Registration of Franchise

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Franchise means a contract or an agreement, either expressed or implied, whether oral or written, between two or more persons by which—


(a) 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;


(b) 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, and includes a situation where the franchisor, who is the registered user of, or is licensed by another person to use, any intellectual property, grants such right that he possesses to permit the franchisee to use the intellectual property;


(c) the franchisor possesses the right to administer continuous control during the franchise term over the franchisee’s business operations in accordance with the franchise system; and


(d) in return for the grant of rights, the franchisee may be required to pay a fee or other form of consideration.


Registration of franchisor


Franchisor means a person who grants a franchise to a franchisee and includes a master franchisee with regard to his relationship with a sub franchisee.


A franchisor shall register his franchise with the Registrar before he can operate a franchise business or make an offer to sell the franchise to any person.


A franchisor who intends to sell a franchise to a person who is not a Malaysian citizen shall obtain the approval of the Registrar.

A foreign person who intends to sell a franchise in Malaysia or to any Malaysian citizen shall submit an application to the Registrar.

Registration of franchisee


Franchisee means a person to whom a franchise is granted and includes—


(a) a master franchisee with regard to his relationship with a franchisor; and


(b) a sub franchisee with regard to his relationship with a master franchisee.


Master franchisee means a person who has been granted rights by a franchisor to sub franchise to another person, at his own expense, the franchise of the franchisor.



Before commencing the franchise business, a franchisee who has been granted a franchise from a foreign franchisor shall apply to register the franchise with the Registrar.


Where a franchisee has been granted approval from a foreign franchisor to sell the franchise, the franchisee shall register such approval.


A franchisee who has been granted a franchise from a local franchisor or local master franchisee shall register the franchise with the Registrar within fourteen days from the date of signing of the agreement between the franchisor and franchisee.


Application for registration


A franchisor shall make an application to register his franchise by submitting to the Registrar the application together with—


(a) the complete disclosure documents with all the necessary particulars filled in;


(b) a sample of the franchise agreement;


(c) the operation manual of the franchise;


(d) the training manual of the franchise; and


(e) a copy of the latest audited accounts, financial statements, and the reports, if any, of the auditors and directors of the applicant.


Registration of franchise broker

Franchise broker means a person doing business as an agent or representative of a franchisor to sell a franchise to any person for a certain consideration but does not include any director, officer or employee of the franchisor or franchisee.


Franchise consultant means a person who provides advice and consultancy services to another person on the registration of a franchise business and compliance of the related laws.


A franchise broker or franchise consultant shall register himself with the Registrar by filing with the Registrar any information in respect of any representative or agent appointed by the franchise broker or franchise consultant.

The franchise broker or franchise consultant must meet all the requirements as prescribed on the qualifications of a franchise broker or franchise consultant before he can be registered.


Compulsory practice

A franchisor shall submit to a franchisee a copy of the franchise agreement and disclosure documents at least ten days before the franchisee signs the agreement with the franchisor.


Annual report

The franchisor shall, within six months from the end of each financial year of the franchise business, submit a report to the Registrar.

FRANCHISE AGREEMENT

Franchise agreement means a contract or an agreement made between a franchisor and a franchisee in respect of a franchise in return for any form of consideration.


Requirements of franchise agreement

A franchise agreement shall contain but is not limited to—

(a) the name and description of the product and business under the franchise;

(b) the territorial rights granted to the franchisee;


(c) the franchise fee, promotion fee, royalty or any related type of payment which may be imposed on the franchisee, if any;

(d) the obligations of the franchisor;

(e) the obligations of the franchisee;

(f) the franchisee’s rights to use the mark or any other intellectual property, pending the registration or after the registration of the franchise;

(g) the conditions under which the franchisee may assign the rights under the franchise;

(h) a statement on the cooling off period;


(i) a description pertaining to the mark or any other intellectual property owned or related to the franchisor which is used in the franchise;

(j) if the agreement is related to a master franchisee, the franchisor’s identity and the rights obtained by the master franchisee from the franchisor;

(k) the type and particulars of assistance provided by the franchisor;

(l) the duration of the franchise and the terms of renewal; and

(m) the effect of termination or expiration of the franchise agreement.

A franchise agreement shall have a cooling off period, which shall be determined by both contracting parties but shall not be less than seven working days, during which the franchisee has the option to terminate the agreement.

Upon termination of the franchise agreement, an amount to cover the reasonable expenses incurred by the franchisor to prepare the agreement may be retained by the franchisor from the initial fees paid; however, all other moneys shall be refunded to the franchisee.


