Some of the most heavily regulated territory in the Corporations Act 2001 (Cth) hides behind one of its blandest phrases. A managed investment scheme sounds like something run by a fund manager in a tower — but the definition in section 9 doesn’t care what you call yourself. It asks what your customers’ money is doing. Fractional property platforms, crypto yield products, revenue-share pools, collectible fractionalisation apps, agricultural investment offerings and angel syndicate vehicles have all been caught by it, usually to the genuine surprise of their founders. And the consequences of operating an unregistered scheme that should have been registered are not a slap on the wrist: a criminal offence, a court power to wind the whole structure up, and investors entitled to unwind their contracts and take their money back.
The Three-Limb Test: What Your Customers’ Money Is Doing
Strip section 9 to its working parts and a managed investment scheme exists where three things line up:
- Contribution — people contribute money (or money’s worth) to acquire rights — “interests” — to benefits produced by the scheme;
- Pooling or common enterprise — the contributions are pooled, or used in a common enterprise, to produce financial benefits or benefits consisting of rights or interests in property; and
- No day-to-day control — the members don’t have day-to-day control over the operation of the scheme, even if they have voting or similar rights.
Each limb is broader than it looks. “Scheme” itself just means a program or plan of action. The High Court read “common enterprise” expansively as far back as Australian Softwood Forests Pty Ltd v Attorney-General (NSW) (1981). And the definition’s outer edge has real give in it: in Brookfield Multiplex Ltd v International Litigation Funding Partners Pte Ltd [2009] FCAFC 147 the Full Federal Court held that a funded class action — nobody’s idea of a “fund” — was a managed investment scheme, a holding a later Full Court in LCM Funding Pty Ltd v Stanwell Corporation Ltd [2022] FCAFC 103 declared plainly wrong, with litigation funding schemes then expressly exempted by regulation from December 2022. Thirteen years of an entire industry sitting inside, then outside, Chapter 5C is a fair measure of how hard the definition is to call at the margins — and novel startup products live at the margins.
The definition then excludes a list of structures that would otherwise be caught, and one exclusion matters enormously to startups: a body corporate. Shares in a company are not interests in a managed investment scheme. Your seed round, your SAFEs, your priced Series A — none of that is MIS territory, however many shareholders you have (those raises have their own rulebook in section 708 and the CSF regime). The MIS trap almost never sits on the fundraising side of a startup. It sits on the product side — and in the vehicles founders and angels build around startups, because a unit trust or bare-trust syndicate SPV enjoys no such exclusion.
How Startups Walk Into It
Map the three limbs onto common startup models and the pattern is uncomfortable:
- Fractional property platforms. Customers contribute money for a slice of a property (or a portfolio), returns come from rent and capital growth, and the platform manages everything. All three limbs, squarely — which is why the established players in this space operate registered schemes.
- Yield and “earn” products. Customers hand over money or crypto, the operator deploys it, customers get a return. At first instance in ASIC v Web3 Ventures Pty Ltd (Block Earner), Jackman J held exactly such a product was an unregistered managed investment scheme — more on where that case ended up below.
- Revenue-share and royalty pools. “Back this basket of loans / invoices / artists / carbon projects and share the income” is contribution, pooling and promoter control by design.
- Fractionalised collectibles. Sneakers, whisky casks, art, wine: if customers buy in for investment-style benefits and you manage the asset, the analysis is the same.
- Investment syndicates. An angel syndicate that pools cheques through a trust SPV is a scheme; run enough of them, openly, and you risk being “in the business of promoting” schemes — one of the registration triggers below.
The instinct that saves most operators is also worth naming: a scheme with no pooling and no common enterprise — genuinely individual accounts, individually managed — can fall outside the definition. But as Block Earner shows, escaping Chapter 5C is not the same as escaping Chapter 7.
Registration: The 20-Member Cliff in Section 601ED
Being a managed investment scheme is not itself unlawful. The regime bites at registration. Under section 601ED, a scheme must be registered with ASIC if it has more than 20 members, was promoted by a person in the business of promoting managed investment schemes, or ASIC determines that closely related schemes should be aggregated — a rule aimed precisely at the “we’ll just run lots of small schemes” workaround.
