matters, be a bank signatory, or sign invoices, contracts and legal documents on behalf of your business. Of course, you may choose to give them this power within a limited capacity.

Otherwise, they are obligated to ensure the company is run as per your wishes, provided there is no conflict with the best interests of the company, which is the subject of the next question.

3. What are a nominee director’s liabilities?

A nominee director is given the usual liability protection offered to a director of a Sdn Bhd.

However, Section 217 of the Companies Act 2016 specifically mentions a nominee director’s duty:

A director who was appointed by virtue of his position as an employee of a company, or who was appointed by or as a representative of a member, employer or debenture holder, shall act in the best interest of the company and in the event of any conflict between his duty to act in the best interest of the company and his duty to his nominator, he shall not subordinate his duty to act in the best interest of the company to his nominator.

Companies Act 2016

In simple terms, a nominee director’s primary responsibility is to protect the interest of the company. This duty takes priority over any loyalty towards the entity that appointed them.

If the nominee director fails and acts against the best interest of the company, they have broken the law and are liable for a reward: imprisonment up to five years or a fine up to three million Ringgit, and if the judge is in a generous mood, they get both.

4. What are necessary documents to appoint a nominee director?

Heads up, it’s a pretty substantial list. We’ll split it into statutory (for SSM) and legal documents (between you and the nominee director).

Statutory Documents

• Due diligence reporting of directors and beneficial owners of the company (based on SSM’s reporting framework)
• FORM49 – return giving particulars in Register of Directors
• Company resolution for appointment of nominee director

Legal Documents

• Trust Deed – an agreement for the nominee shareholder to act only on your instructions
• Call Option Agreement – compels a nominee shareholder to sell back all trust shares to you at a set price
• Power of Attorney – transfers all authority to manage the company and it’s bank accounts to you
• Nominee Director Agreement – defines rights and duties of the nominee director

Additionally, the following Secretarial Documents will need approval from your Company Secretary:

• Pre-signed Director Circular Resolution on Transfer of Shares
• Instruction of Assignment of Dividends to the Beneficial Owner
• Pre-signed Share Transfer Form by the Nominee Shareholder
• Pre-signed Resignation Letter by Nominee Director

5. Who is qualified to be a nominee director in Malaysia?

This one’s pretty straightforward and identical to the requirements to be a regular director:

• be at least 18 years old
• ordinarily reside in Malaysia by having a local principal address
• cannot be an undischarged bankrupt
• cannot be disqualified under the Companies Act 2016
• has not been imprisoned for offenses under the Companies Act 2016 within 5 years immediately preceding their appointment

There’s also a requirement that they be of sound mind, but all the amazing directors we know talk to themselves more than anyone else!

6. What makes an ideal nominee director?

As your representative to stakeholders, potential investors, and the general public, the ideal nominee director would also:

1. Be of an appropriate age
2. Have a suitable education background and/or years of industry experience
3. Be financially stable
4. Have a spotlessly clean criminal record
5. Understand the role of a nominee director
6. Not hold too many other directorships

Business consultants like MISHU screen potential nominee directors to find the best possible fit for our clients’ business.

7. Do I need to disclose my status as owner to the Malaysian government?

Yes, the specific term for you in this case is Beneficial Owner (BO), defined in SSM’s BO Reporting Framework as ‘natural persons who ultimately own or control a legal entity or arrangement’.

The company and its directors have a duty to exercise due diligence to identify all Beneficial Owners and lodge the Register of Beneficial Ownership to SSM.

8. What protective measures do I have?

We cannot answer this definitively as it depends on the supporting documents, but those who engage MISHU’s services will enjoy the following protective measures:

• terms granting you full control over shares and company finances, recognised by the Malaysian courts
• the ability to force a buyback of any shares transferred at a fixed price of RM10 for all shares
• the ability to remove a nominee director if they breach their obligations or if you find a permanent replacement

9. How much does a nominee director appointment cost?

Again, we cannot answer this definitively, but at MISHU, charges start at RM10,000 per year, with a minimum RM5,000 refundable security deposit – a standard requirement for this type of service.

As we owe a duty of care to both you and our nominee director candidates, do note that this is subject to your business passing our Know Your Customer (KYC) compliance check.

Let MISHU Manage Your Nominee Director Appointment

Whether you’re a foreign entrepreneur looking to expedite incorporation in Malaysia or a local business owner who wants to protect his trade secrets from competitors, MISHU’s team of professionals is ready to help you source the perfect nominee director and manage all paperwork to ensure their appointment is smooth and fully compliant.