Franchising in Malaysia
Economy
Malaysia has the 40th largest economy in the world based on
annual GDP figures. The Tenth Malaysian Plan introduced in the
latter part of 2010, highlights Malaysia's four (4) year plan
(2011-2015) to encourage foreign investment, (which has slowed in
previous years) with the wider objective of allowing Malaysia to
compete internationally with other high income nation
counterparts.
Legislation
The Companies Act 1965, Companies Commission of Malaysia (SSM)
and the Franchising Act 1998 regulate franchising in Malaysia.
Foreign involvement in distributive trade must obtain the approval
of the Committee on Distributive Trade under the Ministry of
Domestic Trade, Co-operatives and Consumerism (MDTCC). The
Franchise Development Division of the MDTCC regulates the offer and
sale of franchises in Malaysia.
Franchise Market
In 2010, there were 449 franchisors registered at the Malaysian
Domestic Trade, Cooperatives and Consumerism Ministry.
Approximately forty (40) percent of the Malaysian franchise
businesses are international concepts, with most of these being U.S
based franchisors.
The Malaysian Government proactively encourages the development
of Malaysian franchises, however consumer demand for
internationally owned franchises remains high.
Franchise Legislation
- Franchisors, master franchisees and franchisees of foreign
franchisors are required to register with the Malaysian Registrar
of Franchises before they can offer to sell or buy franchises in
Malaysia.
- The franchise registry has very wide discretion and as a result
the registration process can take up to six (6) months.
- Franchisors must submit a copy of the franchise agreement and
disclosure documents to potential franchisees at least ten (10)
days before the franchisee signs the franchise agreement with the
franchisor. A franchisor's failure to submit such documents is an
offence under the Malaysian Franchise Act.
- An amalgamation of statutory and non statutory rules and
procedures govern the creation, duration and post expiration
obligations of franchise agreements. For example, a franchise
agreement must not last for less than five (5) years (statutory)
and the franchisor needs to have been in operation for three (3)
years (non statutory).
Conclusion
The registration and disclosure requirements coupled with the
regulated nature of Malaysian franchise law suggests that,
potential franchisors should seek the expertise of experienced
specialist legal advisors to ensure they and their legal
documentation are compliant for entering the Malaysian market.