05/06/2026
CLIENT BULLETIN
Week 1 | June 2026
Directors of Sdn. Bhd.: Are You Personally Exposed Without Realising It?
Many business owners believe that once a company is incorporated as a Sdn. Bhd., all business risks are fully protected under the company name.
This is not always correct.
Although a Sdn. Bhd. is a separate legal entity, directors still have personal responsibilities under the Companies Act 2016 and other relevant Malaysian laws. In certain situations, directors may be personally questioned, penalised, or exposed to legal and financial consequences.
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1. Why Directors Should Pay Attention
A director is not only a person whose name appears in SSM records.
A director is expected to make decisions honestly, responsibly, and in the best interest of the company. This includes ensuring that the company maintains proper records, makes lawful payments, declares dividends correctly, and does not continue business recklessly when the company is financially weak.
The risk is higher when the company:
- Has poor accounting records;
- Uses company money for personal expenses;
- Declares dividends without checking available profits;
- Enters into large contracts without proper approval;
- Has shareholder disputes;
- Has related-party transactions without documentation;
- Fails to submit tax, SST, EPF, SOCSO or statutory filings on time;
- Continues to trade when cash flow is already weak.
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2. Common Areas Where Directors May Be Exposed
A. Improper Use of Company Funds
Company money should be used for company purposes. If directors or shareholders use company funds for personal expenses without proper approval, documentation, or accounting treatment, this may create tax, governance, and legal issues.
Examples include:
- Personal travel paid by the company;
- Personal car expenses claimed as company expenses;
- Director withdrawals not properly recorded;
- Payments to family members without supporting documents;
- Cash withdrawals with no clear business purpose.
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B. Declaring Dividends Without Checking Solvency
Dividend payments are not automatic. Before dividends are paid, the company must ensure that it has sufficient profits and is able to meet its debts when due.
A dividend declared without proper financial review may create exposure for the directors.
Before declaring dividends, directors should check:
- Latest management accounts;
- Retained earnings position;
- Cash flow position;
- Tax liabilities;
- Other debts and commitments;
- Whether the dividend is properly approved and documented.
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C. Weak Board Documentation
Many companies make business decisions informally through WhatsApp, verbal discussions, or casual instructions.
However, important decisions should be properly documented by board resolutions or minutes.
Examples of matters that should be documented include:
- Opening or changing bank accounts;
- Appointment or resignation of directors;
- Purchase of major assets;
- Entering into significant contracts;
- Loans to or from directors/shareholders;
- Dividend declaration;
- Share transfer or share allotment;
- Related-party arrangements;
- Change in business direction.
Poor documentation may become a serious issue during audit, tax review, shareholder dispute, bank review, or due diligence.
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D. Trading While the Company Is Financially Weak
If a company is already facing serious financial difficulties, directors should be careful before continuing to incur new debts.
Directors should monitor:
- Whether suppliers are unpaid for long periods;
- Whether tax, EPF, SOCSO or staff salaries are overdue;
- Whether bank facilities are overused;
- Whether the company is relying on new debts to pay old debts;
- Whether management accounts show continuous losses.
When financial warning signs appear, directors should obtain proper accounting, tax, and governance advice before making further commitments.
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3. Simple Governance Health Check for Directors
You may wish to ask yourself the following questions:
1. Are the company’s accounting records updated regularly?
2. Are all major company decisions supported by proper resolutions or minutes?
3. Are director withdrawals, advances, or claims properly recorded?
4. Are dividends declared only after checking profits and solvency?
5. Are related-party transactions properly documented?
6. Are tax, SST, EPF, SOCSO and SSM deadlines monitored?
7. Does the company have proper supporting documents for expenses?
8. Are shareholders clear on their rights, roles and profit entitlement?
9. Are company assets separated from personal assets?
10. Has the company reviewed its governance position in the past 12 months?
If the answer to several of the above is “No” or “Not sure”, the company may need a governance review.
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4. Our New Advisory Support for Existing Clients
To help our clients manage these risks, we are introducing an:
Annual Governance & Directors’ Risk Review
This review is designed to help directors identify potential compliance, tax, accounting, and governance weaknesses before they become costly problems.
The review may cover:
- Directors’ duties and statutory responsibilities;
- Company record and resolution review;
- Dividend and solvency review;
- Shareholding and shareholders’ arrangement review;
- Director loan / current account review;
- Related-party transaction documentation;
- Tax and SST compliance readiness;
- Basic internal control and documentation gaps;
- Business succession or restructuring concerns, where applicable.
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5. Why This Review Is Useful
A governance review helps directors to:
- Reduce personal exposure;
- Improve company documentation;
- Avoid unnecessary tax or compliance issues;
- Prepare better for bank review, audit, due diligence, or investor review;
- Identify advisory matters early;
- Make better decisions before entering into major transactions.
Good governance is not only for large companies.
It is equally important for SMEs, family-owned companies, and owner-managed Sdn. Bhd. companies.
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6. Important Note
This bulletin is prepared for general awareness only and should not be treated as specific legal, tax, accounting, or corporate advisory advice.
Each company’s facts and documents may be different. A proper review should be performed before any recommendation is made.
For further information or assistance, please contact us to arrange a review session. A quotation will be provided before any professional services are carried out.
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Prepared by:
CCY Consultancy Services Sdn. Bhd.
Company Secretarial, Accounting & Compliance Advisory Support
Contact: 016-878 9775
Office: P12C-4-3, Lot 12238, Trinity Hub, Jalan Datuk Tawi Sli, 93250 Kuching, Sarawak