Payment of franchise fee, etc.

If a franchisor requires that a franchisee makes a payment before signing a franchise agreement, including a payment which is part of a franchise fee, the franchisor shall state in writing in the disclosure document the purpose for the payment and the conditions for the use and refund of the moneys.


Promotion Fund

A franchisor who requires a franchisee to make any payment for the purpose of the promotion of a franchise shall establish a Promotion Fund (“Fund”). The payment required to be made shall be deposited into the Fund.

The Fund shall be managed under a separate account and shall only be used for the promotion of the product under the franchise.

If a franchisee is required to make any payment, the franchisor shall submit a financial statement of the Fund, which has been endorsed by a registered public accountant, to the Registrar within thirty days after the conclusion of the last financial term.


The financial statement shall be submitted to the Registrar together with the annual report.


Registration of trade mark or service mark


Mark includes a trade mark, service mark, symbol, design, brand, heading, label, ticket, name, signature, word and letter or any combination of them.


A franchisor is required to register his trade mark or service mark relevant to his franchise before applying for the registration of the franchise.


Franchise term

A franchise term shall not be less than five years.


Confidential information

A franchisee shall give a written guarantee to a franchisor that the franchisee, including its directors, the spouses and immediate family of the directors, and his employees shall not disclose to any person any information contained in the operation manual or obtained while undergoing training organized by the franchisor during the franchise term and for two years after the expiration or earlier termination of the franchise agreement.


The franchisee, including its directors, the spouses and immediate family of the directors, and his employees shall comply with the terms of the written guarantee given.


Prohibition against similar business

A franchisee shall give a written guarantee to a franchisor that the franchisee, including its directors, the spouses and immediate family of the directors, 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 or earlier termination of the franchise agreement.

The franchisee, including its directors, the spouses and immediate family of the directors, and his employees shall comply with the terms of the written guarantee given.


Obligations of franchisor and franchisee


A franchisee shall pay the franchise fees, royalty, promotion fees or any other payment as provided in the franchise agreement.


A franchisor shall provide assistance to a franchisee to operate his business, such as the provision or supply of materials and services, training, marketing, and business or technical assistance.


Termination of franchise agreement

No franchisor or franchisee shall terminate a franchise agreement before the expiration date except for good cause as provided.

“Good cause” shall include—

(a) the failure of a franchisor or a franchisee to comply with any terms of the franchise agreement or any other relevant agreement entered into between the franchisor and franchisee; and


(b) the failure of a franchisor or the franchisee to remedy the breach committed by him or any of his employees within the period stated in a written notice given by the franchisor, which shall not be less than fourteen days, for the breach to be remedied.

“Good cause” shall include, but without the requirement of notice and an opportunity to remedy the breach, circumstances in which the franchisor or franchisee—

(a) makes an assignment of the franchise rights for the benefit of creditors or a similar disposition of the assets of the franchise to any other person;

(b) becomes bankrupt or insolvent;

(c) voluntarily abandons the franchised business;


(d) is convicted of a criminal offence which substantially impairs the goodwill associated with the franchisor’s mark or other intellectual property; or

(e) repeatedly fails to comply with the terms of the franchise agreement.


Non-renewal of franchise agreement

A franchisor commits an offence if he refuses to renew a franchise agreement or extend a franchise term without compensating a franchisee either by a repurchase or by other means at a price to be agreed to between the franchisor and the franchisee after considering the diminution in the value of the franchised business caused by the expiration of the franchise where—

(a) the franchisee is barred by the franchise agreement, or by the refusal of the franchisor at least six months before the expiration date of the franchise agreement to waive any portion of the franchise agreement which prohibits the franchisee, from continuing to conduct substantially the same business under another mark in the same area subsequent to the expiration of the franchise agreement; or

(b) the franchisee has not been given a written notice of the franchisor’s intent not to renew the franchise agreement at least six months prior to the expiration date of the franchise agreement.


Earlier termination of franchise term

A franchise term may be terminated before the expiry of the minimum term of five years in the circumstance where both parties to the franchise agreement agree to a termination.

Extension of franchise term

A franchisee may, at his option, apply for an extension of the franchise term by giving a written notice to the franchisor not less than six months prior to the expiration of the franchise term.

Except when a franchisee has breached the terms of a previous franchise agreement, a franchisor shall extend the franchise term to another period if the franchisee has applied for the extension of term.

A franchise agreement which franchise term has been extended shall contain conditions which are similar or not less favourable than the conditions in the previous franchise agreement.

If you would like to know more, please contact Bestar.



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