Applying for an MLM/Direct-Selling License in Malaysia
Applying for a direct-selling business license in Malaysia must be done in accordance to that which has been stipulated in the DSA (Direct Sales Act) 1993 and the Direct Sales Regulations 1993 of Malaysia.
These guidelines contain the criteria which can be used as the reference point when applying for direct sales business licenses and any other procedures involved. It is thereby hoped that the objectives of the Direct Sales Act 1993 are met from the direct sales licenses which are aimed protect the consumer’s rights and interests, promoting of ethical direct sales activities and no involvement in pyramid schemes or ‘get-rich-quick’ schemes which have been deemed illegal.
The Direct Sales Act 1993 or DSA 93
According to Section 14 and 42 of the DSA 93, no one can carry out any direct sales business unless it is incorporated under the Companies Act 1965 with a valid license granted in Section 6.
In this Act, Direct Sales is defined as sale that occurred from door-to-door and mail order sales.
Door-to-door sale refers to the sale of goods and services conducted by a person or someone authorized by him/her who goes from place to places. There is no fixed location of business. Besides that, he/she can call through phone to seek anyone who is prepared to enter into contracts for his/her sales of goods and services. This is referred to as the purchaser. The seller and the purchaser can then enter into negotiations to finalize the contract of the sale.
Male Order Sale refers to the sales of goods or services where the offer for sale contract is received by mail.
Direct Selling Business – Types of Marketing Plans
It is stipulated that under the DSA 93, 3 types of marketing plans are possible.
Multilevel Marketing (MLM) – First, the company recruits individuals to be member or distributor to sell the company’s products or services. Then the respective individual will appoint others to form his network. These are called downline. The same objective (which is to sell the company’s products and services) is applied. This process will continue and more downlines will be created.
Each member has the right to receive a commission or incentive from their respective sales while the upline can enjoy overriding bonus from the sales made from his/her downlines.
Single Marketing – The company appoints individuals or agents to sell its products and services. Commissions or salaries or a combination of both will be paid accordingly. It must be noted that the individuals or agents are not allowed to appoint other representatives or agents like how it is done in MLM.
Mail Order Sales – Goods or services that are marketed and sold using mail as the medium. This can be done by the person or any other person he/she authorizes.
Requirements to apply for license
Under the DSA 93, the company must be incorporated under the Companies Act 1965.
The paid-up capital for Mail-Order companies must be at least RM100,000 if it is a 100% Bumiputera company and RM500,000 if it is not.
For Single-Level Marketing license, the requirement is the same as mail-order companies.
Meanwhile, to apply for a Multi-Level Marketing license, the paid-up capital must be at least RM500,000 for bumiputera companies and RM1,500,000 if it is not.
Characteristics of the Marketing Plan and Mechanism
It is very important that the marketing plan of the company must adhere to the following:
As specified under Section 7 of DSA 93, the business does not carry out a pyramid scheme. It must comply with the Direct Sales (Scheme and Conduct) Regulations 2001 which stipulates that there must not be:
- misleading presentation of scheme
- Overemphasize any disproportionate high bonus or bonus payout in trying to mislead participants in the presentation of the direct sales scheme.
- The code of conduct of the company and marketing plan must be provided for each participant through a sales kit.
Incentives must be paid out based on the volume or quantity of goods and services sold and not based on the recruitment of persons into the direct-selling scheme.
Besides that, participants should not be asked to purchase unreasonable amount of goods or services and should be at the reasonable level that can be expected to be resold at an acceptable period of time.
This means that under this regulation, the distributor should be purchasing products and services and then reselling them at a higher price for profit. For the sales recorded, he/she should be accorded with the appropriate level of commission and incentives as stipulated.
It should not be in any way solely or primarily relying only on the recruitment or introduction of participants to expand the network which will then venture into a pyramid scheme and would be deem illegal.
It should not be in any way requiring the member to purchase unreasonably high amount of products which could be difficult or impossible to resell in the future.
It should not have a mandatory purchase of goods and services or a minimum payment or sale in order to be eligible for a certain bonus.