Malaysia

Franchise regulation

Franchising is regulated by the Franchise Act 1998 (as amended in 2022).

Pre-contractual disclosure requirements

Franchisors/ master franchisees must provide a copy of the franchise agreement and documents submitted to and approved by the Registrar in the relevant application (including the complete disclosure documents in the form as prescribed by the Registrar, the operation manual, the training manual and the latest 3 years’ audited accounts) to franchisee/ sub-franchisee at least 10 days before the agreement is signed. The information to be included in the disclosure documents includes a description of the franchise business, a breakdown of initial investment costs, ongoing payments to the franchisor, whether supplies/materials must be obtained from a designated source, information on the franchise network and detailed information from audited accounts for the last 3 years.

Registration

There are several types of mandatory registration:

• Foreign franchisors must register the franchise with the Franchise Registry under Section 6 of the Franchise Act 1998 before operating a franchise business or making an offer to sell the franchise to any person after obtaining prior approval from the Franchise Registry to sell its franchise in Malaysia or to any Malaysian citizen under Section 54 of the Franchise Act 1998. Only one single application is to be submitted for obtaining both approval and registration under Sections 54 and 6.
• Local franchisors and master franchisees must register the franchise with the Franchise Registry under Section 6 of the Franchise Act 1998 before operating a franchise business or making an offer to sell the franchise to any person.
• Franchisees of a foreign franchisor, local franchisor or a local master frachisee must also register the franchise.

Other issues

An applicant that intends to register as a local franchisor, a master franchisee or a franchisee of a foreign franchisor, must be registered with the Companies Commission of Malaysia. If it has more than 50% of foreign equity, a Wholesale, Retail and Trade License must be obtained from the Ministry of Domestic Trade and Consumer Affairs, Malaysia prior to procuring franchise registration with the Franchise Registry.

To apply for the registration of a franchisor (both foreign and local) and a master franchisee, extensive documentation relating to operational and financial information is required, including:

• a sample franchise agreement (final version which is only pending signature of the parties);
• certificate of incorporation;
• details of franchise concept, including uniqueness of brand and franchise experience;
• declaration from Insolvency Department that directors are not bankrupt; and
• trademark registration certificates.

The franchise agreement must contain certain mandatory clauses, including a seven-day cooling-off period for franchisees and a minimum term of 5 years.

The franchise agreement cannot be terminated before the end of its term without a good reason, as specified in the Franchise Act 1998. If there are material changes to the supporting documents for registration of franchise, the Registrar’s prior approval will be required.

Difficulty Rating/Comments

It takes a significant amount of time to collect the substantial information required to be submitted to the Franchise Registry and for the Franchisee Registry to review and approve the application - allow for 6-9 months for franchisor (both foreign and local) and master franchisee applications and 3-4 months for franchisee applications. This is dependent on the rate at which the applicant is able to supply the required information to the Registrar following its examination and subject to the Registrar’s backlog of cases.