Capital-raising structures in Malaysia are not confined to conventional equity and debt financing. While these remain the dominant funding pathways, certain business models may lend themselves to alternative structures that monetise participation in assets or the grant of usage rights. Examples include memorial park arrangements (i.e., pre-purchased burial plots with perpetual upkeep), fractional asset placements (e.g., property- or equipment-backed programmes), recreational memberships (e.g., golf, country or marina clubs), or time-based lodging allocations (i.e., resort vacation ownership networks).
Within this broader financing landscape, the Interest Schemes Act 2016 (“ISA”), which came into effect on 31 January 2017,[1] represents a statutory framework that is less frequently considered in mainstream capital-raising analysis, but may, in appropriate cases, operate as a structured mechanism for capital formation where a business model aligns with its scheme-based architecture. Administered by the Companies Commission of Malaysia (“CCM”), the ISA regulates the raising of funds through participant contributions in exchange for interests in a managed scheme, subject to registration, disclosure and ongoing regulatory oversight.
Statutory perimeter and when the ISA applies
Under Section 3(1) of the ISA, only a management company is permitted to issue, offer or invite the public to subscribe for or purchase any interest. Section 3(2) of the ISA further prohibits any person from issuing or causing to be issued of any advertisements that invite, offer, or contain information calculated to lead to public participation, or from advising or procuring anyone to join a scheme, unless that scheme is duly registered and authorised by the CCM. A breach of these provisions constitutes an offence punishable, upon conviction, with imprisonment for a term not exceeding 10 years and/or a fine not exceeding RM50 million pursuant to Section 3(3) of the ISA.
The scope of these prohibitions is underpinned by the statutory definitions under Section 2(1) of the ISA.
An “interest” refers generally to any interest or right to participate, whether enforceable or not and whether actual, prospective or contingent whether in Malaysia or elsewhere, in a scheme, whether or not the interest or right is evidenced by a formal document or relates to a physical assets.[2] A “scheme” is defined broadly to include any contract, arrangement, undertaking, enterprise, programmes or plans of actions,[3] with Section 4(1) of the ISA prescribing the categories of schemes that fall within the regulatory regime. Interests in a scheme may only be issued by a “management company”, being a company incorporated under the Companies Act 2016 (or corresponding previous written law) by or on behalf of which such interests have been or are proposed to be issued.
The ISA provides that schemes may take the following natures, which may apply individually or in combination:
- • Investment schemes – where a participant contributes money or money’s worth in exchange for a right or interest in profits, assets or the realisation of a business or financial undertaking, and does not have day-to-day control over the scheme, with returns derived from the efforts of a promoter or third party.[4]
- • Recreational membership schemes – where a participant invests money under arrangements conferring a right or entitlement to use or enjoy sporting, recreational, holiday or related facilities for a period of at least 12 months.[5]
- • Time-sharing schemes – where a participant acquires rights to use, occupy or possess for two or more periods under a scheme intended to operate for at least 3 years.[6]
These categories illustrate the breadth of arrangements that may constitute regulated schemes under the ISA and be subject to the oversight of the CCM.
Once an arrangement is characterised as falling within the ISA framework, the Registrar of the CCM (“Registrar”) is empowered to exercise supervisory and intervention powers over regulated schemes, including refusing registration,[7] suspending or revoking a certificate of authorisation,[8] and intervening in the management of a scheme.[9] The Registrar also has power to terminate unregistered schemes, with authority to direct compensation to affected participants, restrain scheme-related activities or issue such other directions as may be appropriate.[10]
Structural safeguards of ISA-regulated schemes
Pursuant to Section 5(1) of the ISA, a scheme may be registered as a premium scheme, a small scheme or a foreign scheme. While the core governance framework under the ISA remains broadly consistent across scheme types, this classification primarily determines entry conditions,[11] including the required corporate form of the management company, applicable minimum paid-up capital requirements and, in the case of a small scheme, compliance with the fundraising limits specified by the CCM.[12] In the case of a foreign scheme, eligibility further requires recognition in its country of origin by the relevant authority to offer interests to the public.[13]
Before a scheme may be registered, the management company must first appoint a trustee, and that appointment is subject to the approval of the Registrar.[14] The appointed trustee is required, among others, to hold and administer scheme funds for the benefit of interest holders and to operate independently from the management company through a separate trust account,[15] as well as to report to the Registrar in the event of non-compliance, financial distress or conduct by the management company that may prejudice interest holders.[16]
A scheme may not be offered to the public unless an approved trust deed or contractual arrangement is in force at the time of offer,[17] and a prospectus or product disclosure statement has been registered with the Registrar prior to issue,[18] as the case may be. In addition, every such prospectus or product disclosure statement must comply with the requirements prescribed under the ISA,[19] and any false, misleading or materially incomplete statements therein may give rise to both civil[20] and criminal[21] liability.
In the event of defects in the prospectus or product disclosure statement or contravention by the management company of the Companies Act 2016 (“CA 2016”), the Registrar is also empowered to issue a stop order prohibiting any further offering, issuance or sale of interests under the scheme.[22] Non-compliance with a stop order constitutes an offence punishable, upon conviction, with imprisonment for a term not exceeding 5 years and/or a fine not exceeding RM1 million.[23]
Operational constraints of ISA-regulated schemes
Beyond entry control, the ISA imposes continuing obligations on scheme operators (i.e., the management company) throughout the operation of a scheme.
