Liberalization vs Non-Liberalization by circular LPPEH

This 2 circulars came out in 03 August, 2020 by the Board see links below:

Board is to see structures of firms to follow the recommendations of this 2 circulars in 3 years by 2023 end. Firms can choose to follow either structure, in which there are advantages for the betterment of the profession.

*These two circulars are superseded by  Circular 9/2022 as Board met on 16 March, 2022 and issued new guidelines. Go to further readings here.

**Subsequently, in early 2023 another circular came out stating that liberalization is not allowed for Estate Agencies. Short while later, Board retracted it. See Withdrawal of Circular 3/2023 by Circular 9/2023 – an episode of U-Turn.

Although the NON – Liberalization seems to convey the voices of staying NO-CHANGE to the law (that all existing is to carry on), the Liberalization is taken as “NEW” CHANGES. However, it is to point out that there is no amendment to the Act, and this is just clarification on the interpretation of the law, in particular Section 23.

Below I would like to specify the background of the law.

S.23 Practice by firms… relates to how all the professions under Board (Act242) should practice in the formation of firm. There are three (3) structures of how a firm is formed, namely sole-proprietorship, partnership and body corporate.

The issue with this circular is about the body corporate, not sole-proprietorship or partnership. In the case of these 2 structures, we are clear that all the partners are to be registrants themselves. It is a body corporate that is giving some confusion (as “some misunderstanding and misinterpretation” in the circular), the law says in particular S.23 (2) which reads:

(2) A partnership or body corporate practising valuation, appraisal, estate agency or property management, as the case may be, shall not be registered by the Board unless –

(a)(iii) in the case of an estate agency practice – 

  • (A)
  • (B)
  • (C) a combination of registered estate agents and any other persons or bodies corporates;

(bold and italic is mine)

Therefore, it becomes misinterpreted what kind of arrangement correctly allowed for this structure of corporation to be formed. Some would just interpret it as:

  1. Husband (REA) & wife (housewife REN) & senior REN (close friend) forming a company Sdn Bhd, with husband holding 51%.
  2. Company A (100% EA firm in another city) holding 51% & Company B (local company formed by a few RENs and non-RENs), join venture to form Firm.
  3. Foreign Firm X (30%) join up with local EA firm Y (51%) and another developer in remote city to form Firm.

Such situation could be confusing. Upon submitting to Board for approval, many might have been rejected while some had been approved. So, many might ask what exactly is allowed, and what is not? Hence, the Board eventually had to come out with some clear guideline…

The application of both is discussed below.

The old way is “ALL” must be registrants. Hence, the shareholders and subsidiary companies must all be held by registrants. There might be some structures of the existing firms where such requirement has not been fulfilled. Thus, the Board has given a timeline of 3 years to comply.

The new way is maximum 49% of the Practicing Company (under Non-Registered Entity) can come together with an “Approved Holding Company” to form a firm. This 49% can be NON-Registrants.

Also to highlight another term called “Other Registered Person”. This is NOT to be confused with “Non-Registered Entity” who are NOT Registrants.

It is however important to point out that, despite the possibility that a Registrant can still become INVESTOR under Non-Registered Entity, the law does not allow him (Registrant) to have any practice within the group.

This scenario can be seen beneficial in a few ways:

  • The big firms overseas, despite not registered in Malaysia – are real estate giants – they might come in as investors.
  • Firms requiring technologies might work with iT companies to joint venture – tech-enabled firms.
  • To keep loyalty with some senior RENs, the firm might give away shares to RENs to keep them, or any other interpretation of this form – including the examples above.

The purpose of the above basically is to enable easier capital injection for the operation of the group.

This is Not interpreted as below:

The Approved Holding Company (under the name of Practicing Company) goes to peripheral to open branches and remote control the branches with RENs running the branches. This is like clones of the HQ Practicing Company every where in the country.

This is mostly the case when RENs in peripheral utilize the HQ firm to operate their business (profit sharing aside, legitimacy is in doubt). Where, the HQ remote controls the periphery firms and the RENs become puppets of the main firm.

You can look at this from both sides. One is the eroding the professionalism – where everyone is an “illegal” with no registrant to supervise, or in real person working in the agency office. This is like a medical clinic without Medical Doctor, but run by the clinic assistant.

The other is the abuse of the firm subsidiary structure to sprawl for geographical dominance. Indeed, many subsidiary firms will collaborate with illegals at the periphery and multiplies its firm numbers (clones the same registrant) enabling big firms to monopoly the competition on the ground.

Big firms from developed market with enormous investment can bulldoze through to peripheral townships and cannibalize the smaller firms and put them out of business overnight.

At least with this format of Registered Subsidiary having to comply with OTHER REGISTERED PERSONS, the big firms have to decentralize their operation to the professionally registered person to manage the branch office.

MEAS 1 – Agency Office, there must be a Resident Manager who is a Registered Estate Agent (registrant). Therefore, the structure of both the Liberalization or Non-liberalization firms put it as “Other Registered Person”.

This does NOT mean Other Type of Registered Person (wrongly interpreted as RENs, Developers, Office Admin staff). The possible misinterpretation could be because “REN” is wrongly interpreted as Registered Estate Negotiators (which is wrong). REN = Real Estate Negotiators. Though, the market has indirectly accepted that they are “registered” as in S.22C (2)(d) of Act 242.

Here, the meaning should be Other Persons who are Similarly Registered – but not within the same company network. In other words, it means Other Registrants (and not the same registrants of the parent company) who are never with the firm in any way – including that of parent holding company, or other branches/sister companies.

Obviously, the purpose is to ensure that the system of corporate structure cannot be abused to benefit a single registrant where monopoly of his influence might jeopardize the professionalism of the operation of the subsidiary companies.

Additional Remarks – 30 Sep, 2021

The Board has issued a Notification “Guidance for the registration of firms” on 30 Sep, 2021 regarding explanation to the above two systems of formation of firms. I link my further write-up on this issue here.

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