by Lim Jo Yan and Teoh Huei Wen


The Securities Commission of Malaysia (“SC”) described equity crowdfunding (“ECF”) as a new form of fundraising that allows start-ups or small enterprises to obtain capital through small equity investments from a large number of investors, using online portals to facilitate such investments. In this article, “issuer” refers to an enterprise which raises funds via an ECF Platform. On 11 February 2015, the SC released the Guidelines on Regulation of Markets under Section 34 of the Capital Markets and Services Act 2007 (“CMSA”) (“Guidelines”) to regulate equity crowdfunding in Malaysia.

Relevance of ECF to Issuers

ECF has made fund-raising more convenient to issuers. Start-ups at the early stage of business usually do not have access to traditional financing methods that small and medium enterprises would have. With the introduction of ECF, issuers now have access to funding.

Founders of the issuer may also enjoy continued autonomy and control over the business through ECF as compared to raising funds from venture capitalists or angel investors who usually want a level of control over the issuer.


Downside of ECF to Issuers

ECF investors are typically passive investors who are not involved in the management of the issuer. In contrast, angel investors and venture capitalists may be involved in the management of the issuer and provide advice and direction. There is a view that ECF may discourage future funding from venture capitalists as they may not be keen to invest in an enterprise attached with a crowd of investors. As such, if venture capitalists are discouraged from investing in the issuer, then the issuer may have lost on knowledge and know how that venture capitalists are prepared to provide. There is a growing flow of mentoring programmes in Malaysia and start-ups may consider participating in such programmes.


Mechanics of the ECF Platform

Under Section 7 of the CMSA, an ECF Platform operator in Malaysia is required to register the electronic facility which facilitates the ECF. The operator is required to operate in an orderly, fair and transparent market, and have sufficient financial, human and other resources to operate the ECF Platform. The operator is required to make rules on the use of the ECF Platform, inter alia, for the protection of investors, to ensure proper functioning of the market, to promote fairness and transparency, to ensure proper regulation and supervision of its members. The operator has an obligation to ensure that enterprises comply with the rules of the ECF Platform. 

The ECF Platform operator is required, inter alia, to conduct due diligence on prospective issuers on its platform, monitor the conduct of the issuer and take action against any misconduct of the issuer, conduct investor education programme, ensure the issuer’s disclosure document is verified and made accessible to investors through the platform.

All or Nothing Model

Funds raised via ECF Platform will be retained by the operator in a trust account and will only be released to the issuer if the targeted amount sought to be raised has been met, there is no material adverse change relating to the offer during the offer period and the cooling-off period of 6 business days have expired. If these conditions are not met, the collected amount will be returned to the investors.


Who can participate on the ECF Platform

The ECF Platform operator, including its directors and shareholders, may invest on the platform not exceeding 30% of the controlling shares of the issuer and the operator shall disclose such holding to the public on its platform. All locally incorporated private companies (other than exempt private companies) with a paid up capital not exceeding RM5 million may participate in the ECF by issuing shares to the investors.


Limits of Amount of Fundraising

Under the Guidelines, an issuer may raise a maximum of RM3 million within a 12-month period regardless of the number of projects and an aggregate of RM5 million via the ECF Platform.

Persons who are permitted to invest on the ECF Platform include retail, sophisticated and angel investors. Retail investors may only invest a maximum of RM5,000 per issuer with a total amount not exceeding RM50,000 in a year. An angel investor may invest a maximum of RM500,000 in a year. There is no limitation on the investment amount of a sophisticated investor.



An issuer proposing to be listed on an ECF Platform has the obligation to submit a disclosure document containing the prescribed information with the ECF Platform operator with respect to information on the key characteristics of the issuer, the purpose of the offering and the targeted amount, business plan and financial information of the issuer. Under the Guidelines, investors are given a cooling-off period of 6 business days within which they may withdraw their investment.


The introduction of an ECF Platform may facilitate the growth of small enterprises, particularly in new areas of business and industry, which traditional financiers may view as high risk. Please contact the author if we may be of assistance.