At a glance
- The percentage thresholds and approval matrices that dominate search results come from Bursa Malaysia's Listing Requirements and do not apply to an unlisted private company.
- Section 221 of the Companies Act 2016 requires each director to declare an interest in a contract at a board meeting; the participation and voting prohibition in section 222 does not apply to a private company unless it is a subsidiary of a public company.
- Section 228 does apply to private companies and voids an unapproved transfer of shares or non-cash assets of the requisite value between the company and a director, substantial shareholder or connected person.
Search for related party transaction requirements in Malaysia and the results are dominated by percentage thresholds, approval matrices and circular requirements. Almost all of that material comes from Bursa Malaysia's Listing Requirements and applies to listed issuers. A private company limited by shares answers to a different and considerably shorter set of rules: the director's duty to declare an interest under the Companies Act 2016, the shareholder-approval provision for substantial transactions with directors and substantial shareholders, and the disclosure requirements of whichever financial reporting framework the company applies.
Importing the listed-company machinery into a private company produces a governance exercise the law does not ask for. Omitting the provisions that do apply produces a different problem. This article separates the two.
Section 221: the duty is personal to the director
Section 221(1) of the Companies Act 2016 requires every director of a company who is in any way, directly or indirectly, interested in a contract or proposed contract with the company to declare the nature of that interest at a meeting of the board of directors, as soon as practicable after the relevant facts come to the director's knowledge. The duty applies to every company, private or public, and it is owed by the individual director rather than discharged by the company.
Its reach is wider than it first appears. An interest can be indirect: a contract with a company in which the director holds shares, a lease of premises the director owns, or a consultancy arrangement with a business the director's family controls. Section 221 also treats an interest in the shares or debentures of a company held by a director's spouse or child, where that person is not a director of the company, as the director's own interest for these purposes.
The section carries its own relief. The requirement does not apply where the director's interest consists of being a member or creditor of a corporation interested in the contract, if that interest may be regarded as not being a material interest. A general notice to the board specifying the nature and extent of an interest can serve the purpose, and declarations are recorded in the minutes. Contravention is an offence carrying, on conviction, imprisonment for a term not exceeding five years or a fine not exceeding three million ringgit, or both, and a contract entered into without the required disclosure may be voidable at the company's option, a consequence to confirm with legal advisers on the facts.
What a private company is not subject to
Section 222 prevents an interested director from participating in the discussion or voting on the contract at board level. Section 222(2)(a) states that this does not apply to a private company unless it is a subsidiary of a public company. In an ordinary owner-managed Sdn Bhd, therefore, the interested director declares the interest under section 221 and may still take part in the decision, subject to the company's constitution and to the general duties in sections 213 and 218.
SSM has explained the policy behind the equivalent position at shareholder level in its published questions and answers on the Act: the prohibition on interested parties voting was lifted for private companies because many genuine transactions could not otherwise be effected, the resources of a private company often being held by the very parties who are interested. The shareholders approve with full knowledge of the relationship and carry responsibility for that approval. That is a deliberate design choice, not an oversight to be corrected by adopting listed-company practice voluntarily.
Where a private company does need shareholder approval
Section 228 is the provision most often missed, because it is the one that genuinely does impose a shareholder-approval requirement on a private company. A company must not enter or carry into effect an arrangement or transaction under which a director or substantial shareholder of the company, its holding company or its subsidiary, or a person connected with such a director or substantial shareholder, acquires shares or non-cash assets of the requisite value from the company, or disposes of shares or non-cash assets of the requisite value to the company, unless shareholders approve it at a general meeting. An arrangement carried into effect in contravention is void unless there was prior approval by resolution.
For a company that is not a listed issuer or a subsidiary of one, the Act sets the requisite value by reference to the value of the non-cash asset measured both against a monetary figure and against a proportion of the company's net asset value, determined from the accounts prepared for the last financial year before the transaction. The figures are set out in section 228 itself. Because the outcome turns on the company's own net asset position, test the transaction against the section rather than against a remembered threshold, and do it before the transfer is effected rather than afterwards. Section 229 identifies arrangements that fall outside section 228.
