Non Executive Director Agreement Template for Malaysia
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What is a Non Executive Director Agreement?
The Non Executive Director Agreement is a crucial document used when appointing independent directors to a company's board in Malaysia. It is essential for establishing clear governance structures and ensuring compliance with the Malaysian Companies Act 2016 and corporate governance requirements. This agreement is particularly important for both public listed and private companies seeking to enhance their board oversight and corporate governance. The document covers key aspects such as appointment terms, duties, remuneration, and compliance obligations, while addressing specific Malaysian regulatory requirements and corporate governance standards. It serves as a formal contract between the company and the incoming director, protecting both parties' interests and establishing clear expectations for the role.
About the Non Executive Director Agreement
A Non Executive Director Agreement is a formal contract that governs the appointment of independent directors to your company's board in Malaysia. This document establishes the legal relationship between your company and the non-executive director, ensuring compliance with the Companies Act 2016 and Malaysian corporate governance standards. The agreement protects both parties by clearly defining roles, responsibilities, compensation, and expectations throughout the directorship term.
When do you need this document?
You need this agreement when appointing any non-executive director to your board, whether for a private limited company or public listed company. It's particularly crucial for companies listed on Bursa Malaysia, as they must comply with specific board composition requirements including minimum numbers of independent directors. The document is also essential when restructuring your board, adding expertise in specific areas, or meeting regulatory requirements for corporate governance. Family businesses transitioning to more formal governance structures often require this agreement when bringing in external directors to provide independent oversight and strategic guidance.
Key legal considerations
The agreement must clearly outline the director's fiduciary duties under Sections 213-215 of the Companies Act 2016, including duties of care, skill, and diligence. You should specify the director's independence criteria, particularly if they qualify as an independent director under Bursa Malaysia requirements. The document should address potential conflicts of interest, confidentiality obligations, and the director's authority limitations. Compensation structures must comply with Section 230 regarding director remuneration, and you should include provisions for director and officer insurance coverage. The agreement should also specify termination conditions, including circumstances that would disqualify the director under Section 198 of the Companies Act 2016.
Legal requirements in Malaysia
Under the Companies Act 2016, every director must satisfy the fit and proper criteria outlined in Section 196, and the agreement must reflect these requirements. For public companies, the Malaysian Code on Corporate Governance 2021 mandates specific board composition standards, including tenure limits for independent directors. Listed companies must ensure their agreements comply with Bursa Malaysia Listing Requirements, particularly regarding independent director qualifications and the one-third board composition rule. The agreement must address Malaysian tax implications under the Income Tax Act 1967 for director fees and benefits. Additionally, directors of public companies may need to comply with the Capital Markets and Services Act 2007 regarding securities transactions and disclosure obligations.
GOVERNING LAW
Applicable law
This Non Executive Director Agreement is drafted to comply with Malaysia law. Key legislation includes:
Capital Markets and Services Act 2007: Relevant for companies listed on Bursa Malaysia, governing securities laws and director responsibilities in public listed companies.
Malaysian Code on Corporate Governance 2021: Sets out the principles and best practices for corporate governance, including specific guidelines for Non-Executive Directors and board composition.
Bursa Malaysia Listing Requirements: For listed companies, provides specific requirements for board composition and independent directors.
Income Tax Act 1967: Governs the taxation of director fees and benefits in Malaysia.
Malaysian Anti-Corruption Commission Act 2009: Relevant for director duties regarding anti-corruption compliance and corporate liability.
Personal Data Protection Act 2010: Relevant for handling personal data of directors and related privacy considerations.
Securities Commission Act 1993: Provides regulatory framework for capital markets and corporate governance matters.
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