Malaysia

• Author: Mohd Bustaman Hj Abdullah - Wong Sai Fong
• Pages: 346-363

346 International Franchise Sales Laws

Malaysia

I. What Is a Franchise?

A. Scope of Law

The Franchise Act 1998 (the Act) and the Franchise (Forms and Fees) Regulations

1999 (the Regulations), enforced since October 8, 1999, are intended to apply to

all franchises operating in Malaysia. (See Section I.E. on Jurisdiction below.) The

Regulations were amended by the Franchise (Forms and Fees) (Amendment) Regu-

lations 2007, which came into force on December 14, 2007, and the Act was

amended by the Franchise (Amendment) Act 2012 which came into force on Janu-

ary 1, 2013.

A “franchise” is defined as a contract or an agreement (either expressed or

implied), whether oral or written, between two or more persons by which (1) the

Franchisor grants to the Franchisee the right to operate a business according to the

franchise system as determined by the Franchisor during a term to be determined

by the Franchisor; (2) the Franchisor grants to the Franchisee the right to use a

mark, or a trade secret, or any confidential information or intellectual property

owned by the Franchisor or relating to the Franchisor, who is the registered user

of, or is licensed by another person to use, any intellectual property; (3) the

Franchisor possesses the right to administer continuous control during the fran-

chise term over the Franchisee’s business operations in accordance with the fran-

chise system; and (4) in return for the grant of rights, the Franchisee may be

required to pay a fee or other form of consideration (Section 4 of the Act). The

Franchisor is no longer obligated to provide assistance to the Franchisee to oper-

ate the Franchisee’s business, including such assistance as the provision or supply

of materials and services, training, marketing, and business or technical assis-

tance. Though no longer constituting a part of the definition of a “franchise,” the

Act still provides that the Franchisee operates the business separately from the

Franchisor and that there is no partnership, service contract, or agency relation-

ship between the Franchisor and Franchisee.

B. Applicability to Master Franchising

A “Franchisor” is defined as a person who grants a franchise to a Franchisee and

includes a Master Franchisee with regard to the Master Franchisee’s relationship

with a Sub-franchisee. A “Franchisee” is defined as a person to whom a franchise

is granted and includes (1) a Master Franchisee with regard to its relationship with

a Franchisor, and (2) a Sub-franchisee with regard to its relationship with a Master

Franchisee.

Malaysia 347

C. Exemptions

Franchising activities in Malaysia are under the purview of the Ministry of Do-

mestic Trade, Co-Operatives and Consumerism. The Act and Regulations do not

specifically provide any exemption, exclusion, or exceptions as to what is a “fran-

chise,” except in relation to agreements for direct selling as provided by the Direct

Sales Act 1993. Apart from that exclusion, the Act does not exempt other arrange-

ments from the franchise laws if the commercial activities fall within the defini-

tion of a franchise. However, under Section 58 of the Act, the Minister may, by

written order, exempt any persons or class of persons or business or industry from

all or any of the provisions of the Act.

D. Discretion of Regulatory Authorities

The Registrar of Franchising (the Registrar) has broad powers under the Act. For

example, Section 54 requires a foreign Franchisor to obtain approval of the Reg-

istrar to sell a franchise in Malaysia or to a citizen of Malaysia and Section 56

permits the Registrar to allow any Disclosure Document submitted to be publicly

inspected. However, no public inspection is allowed if such inspection is likely to

bring harm to the Franchisor, Franchisee, or the franchised business or if such

public inspection is not necessary. The Master Franchisee or Franchisee must also

register his franchise before he can operate his franchise business or sub-fran-

chise it to others.

E. Jurisdiction

The franchise laws apply where offers to sell or buy a franchise are made in

Malaysia and accepted within or outside Malaysia, or are made outside Malaysia

and accepted within or outside Malaysia, and the franchised business is operated

or will be operating in Malaysia, regardless of the nationality of the Franchisor or

Franchisee. As a rule of thumb, franchise laws apply to all franchises operating in

Malaysia.

II. Who Must Provide Disclosure?

A. Franchisor

A Franchisor, including a Master Franchisee with a right to sub-franchise, must

provide a Disclosure Document and a franchise agreement to a prospective Fran-

chisee at least 10 days before the execution of the franchise agreement. The Dis-

closure Document is to assist the prospective Franchisee in understanding the

franchise offer being made and to enable the Franchisee to compare the disclo-

sures made with the intended franchise agreement.