Franchising is regulated by the Franchise Act 1998 (as amended in 2022).
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.
There are several types of mandatory registration:
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:
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.
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.