Technical Note No. 2/2018 - Clarification on Application of Subsection 212(5) on Offering of Shares or Rights in Venture Capital or Private Equity Fund
23 Oct 2018
Currently, the SC’s authorisation or recognition under subsection 212(5) of the Capital Markets and Services Act 2007 (CMSA) is not required for the offering of shares of a private company. This is provided for in subparagraph 8(a) of Schedule 5 of the CMSA.
The SC has observed that in the past, most venture capital (VC) and private equity (PE) funds offered in Malaysia were commonly structured as a private company (in the form of shares in the private company). Given the exemption provided in subparagraph 8(a) of Schedule 5 above, the offering of these VC and PE funds are exempted from requiring the SC’s authorisation or recognition under subsection 212(5).
However, the SC recognised that the use of a company structure is less common in international best practice. The SC also noted that more recently, domestic VC and PE funds have looked into establishing their funds as a limited partnership which is more common and appealing to international investors.
Given the above, the offering of these types of VC and PE funds would now be in the form of rights in a limited partnership. However, the offering of such rights are not exempted under Schedule 5 of the CMSA and thus, would require the SC’s authorisation or recognition under subsection 212(5) of the CMSA.
It is not the SC’s intention to impose additional authorisation or recognition requirement under subsection 212(5) of the CMSA for the offering of VC and PE funds. Further, VC and PE fund management corporations are already required to be registered with the SC prior to carrying out their activities in Malaysia.
As such, the SC’s authorisation or recognition is not required under subsection 212(5) for VC and PE funds that are structured as a limited partnership provided that–
the management corporation of the VC or PE fund is registered with the SC in accordance with the relevant SC’s guidelines; and
the offering of the VC or PE fund is restricted only to sophisticated investors.
The Securities Commission Malaysia (SC) was established on 1 March 1993 under the Securities Commission Act 1993 (SCA). We are a self-funded statutory body entrusted with the responsibility to regulate and develop the Malaysian capital market.
