INTRODUCTION TO FRANCHISE BUSINESS
ARC News • April 23, 2024
1. What is franchise?
Franchise is a type of business in which the franchisor grants a franchisee the right to operate a business in accordance to the franchise system for a term as determined by the franchisor. Despite the aforesaid, the franchisor continues to possess the right to administer control over the franchisee’s business operation. The franchisee is also granted the right to use any intellectual property and/or confidential information owned by the franchisor during the term of the franchise. In consideration of the rights granted by the franchisor to the franchisee, the franchisee is required to pay a fee or any other form of consideration to the franchisor.
In Malaysia, franchise is governed under the Franchise Act 1998 (“Act”) in which the Act provides for the registration, administration and enforcement of franchise business.
2. Is it compulsory to register a franchise?
Yes. The law requires a franchise to be registered with the Registrar before the franchise can start operating or makes an offer to sell the franchise to another entity in Malaysia. Failure to register the franchise may cause a penalty to be imposed. If the franchisor is a body corporate, the imposition of fine is up to RM250,000.00 (and RM500,000.00 for its second or subsequent offence).
However, in cases where the franchisor is not a body corporate, the first offence may cause (1) an imposition of fine up to RM100,000.00; (2) imprisonment up to 1 year; or (3) both. For its second or subsequent offence, the penalty is (1) an imposition of fine up to RM250,000.00; (2) imprisonment up to 3 years; or (3) both .
3. Where to register franchise business?
Any registration, maintenance and renewal of franchises in Malaysia can be made through MyFex 2.0 at https://myfexv2.kpdn.gov.my/.
4. Does a foreign franchisor have to register?
Yes, it is mandatory for foreign franchisors to register the franchise in Malaysia. Prior to the registration, the foreign franchisor has to be approved by the Franchisor Registrar to sell a franchise in Malaysia.
5. What are the documents to submit to register a franchise?
The following documents or information must be submitted to the Registry by the franchisor for registration of a franchise:
No. Documents
1. A copy or sample of franchise agreement
2. Operation manual
3. Training manual
4.
Company Registration Certificate
Local Company: Companies Commission of Malaysia (SSM) status Sdn Bhd
Foreign Company: Company Registration Certificate certified by foreign registration body
*complete with:
• Company Corporate Information
• Summary of Share Capital
• Directors and Officers Information
• Shareholders Information
5. Past three (3) years of audited financial statement
6. A copy of trademark certificate from the Intellectual Property Corporation of Malaysia (MyIPO)
7. Business brochures of company
8. Complete disclosure documents
9. Bankruptcy search results for the directors of the company from Department of Insolvency Malaysia
Search can be done at: https://e-insolvensi.mdi.gov.my/
10. Prototype outlet management account (profit/loss) for at least six (6) months operations for each package offered.
*State the account complete with the outlet name and package that been referred.
Example: Sri Gombak Outlet (Standard Package) / Tokyo Outlet (Standard Package)
11. Company’s organisational chart
12. For re-registration, followings are the additional documents needed to submit:
• Annual Franchise Business Report (LTPF)
• Previous Registration Certificate
• Previous Approval Letter
6. How much is the fee for franchise registration?
Franchisor Registration
(a) Processing fee: RM50.00
(b) Approval fee (for local/master franchise): RM1,000.00
(c) Approval fee (for foreign franchise): RM5,000.00
Franchisee Registration
(a) Processing fee (for franchisee of local franchisor): RM20.00
(b) Processing fee (for franchisee of foreign franchisor): RM50.00
(c) Approval fee (for franchisee of foreign franchisor): RM1,000.00
Franchise Renewal
(a) Renewal fee of five years (for local franchisor): RM1,000.00
(b) Renewal fee of five years (for foreign franchisor): RM5,000.00
Application to Amend Disclosure Document
(a) Processing fee: RM50.00
This Article is written by Yeo Shu Pin (Partner) and Irisya Ayu Dania (Legal Associate) of Messrs. Afif Rahman & Chong.
Disclaimer: Every attempt to ensure the accuracy and reliability of the information provided in this publication has been made. This publication does not constitute legal advice and is not intended to be used as a substitute for specific legal advice or opinions. Please contact the authors for a specific technical or legal advice on the information provided and related topics.
