How should director's loans and current accounts be recorded?
Record every movement between the company and a director in a director's current account: money the director lends in, and money taken out. A company generally cannot lend to directors except under limited exceptions in the Companies Act 2016, so a debit balance needs prompt attention.
What it is
The director's current account is a ledger account showing what the company owes the director (credit balance) or what the director owes the company (debit balance).
Good practice
- Record each transfer with a date, amount and reason
- Separate salary, dividends and loans, which are treated differently
- Keep loan agreements for money lent to the company, with terms such as interest and repayment
- Review the balance monthly
- Settle debit balances before year end where possible
Legal caution
Section 224 of the Companies Act 2016 prohibits a company from lending to a director of the company or of a related company, or guaranteeing a director's loan. The exceptions are funds for expenses incurred for the company's purposes, a home loan to a full-time employee director, and a loan under an employee loan scheme the company has approved. The first two need the company's prior approval; a private company can approve within six months, and a loan not approved must be repaid within 12 months. Section 225 restricts loans to persons connected with a director. Exempt private companies are outside both. A director who authorises a prohibited loan commits an offence, with up to five years' imprisonment, a fine of up to RM3 million, or both. Take advice before the company lends or pays personal bills for a director.
Other effects
- Unexplained withdrawals can be treated as remuneration or dividend, with tax consequences
- A director's loan to the company is a liability and should appear in the balance sheet
- The financial statements must disclose related-party balances
A tidy current account removes a common audit and tax issue.
Legal basis
- Companies Act 2016, s.224
- Companies Act 2016, s.225
Sources
Applies to 2026 · Last reviewed 29 October 2026
General information for business owners, not legal, tax or professional advice. Rules change, so check the sources or ask a licensed professional before you act.
Related questions
- How long must a Malaysian company keep its accounting records?A company must keep accounting records for seven years after the transactions they record were completed. For tax, documents must be kept for seven years from the end of the relevant year of assessment. Use whichever period ends later.
- How soon must transactions be recorded in the books?Under section 245 of the Companies Act 2016, entries must be made in the accounting records within 60 days after the transaction is completed. Leaving the books for a full year-end rush is therefore not compliant.
- What do a company's financial statements contain?A company's financial statements normally include a statement of financial position, a statement of profit or loss and other comprehensive income, a statement of changes in equity, a statement of cash flows and notes with accounting policies. The set must give a true and fair view.
- Who prepares and approves a company's financial statements?Directors are legally responsible for the financial statements. An in-house accountant or external firm often drafts them, but the board approves them by resolution and signs a directors' statement. The statements are then presented to the members.
- What is the difference between MPERS and MFRS?MFRS is the full set of Malaysian standards, aligned with IFRS, used by listed and regulated entities. MPERS is a shorter, simplified framework based on the IFRS for SMEs standard, designed for private entities. Both give a true and fair view; MPERS has fewer disclosures and simpler rules.