At the regulatory level, management companies are required to maintain a registered office in Malaysia at all times and to notify the Registrar of any change in its registered address within the prescribed time.[24] This ensures a continuing physical presence and identifiable point of regulatory accountability within Malaysia. They are further required, among others, to exercise due diligence and care in administering the scheme and managing its assets and funds in accordance with the ISA and the governing documents, and to ensure that their officers or employees do not make improper use of their position to obtain an advantage for themselves or others or to cause detriment to the scheme.[25]
At the governance level, scheme monies are subject to strict restrictions on self-dealing and conflict transactions and may not be invested in or lent to the management company, the trustee or companies related to either of them within the meaning of the CA 2016.[26] Management companies and their directors and managers are also required to maintain proper accounting records sufficient to explain the financial position of the scheme and to facilitate audit verification,[27] while auditors are mandated to report any irregularities, undesirable practices or suspected fraud to the management company, with matters of material significance escalated to the Registrar.[28]
Management companies are further obliged, among others, to provide trustees with access to information, records and books necessary for the proper performance of their functions, and to obtain trustee approval before publishing or causing to publish promotional materials relating to scheme pricing, yield or invitations to invest.[29] These mechanisms collectively reinforce continuous independent oversight over scheme administration and investor-facing conduct.
At the investor level, management companies are subject to the obligation to purchase interests from interest holders upon request, at a price determined in accordance with the governing trust deed or contractual arrangement.[30] Interest holders are additionally entitled to requisition meetings upon satisfaction of the requisite threshold, which the management is obliged to convene,[31] including meetings to consider and vote on a resolution to direct the management company to wind up the scheme.[32] These thus provide both a controlled framework for exit and redemption from the scheme and a statutory avenue for collective intervention.
Taken together, these requirements reveal that the ISA incorporates governance concepts familiar under the CA 2016, such as shareholder rights to requisition a meeting[33] and vote on winding up of a company,[34] requirements to maintain proper accounting records,[35] prohibitions against false or misleading statements in corporate reporting and disclosure materials,[36] and restrictions on the use of property or position by directors or officers for personal or conflicting benefit,[37] albeit through trustee- and regulatory-led oversight rather than shareholder-led governance.
Conclusion
While the CA 2016 remains the default architecture for conventional corporate equity and debt financing, the ISA carves out a vital, highly specialised regulatory space. It transforms what would otherwise be complex asset-use concepts or alternative investment ideas into legally recognised, institutionalised capital-raising mechanisms. For businesses built around fractional ownership, shared assets, or long-term usage rights, such as recreational clubs, time-shares, or managed niche enterprises, the ISA provides a robust blueprint to legally unlock public retail capital.
However, accessing this alternative pool of capital demands a sophisticated compliance posture. The operational hurdles, mandatory independent trustee oversight, and steep penalties for non-disclosure mean that the ISA is not a shortcut or a regulatory loophole; it is a rigorous, structured commitment to investor protection. Ultimately, for the right business model, the ISA is an invaluable tool, offering a sophisticated bridging mechanism between asset-backed commercial structures and public investment.
[1] Section 1(2) of the ISA and Federal Government Gazette [P.U. (B) 51] dated 26 January 2017.
[2] Section 2(1) of the ISA. Interest does not include: (i) any shares in or debenture of a corporation; (ii) a capital market product as defined in the Capital Markets and Services Act 2007; (iii) any interest in a partnership agreement unless the agreement relates to an enterprise promoted by or on behalf of a person whose ordinary business includes such promotions, or is an agreement prescribed by regulations; or (iv) any participatory interest in any product offered by the licensees or approved payment instrument issuers regulated under the Financial Services Act 2013 or the Islamic Financial Services Act 2013, as well as development financial institutions prescribed under the Development Financial Institutions Act 2002.
[3] Section 2(1) of the ISA.
[4] Section 4(2) of the ISA.
[5] Section 4(3) of the ISA.
[6] Section 4(4) of the ISA.
[7] Section 14 of the ISA.
[8] Sections 11 and 12 of the ISA.
[9] Section 71 of the ISA.
[10] Section 72 of the ISA.
[11] Sections 6, 7 and 8 of the ISA.
[12] Section 7(1)(d) of the ISA.
[13] Section 8(1)(d) of the ISA.
[14] Section 22 of the ISA.
[15] Section 48 of the ISA.
[16] Section 23 of the ISA.
[17] Section 27 of the ISA.
[18] Section 28 of the ISA.
[19] Section 32 and Second Schedule of the ISA.
[20] Sections 39 of the ISA.
[21] Sections 40 of the ISA.
[22] Section 42(1) of the ISA.
[23] Section 42(8) of the ISA.
[24] Section 44 of the ISA.
[25] Section 45(1) of the ISA.
[26] Section 49(1) of the ISA and Section 7 of the CA 2016. A corporation is deemed to be related to each other if: (a) it is the holding company of another corporation; (b) it is a subsidiary of another corporation; or (c) it is a subsidiary of the holding company of another corporation.
[27] Section 51(1) of the ISA.
[28] Section 54(1) of the ISA.
[29] Section 46(1) of the ISA.
[30] Section 47 of the ISA.
[31] Sections 55(1) and (2) of the ISA.
[32] Section 63(1) of the ISA.
[33] Section 311 of the CA 2016.
[34] Section 439 of the CA 2016.
[35] Section 245 of the CA 2016.
[36] Section 591 of the CA 2016.
[37] Section 218 of the CA 2016.
About the authors
Shaun Lee Zhen Wei
Principal Associate
Corporate & Investor Services
Halim Hong & Quek
shaun.lee@hhq.com.my
.
Sherzanne Lee
Senior Associate
Corporate & Investor Services
Halim Hong & Quek
sz.lee@hhq.com.my
.
Carmen Lee Kar Mun
Associate
Corporate & Investor Services
Halim Hong & Quek
carmen.lee@hhq.com.my
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