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Prepare for Growth: Important Regulatory Updates for Malaysian Startups in the First Half of 2024

Earlier this year, I wrote a post anticipating several regulatory changes that may affect startups and technology companies in Malaysia. This latest post is a regulatory roundup for the first half of 2024, summarising updates to these key regulatory changes, including new announcements and their likely impact on local startups.

A wider pool of investors for startups

The Securities Commission Malaysia (SC) introduced new revisions to its guidelines on “sophisticated investors.” These revisions broaden the investor pool by including individuals with specific academic qualifications, work experience, and asset thresholds. This could lead to increased investment opportunities for startups seeking capital.

Notably, the introduction of a safe harbour provision has yet to take place, which will further enhance regulatory clarity within securities law. For example, the allowance for “small offering exemption” could potentially accommodate the more prevalent adoption of ‘Simple Agreement for Future Equity’ (‘SAFE’) instruments.

Bank Negara Malaysia issues new updated Fintech Sandbox Framework

Bank Negara Malaysia (BNM) launched a revised Fintech Sandbox Framework which is an expanded version of its previous exposure draft. It introduces a two-stage application process, with an expedited “Green Lane” for testing solutions. While access to the Green Lane is currently limited to financial institutions, future revisions might open it to qualified fintech startups.

Cybersecurity Bill passed

The Cybersecurity Bill was passed on 3 April 2024, establishing a National Cyber Security Committee and potentially stricter regulations. Businesses in critical sectors (NCII) should be particularly aware of potential cybersecurity obligations such as obtaining licences for cyber security service providers and hefty fines for non-compliance.

Also Read: Insurtech shines amidst overall funding decline in Indonesia in H1

Amendments to personal data protection laws are on the horizon

Another long overdue bill that has yet to be tabled by the parliament is the amendments to the current personal data protection laws that have now been made publicly available on 10 July 2024. Given that the bill is still being debated at the Parliament, the changes to the bill may be further revised.

Amendments to the Personal Data Protection Act are still pending. While the bill hasn’t been passed, it is expected to introduce significant changes to data protection regulations. Startups should monitor developments and ensure compliance with upcoming requirements.

Greater company ownership transparency

The Companies (Amendment) Act 2024 introduces a framework for reporting beneficial ownership of companies. This enhances transparency and compliance for startups seeking funding from investors.

Capital gains tax on disposal of unlisted shares

Starting 1 March 2024, a 10 per cent capital gains tax applies to the disposal of unlisted shares. Investors and founders should factor this tax into their financial planning for future exits.

E-invoicing requirements for all companies

All businesses with a turnover exceeding RM 100 million (US$23 million) must use e-invoices starting 1 August 1 2024. However, all smaller companies will be required to comply only by 1 July 2025. Therefore, founders should consult their usual tax agent to ensure their company is prepared for the transition towards e-invoicing.

Review of the electronic commerce law to meet current demands

In late June 2024, the Ministry of Domestic Trade and Cost of Living announced that it is currently reviewing existing laws relating to e-commerce. The objective of the review is to introduce a comprehensive legal framework that is suited to current demands and technological developments, including better protection for consumers and the encouragement of greater use of e-commerce platforms.

Although the review is expected to be completed next year around mid-2025, startups operating online platforms should monitor the review process, as it may lead to a revamped legal framework for e-commerce with potential impacts on consumer protection and platform regulations.

Gig workers’ commission for the gig workforce

The Malaysian government announced that the Gig Workers Commission Bill will be tabled in July this year, which aims to establish a commission to address social protection, dispute resolution, and career advancement for gig workers. Startups that rely on gig workers should be aware of potential regulatory changes impacting this segment of the workforce.

Also Read: Southeast Asia’s fintech funding hits a 3-year-low in H1 2024

Practical guide on venture capital and private equity fund managers in Malaysia

The SC issued a Practical Guide on Venture Capital and Private Equity in Malaysia on 13 June 2024 to help prospective VC and PE fund managers and industry stakeholders with an overview of the legal, regulatory and policy requirements and considerations applicable to VC or PE fund operations in Malaysia.

Court rulings on the requirements for pre-emptive rights to new shares

The apex court in Malaysia, the Federal Court clarified in March 2024 that the company’s constitution (i.e. a statutory contract that outlines the relationships between the company and each of its shareholders) can override statutory pre-emptive rights for new shares provided in the companies law.

In other words, pre-emptive rights under the companies law are not absolute mandatory legal rights. Consequently, startups engaging with investors should review their existing constitution regarding share issuance and ensure alignment with their fundraising strategies.

Final thoughts

As a founder, staying informed about these regulatory developments is crucial for navigating the evolving legal and compliance landscape in the jurisdiction which you currently operate. For further advice, consult your usual startup lawyer who is familiar with the specific needs of your startup.

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