The key exemption is section 601ED(2): registration is not required if every issue of interests would not have needed a Product Disclosure Statement — in practice, a scheme offered only to wholesale clients (broadly, certified sophisticated investors, professional investors, or $500,000-plus subscriptions), or one that stays within the small-scale personal-offer ceiling in section 1012E of 20 retail investors and $2 million in any 12 months.
Why does everyone work so hard to avoid registration? Because a registered scheme must have a responsible entity — a public company holding an AFSL authorising it to operate the scheme (section 601FA) — plus a compliant constitution, a compliance plan, PDS disclosure and design and distribution obligations. That is an institutional compliance stack, not a startup one. And staying unregistered on the wholesale side is not a regulation-free zone either: the operator of a wholesale scheme still generally needs an AFSL (or authorisation under someone else’s) to issue and deal in the interests.
What Happens When You Get It Wrong
Operating a scheme that should have been registered is a criminal offence under section 601ED(5), punishable by imprisonment. The structural consequences are usually worse than the personal ones. Under section 601EE, ASIC — or any member — can apply to have the scheme wound up by the court, and courts routinely do it even where the operator acted honestly, because winding up is protective, not punitive. And under section 601MB, subscription agreements are voidable at the investor’s option: every disappointed customer holds a put option against your balance sheet. For a startup whose product is the scheme, an MIS finding is rarely a compliance problem. It’s an existential one.
Block Earner’s Warning: The Analysis Doesn’t End at Chapter 5C
The Block Earner litigation is the case every yield-product founder should read. ASIC sued Web3 Ventures Pty Ltd over its fixed-yield crypto “Earner” product. At trial, the product was held to be both an unregistered managed investment scheme and a financial investment facility; the Full Federal Court reversed in April 2025; and in June 2026 the High Court unanimously sided with ASIC — holding the product was a financial product as a facility for making a financial investment under section 763B and as a derivative, and that offering it without an AFSL was unlicensed conduct. Notably, ASIC didn’t need the MIS ground to win it.
The lesson generalises well beyond crypto. The MIS definition, the section 763B investment facility concept and the derivative definition are overlapping nets. Structuring around one of them — individual wallets instead of a pool, “loans” instead of units — often lands you in another. The question regulators and courts keep coming back to is functional: did customers put money in expecting you to generate a return with it? If yes, some part of Chapters 5C or 7 almost certainly applies, whatever the product is called. The new digital asset platform regime — enacted in April 2026, with its transitional licensing window already running — reframes parts of this for crypto businesses, but it layers onto the financial-product architecture rather than replacing it.
Structuring to Stay on the Right Side
For startups whose model brushes up against the regime, the realistic options, roughly in ascending order of cost:
- Redesign the product so a limb of the definition genuinely fails — no pooling, no promised benefits from your efforts — and then stress-test the result against section 763B, not just Chapter 5C.
- Stay wholesale or small-scale — wholesale-only offers, or within the 20-investor/$2 million ceiling — while still dealing with the licensing question for the operator.
- Rent the infrastructure: run your scheme on a licensed trustee or “fund hosting” platform, with an established responsible entity for retail offers — the standard bridge while a startup proves the model.
- Get licensed yourself — your own AFSL, and for retail scale, a public-company responsible entity or a corporate collective investment vehicle. Slow and expensive, but it is the moat the incumbents in fractional investing built.
The one thing not on the list is waiting to be noticed. The trigger points — the 21st member, the first retail cheque, the pivot from tool to investment product — arrive quietly, mid-growth, and the regime applies from the moment you cross them, not from the moment ASIC writes to you.
This article is general information only, not legal advice — whether a particular product or structure is a managed investment scheme turns on its precise terms and how it is operated. Viridian Lawyers advises Australian founders, fintechs and investors on financial services regulation, fund structures and capital raising. If your product involves other people’s money, get in touch before you launch it.
