Guide to franchising

in Malaysia

September 2003

Contact
Kerry Ryan
Partner

1 Alfred Street, Circular Quay NSW 2000

Telephone: +61 (0)2 9330 8327
Email: kerry.ryan@deacons.com.au
Website: www.deacons.com.au
 Guide to franchising
in Malaysia

Contents

Legal framework 1
Application of the Act 1
Matters to be included in the franchising agreement 1
Registration obligations 2
Prohibition against similar business 3
Confidentiality 3
Termination 4
Extension of franchise terms 4
General penalty 4
 Guide to franchising
in Malaysia 1

Legal framework
Franchising arrangements in Malaysia are governed by the Franchise Act 1999 (Act
590) (hereinafter referred to as “the Act”). The Act provides for the registration of,
regulation and incidental matters relating to franchises.

Application of the Act

The Act applies throughout Malaysia to the sale of any franchise in Malaysia.

Matters to be included in the franchising agreement

Pursuant to the Act, franchising arrangements must be in writing and need not be in
Bahasa Malaysia. The agreement must include clauses relating to:

§ the name and description of the product and business under the franchise

§ territorial rights granted to the franchisee

§ the franchise fee, promotion fee, royalty or any related type of payment which
may be imposed on the franchisee, if any

§ the obligations of the franchisor and franchisee under the proposed

franchising arrangement

§ the franchisee’s rights to use the mark or any other intellectual property,
pending the registration or after the registration of the franchise

§ the conditions under which the franchisee may assign the rights under the
franchise

§ a statement on the cooling off period (i.e. option to terminate)

§ a description pertaining to the mark or any other intellectual property owned or

related to the franchisor which is used in the franchise

§ if the agreement is related to a master franchisee, the franchisor’s identity and

the rights obtained by the master franchisee from the franchisor
 Guide to franchising
in Malaysia 2

§ the type and particulars of assistance provided by the franchisor

§ the duration of the franchise and terms of renewal, and

§ the effect of termination or expiration of the franchise agreement.

Registration obligations
A franchisor is obliged to register his franchise with the Registrar of Franchises
(hereinafter referred to as "the Registrar") before he can make an offer to sell the
franchise to any person. The Act requires the franchisor to submit to the Registrar
by completing and filing Form BAF 2 together with:

§ the complete disclosure documents with all the necessary particulars filled in
(Disclosure Document (BAF 1)

§ a sample of the franchise agreement

§ the training manual of the franchise

§ the operations manual of the franchise

§ a copy of the latest audited accounts, financial statements, and the reports, if
any, of the auditors and directors of the applicant, and

§ such other additional information or documents as may be required by the

Registrar for the purpose of determining the application (i.e. certificate of
incorporation, form 8 or 9 (whichever is applicable), forms 24 and 49, form of
annual return of a company having a share capital (pursuant to Section 165 of
the Companies Act 1965), latest audited balance sheet and profit and loss
account, company's organisational chart together with names and position of
key personnel, company's business brochures).

The above requirements may differ between different applicants, or different

classes, categories or descriptions of applicants. All documents submitted in support
of the application must be certified as true copies. Application forms (BAF 2) and
Disclosure Documents (BAF 1) can be obtained from the Ministry of Entrepreneur
Development at no cost.
 Guide to franchising
in Malaysia 3

Fees are charged for the Registration of the Franchisor/ Master Franchisee/
Franchisee to Foreign Franchisee. A processing fee is also charged, as well as
amendments to document fees. For current rates please contact Deacons.

The registration shall be effective from the date stated on a written notice given by
the Registrar and such date shall be after the date of filing of all required information
or documents. The registration of a franchise shall continue to be effective unless
the Registrar issues an order made by written notice to the applicant or the
franchisor to suspend, terminate, prohibit or deny the sale or registration of the
franchise under the Act.

A franchisor is required to register his trade mark or service mark relevant to his
franchise in accordance with the Trade Marks Act 1976 (if registrable under the Act)
before applying for the registration of the franchise.

Prohibition against similar business

The Act provides that a franchisee is required to give a written guarantee to a
franchisor that the franchisee and his employees shall not carry on any other
business similar to the franchised business operated by the franchisee during the
franchise term and for two years after the expiration of or earlier termination of the
franchise agreement.

Confidentiality
A franchisee is required to give a written guarantee to a franchisor that the
franchisee and his employees shall not disclose to any person information contained
in the operation manual or obtained while undergoing training organised by the
franchisor during the franchise term and for two years after expiration or earlier
termination of the franchise agreement.
 Guide to franchising
in Malaysia 4

Termination
The Act provides that no franchisor shall terminate a franchise agreement before the
expiration date except for good cause as defined in the Act. The Act provides that a
franchise term shall not be for a term less than five years. A franchise term may be
terminated before the expiry of the minimum term of five years where both parties to
the franchise agreement agree to a termination or where the court has decided that
there are certain conditions in the franchise agreement which merit the agreement to
be terminated earlier than the minimum term.

Extension of franchise terms

At any time before the expiration of the franchise term, a franchisee shall at his
option give written notice to the franchisor to extend the franchise term which shall
contain conditions which are similar, or not less favourable than, the conditions in
the previous franchise agreement.

General penalty
The Act provides that a person who commits an offence under the Act for which no
penalty is expressly provided shall, on conviction, be liable for the first offence, to a
fine and for a second or subsequent offence, to a fine or to imprisonment, or to both.
Upon sentencing a franchisor for a first offence, the court has the discretion to
declare a franchise agreement between the franchisor and any franchise to be null
and void or order that the franchisor refunds any form of payment which he has
obtained from any franchisee or prohibit the franchisor from making any new
franchise agreement or appointing any new franchisee.

This Publication is intended to provide a general summary only and should not be relied on as a substitute for legal advice.

Under the Privacy Act, we need to tell you that we collect information about you to assist in performing and promoting our legal
services. We do not disclose information about you to any person except as required in the course of providing legal services or for
the ordinary administration of our business. If you do not want to receive promotional material from us, then please let us know. You
can also request access to information we hold about you by making a written request to our Privacy Manager.

© Copyright Deacons 2003