Malaysia Direct Selling License Criteria

GUIDELINES

Introduction

These guideline are intended to assist companies which are interested in applying for direct selling business license in accordance with the requirement of the Direct Sales and Anti-Pyramid Scheme Act 1993. This document shall not be use in any litigation. These guideline also contain the criteria, which maybe used as a guide when submitting applications for direct sales business licenses, and other procedures for various other application during the license period.

It is hoped that direct sales licenses fully benefit from these guideline in line with three important objectives of the Direct Sales Act 1993 which are:

– Licensing of direct sales activities for the protection of the consumer’s rights and interest;

– To promote the growth and development of ethical direct sales activities; and

– To prohibit all activities involving pyramid schemes and ‘ get-rich-quick’ schemes.

REMINDER

Before engaging in a direct sales business, you are advised to have a clear understanding of the DIRECT SALES ACT 1993 (DSA 93)

SECTION 4(1) DSA 93

“Subject to Section 14 and 42, no person shall carry on any direct sales business unless it is business incorporated under the Companies Act 1965 and holds a valid license granted Section 6”

SECTION 2 DSA 93

“Direct Sales” means a door-to-door sale and mail order sale within the meaning of this Act.

“Door-to-door-sale” means the sale of goods or services conducted in following manner:-

– A person or any person authorized by him

– Goes from place to place not being a fixed place of business; or
– Makes telephone call.

Seeking our persons who may be prepared to enter, as purchaser, into contracts for the sales of goods or services; and

– That first-mention person or some person then or subsequently enter into negotiations with hose prospective purchaser with a view to the making of such contracts.

“Mail Order Sale” means the sale of goods or services which a person conducts, either by himself of through any person authorized y him, receiving an offer for sale contract by mail.

TYPES OF MARKETING PLAN UNDER A DIRECT SALES BUSINESS

Under a direct selling, there are three types marketing plans as follows:
MULTILEVEL MARKETING PLAN

i. The company recruits/appoint as individual as a member/distributor to distribute the company’ goods;

ii. The individual then appoints other individuals to form his network (downline) to sell the company’s goods. The process of recruitment of new members/distributors may continue to a reasonable level;

iii. Each member/distributor shall receive a commission / bonus / incentive from his individual sales and from the sales made by his downline members / distributors (overriding bonus).

SINGLE MARKETING PLAN

i. The company appoints sales representative / agents and pays them
salaries/commissions/a combination of salary and commissions on their sales;

ii. The sales representative / agents are not allowed to appoint / sponsor other sales representative / agents.

MAIL ORDER SALES

Sale, by mail, of goods or services which a person conducts, either by himself or through any person authorized by him.

LICENCING CRITERIA

APPLICANT

Subject to the provisions of the Act and the conditions made thereunder as below;

QUALIFICATION

A company incorporated under the Companies Act 1965

PAID-UP CAPITAL

MARKETING PLAN

The marketing plans shall have the following characteristics:

The business does not carry on or involve a pyramid scheme as specified under Section 7 DSA 93.
Comply with the Direct Sales (Scheme and conduct) Regulations 2001, which come into operation on 15 August 2001, that is:
(a) Presentation of scheme not to be misleading
(i) In the presentation of the direct sales scheme, a person who carries on any direct sales business shall not mislead participants by overemphasizing on disproportionately high bonus or bonus payout.

(ii) Each participants shall be provided with sales kit that includes the marketing plan and code of conduct of the company.

(b) Payment of incentives

Any person who carries on a direct sales business shall provided an incentive based on the volume or quantity of goods or services sold or distributed by each participant and not based on recruitment of persons into the scheme

(c) Participants not to purchase goods or services in an unreasonable amount Each participants is required to purchase goods or service in an amount that can be expected to be resold or consumed within a reasonable period of time.

DIRECT SALES AND ANTI-PYRAMID SCHEME

FEATURES OF PYRAMID SCHEME OR ARRANGEMENT

[Section 27A]

1. The promotion of a scheme or the payment of bonus or other benefits is solely or primarily through recruitment or introduction of participants, into the pyramid scheme, plan, operation or chain process rather than the sale of goods, services or intangible property by the participants.
2. The bonus is paid to the participants or the other benefits are received by the participants solely or primarily through the recruitment or introduction of other persons into the pyramid scheme, plan, operation or chain process rather than the sale of goods, services or intangible property by the participants or other persons.
3. A written contract or statement which describes the material terms of the agreement is not provided to participants who join the pyramid scheme, plan, operation or chain process.
4. A mandatory purchase of goods, services or intangible property or a minimum payment or sale requirement is imposed as a condition to satisfy the eligibility or start-up requirement for participation or payment of bonus or other benefits in the pyramid scheme, plan, operation or chain process.
5. The participants are required to purchase goods, services or intangible property in unreasonable amount which exceeds the expectation to be resold or consumed within a reasonable period of time. The participants may not be given full liberty in buying but they are pressured to purchase selected goods packages to meet sales requirements to qualify them for position or bonus in the pyramid scheme, plan, operation or chain process.
6. The refund policy for goods, services or intangible property purchased by participants or consumers is not provided.
7. The buy-back policy by the operator of the pyramid scheme, plan, operation or chain process for currently marketable goods, services or intangible property upon the request of participants within reasonable terms or agreement is not allowed or provided for.
8. A strict or unreasonable structural requirements of the pyramid scheme, plan, operation or chain process for the eligibility of participants to be paid bonus or other benefits.
9. Withdrawal by participants from the pyramid scheme, plan, operation or chain process is not allowed.
10. The participants are allowed or encouraged to buy up more than one position or right to participate in the pyramid scheme, plan, operation or chain process.

Explanation 1 – A reference to the word “bonus or other benefits” shall relate to return or profit gains from a pyramid scheme, plan, operation or chain process.
Explanation 2 – A reference to the words “material terms” shall include buy-back policy, cooling-off period, warranty and refund policy.
Explanation 3 – The goods or services shall not be considered as currently marketable and shall not be subject to the specified features if the goods or services
are seasonal, discontinued or special promotional items which are disclosed to the participants at the time of sales.