I’ve found success with my business and want to expand. Is franchising a viable option in Malaysia?

Yes. If your business has achieved a measure of success and you’re looking to scale, franchising could be a suitable path. However, it’s essential to understand and comply with the legal framework governing franchises in Malaysia.

What is the main legislation governing franchises in Malaysia?

The principal legislation is the Franchise Act 1998 (FA). It was amended by the Franchise (Amendment) Act 2020, which received Royal Assent on 20 February 2020 and was gazetted on 6 March 2020. Although the Amendment Act introduced significant changes, its commencement date has yet to be announced.

How is “franchise” defined under the Franchise Act?

A franchise refers to an agreement (written, oral, implied or expressed) between two or more parties whereby:

The franchisor grants the franchisee the right to operate a business using the franchisor’s franchise system.
The franchisor allows the use of a mark, trade secret, confidential information, or intellectual property.
The franchisor retains continuous control over the franchisee’s business operations.
The franchisee may need to pay a fee or other consideration in exchange for these rights.

Can a foreign franchisor sell a franchise in Malaysia?

Yes, but under Section 54 of the Franchise Act, a foreign franchisor must first apply to the Registrar for approval before selling a franchise in Malaysia or to any Malaysian citizen. This application must be submitted in the prescribed form together with the relevant fee.

Can a foreign franchisor grant sub-franchise rights to a Malaysian entity?

Yes. A foreign franchisor may appoint a master franchisee in Malaysia, who in turn may sub-franchise the business. However, each sub-franchisee must also be registered with the Registrar under Section 6A(3).

What happens if a foreign franchisor sells a franchise in Malaysia without prior approval?

A foreign franchisor who fails to register or obtain prior approval commits an offence under Section 6(2) and may be fined:

Up to RM250,000 for a body corporate (or RM500,000 for a subsequent offence), or
Up to RM100,000 or 1 year imprisonment (or both) for non-corporate persons, with increased penalties for repeat offences.

Are foreign franchisors subject to the same agreement requirements as local franchisors?

Yes. All franchise agreements, including those by foreign franchisors, must comply with Section 18 of the Act and include all mandatory terms, such as franchise fees, territorial rights, cooling-off periods, IP usage rights, and termination clauses.

Who is considered a franchisor, franchisee, or master franchisee under the Act?

Franchisor: A person who grants the franchise. Includes a master franchisee in relation to a sub-franchisee.

Franchisee: A person who receives the franchise. Includes:
- A master franchisee (from a franchisor).
- A sub-franchisee (from a master franchisee).

Master Franchisee: A person granted rights by the franchisor to sub-franchise to others at their own expense.

What must I do before registering a franchise in Malaysia?

There are two main pre-registration steps:

A. Drafting a Franchise Agreement

Section 18(1) requires all franchise agreements to be in writing. Section 18(2) mandates that the agreement must contain certain terms, including:

Description of the business and products.
Territorial rights.
Payment obligations (franchise fee, royalties, etc.).
Obligations of both franchisor and franchisee.
IP rights and conditions for use.
Assignment conditions and termination clauses.
Cooling-off period (as per Section 18(4)).
Details regarding the mark/IP used.
Master franchisor’s identity (if applicable).
Assistance to be provided by the franchisor.
Duration and renewal terms.
Effects of termination or expiry.

Note: Under the previous FA, failure to include these terms made the agreement null and void. Under the Amendment Act, such failure is now an offence.

B. Registering Trade Marks

Section 24 of the FA requires franchisors to register the relevant trade mark/service mark with MyIPO (Intellectual Property Corporation of Malaysia) under the Trade Marks Act 1976 before applying to register a franchise.

What is the process to register a franchise in Malaysia?

Section 6(1) of the FA requires all franchisors to register their franchise with the Registrar of Franchise before offering or operating the business.

The application must be submitted to the Franchise Development Division under the Ministry of Domestic Trade and Consumer Affairs.

What documents are required for franchise registration?

Your submission must include:

Complete Disclosure Documents (identical to those shared with franchisees).
A copy or sample of the franchise agreement.
Operation and training manuals.
Latest audited accounts, financial statements, and relevant reports.
Any other information requested by the Registrar.

The Registrar may also request certified true copies of:

Application form and certificate of incorporation.
Form 24 (allotment of shares) and Form 49 (directors and officers' particulars) under the Companies Act 2016.
The organizational chart of the franchisor with key personnel.
The franchisor’s business brochures.

What happens after I submit the application?

If your application is approved, you will be required to pay a registration fee of RM1,000 (as per Schedule 3, Regulation 7 of the Franchise (Forms and Fees) Regulations 1999).

What if my application is rejected?

If your application is rejected, the Registrar must provide reasons (per Section 8(1) of the FA). You can appeal the decision to the Minister within 1 month of receiving the rejection. The Minister’s decision is final.

What are Disclosure Documents and when must they be shared?

Disclosure Documents are required to be shared by the franchisor before the franchisee signs the franchise agreement. These documents must be identical to those submitted to the Registrar during registration.

Wish to speak with one of our lawyers on your franchise expansion? Feel free to reach out to us

Registering a Franchise in Malaysia: What you should know