In Malaysia, some sectors require a minimum level of local ownership. Recently, a foreign investor raised this concern with me, highlighting the importance of addressing ownership rules properly from the outset.

Investors sometimes consider arrangements such as trust deeds, call options, or nominee structures for shares in companies to get around these rules. Such arrangements should be approached with caution as they have been challenged in courts and may be struck down as against public policy.

There are other ways to comply with ownership restrictions, subject to the restrictions and policies regulating the relevant sectors.

Two alternative approaches are:

1. Preference Shares

• May be used if the sector does not restrict them (this often requires clarification with the relevant authorities, as guidelines may be silent).
• Provide investors with economic benefits (dividends, capital repayment priority) without the usual voting rights of ordinary shareholders.
• Work best where investors are comfortable with economic participation without direct control.

2. Commercial Agreements

• Commercial agreements such as service or licence agreement between foreign-invested companies and locally owned companies to share economic outcomes.
• Effectiveness depends on careful drafting and regulatory stance in the relevant industry.

Each sector has its own rules and nuances. What may be acceptable in one industry may not be in another. The legality of any arrangement depends on the specific regulatory framework and policies in force at the time.

#MalaysianCorporateLawyer

This post was first posted on LinkedIn on 5 September 2025.