The transactions this catches in practice are unremarkable ones: a director selling a vehicle or a property to the company, a shareholder transferring equipment into the business, or a share transfer between the company and a person connected with a director.
Directors' fees and benefits sit under section 230
Section 230 draws a clear line. For a public company and the subsidiaries of a listed company, directors' fees and benefits must be approved at a general meeting. For a private company, the board may approve them, subject to the constitution. The approval is recorded in the minutes of the directors' meeting and shareholders are notified within fourteen days. Members holding at least ten per cent of the total voting rights who consider the payment not fair to the company may require the company to put it to a resolution, and SSM's published questions and answers confirm that a shareholder who is also a director may exercise that right.
One distinction SSM has drawn is worth carrying into the working papers: approval is directed at fees and benefits arising from appointment to the office of director, not at entitlements arising from an executive or management position held by the same individual.
The disclosure requirement is set by the reporting framework
Company law governs declaration and approval. What appears in the financial statements is set by MFRS 124 Related Party Disclosures or, for a private entity applying the private-entity framework, Section 33 of MPERS.
Both require the relationship between a parent and its subsidiaries to be disclosed whether or not there have been transactions between them, together with the name of the parent and, if different, the ultimate controlling party. Both require disclosure of key management personnel compensation, and here the frameworks differ: MFRS 124 requires it in total and for each of five categories, while MPERS requires it in total only. Both require, where there have been related party transactions, the nature of the relationship and information about the transactions and outstanding balances, including their terms and conditions and any provision or expense recognised in respect of doubtful related party debts. MFRS 124 sets those disclosures out across a longer list of relationship categories than MPERS, which groups them more broadly. Confirm the current categories against the standards themselves.
Two further points are easy to miss. A statement that a related party transaction was made on terms equivalent to those prevailing in an arm's length transaction may be made only if those terms can be substantiated. And items of a similar nature may be disclosed in aggregate, except where separate disclosure is necessary to understand the effect of the transactions on the financial statements.
What is not a related party
The frameworks state what falls outside as well as what falls inside. Two entities are not related simply because they have a director or other member of key management personnel in common. A customer, supplier, franchisor, distributor or general agent is not a related party merely because the entity transacts a significant volume of business with it and is economically dependent on it. Providers of finance and public utilities are not related parties by virtue of their normal dealings with an entity.
The qualifier carries the weight. Where the individual concerned is not only a common director but also controls or significantly influences the other entity — the ordinary position where one person owns two Sdn Bhds — the two entities are related, and the exclusion does not assist. Attention is directed to the substance of the relationship rather than merely its legal form.
When this is light-touch, and when it is not
For a single company with two or three director-shareholders, salaries and fees approved in the ordinary way, no subsidiaries and no transactions with entities under common control, the practical output is short: a declaration of interest recorded when an interested contract arises, a key management personnel compensation figure, and a note describing any transaction with a director or a company that director controls. That is a note, not a programme, and a company in that position should not be persuaded otherwise.
The circumstances that genuinely need attention are identifiable in advance: several entities under common family or director control, where transactions between them are routine and rarely documented; pricing that is not on arm's length terms, whether deliberately or through inertia; consultancy, rental or management arrangements with family members; balances between related entities that have never been formalised or settled; and an asset transfer between a director and the company that may engage section 228. A company applying MPERS should also plan for MPERS (2025), which applies for annual periods beginning on or after 1 January 2027.
General-information limitation
This article is general information about related party requirements for private companies under the Companies Act 2016 and under MFRS 124 and Section 33 of MPERS. It is not legal, accounting or audit advice for a particular entity, and it does not determine whether any relationship is a related party relationship, whether any transaction requires approval, or what disclosure any set of financial statements should carry. Requirements and published guidance change. Confirm the current position against SSM and MASB material, and obtain advice on your own facts where the matter is material.
To discuss related party disclosure in your own financial statements, see Saifudin & Co's accounting and financial reporting services.