*FRANCHISE ACT 1998

The sale and operation of a franchise is deemed to be in

Malaysia where—

Nothing in this Act shall affect the provisions of any other written laws, but if there is any conflict between the provisions of this

Act and the provisions of the other written laws, the provisions of this

Act shall prevail.

Interpretation

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;

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;

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

(Deleted by Act A1442).

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

(Deleted by Act A1442).

“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 but does not include any contract or agreement made for the purpose of direct selling as provided by the

Direct Sales Act 1993 [Act 500];

“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;

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“franchisee” means a person to whom a franchise is granted and includes, unless stated otherwise in this Act—

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

a subfranchisee with regard to his relationship with a master franchisee;

“franchisor” means a person who grants a franchise to a franchisee and includes a master franchisee with regard to his relationship with a subfranchisee, unless stated otherwise in this Act;

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

“master franchisee” means a person who has been granted rights by a franchisor to subfranchise to another person, at his own expense, the franchise of the franchisor;

“Minister” means the Minister for the time being charged with the responsibility for matters relating to franchises;

“person” includes a natural person, corporation, partnership, association, firm, joint venture or trust;

“prescribed” means prescribed by regulations made under this Act;

“Registrar”, “Deputy Registrar” and “Assistant Registrar” mean respectively the Registrar of Franchises, a Deputy Registrar of Franchises and an Assistant Registrar of Franchises appointed under section 5;

“regulations” means regulations made under this Act;

“subfranchise” means a franchise granted by a master franchisee to a subfranchisee for business purposes under this Act;

“subfranchisee” means a subfranchise holder;

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“this Act” includes any regulations made under this Act.

The Registrar shall, subject to the general direction and control of the Minister, perform the duties imposed and exercise the powers conferred on him under this Act.

The Deputy Registrar, Assistant Registrars and other officers appointed under subsection (1) shall be under the direction and control of the Registrar.

The Deputy Registrar may perform all the duties and exercise all the powers conferred upon the Registrar under this Act.

The Registrar or Deputy Registrar may perform all the duties imposed and exercise all the powers conferred upon an Assistant

Registrar under this Act.

All officers appointed under this section shall be deemed to be public servants within the meaning of the Penal Code [Act 574].

*Registration of franchisor

Any franchisor or foreign person who fails to comply with this section, unless exempted by the Minister under section 58, commits an offence and shall, on conviction, be liable—

The Registrar may impose any conditions for the approval of registration of franchise referred to in subsection (1).

Upon approving the application under subsection (1), the

Registrar may require the applicant to pay such amount of fee as may be prescribed.

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

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Any franchisee who fails to comply with this section commits an offence.

Registration of franchisee

Any franchisee who fails to comply with subsection (1) commits an offence.

Application for registration

the complete disclosure documents with all the necessary particulars filled in;

a sample of the franchise agreement;

the operation manual of the franchise;

the training 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.

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At any time after receiving an application and before it is determined, the Registrar may, by written notice, require the applicant, or the director or manager of the applicant, to provide additional information or documents.

The matters specified under paragraph (1)(f) or the requirements under subsection (2) may differ as between different applicants, or different classes, categories or descriptions of applicants.

An application under this section may be withdrawn at any time before it is approved or refused.

If any additional information or document required under subsection (2) is not provided by the applicant or his director or manager within the time specified in the requirement or any extension of time granted by the Registrar, the application shall be deemed to have been withdrawn and shall not be further proceeded with, but without affecting any fresh application being made by the applicant.

A person who submits false or misleading information or documents under this section commits an offence.

Approval or refusal of application for registration

An application for registration which is approved under this section may be subject to such conditions as the Registrar may impose.

Upon approving an application under subsection (1), the

Registrar may require the applicant to pay such amount of fees as may be prescribed.

The Registrar shall give the applicant a written notice of his decision under this section.

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Effective date of registration of franchise

the Registrar has notified the applicant that the applicant has failed to comply with the requirements of section 6

and subsections 7(1), (2) and (3); or

the Registrar has issued an order under section 10 or paragraph 16(3)(b).

*Period of effectiveness

Notwithstanding subsection (1), the Registrar may at any time issue a written order to the franchisor to suspend, terminate or cancel the registration of the franchise under this Act.

Renewal of registration of franchise

An approval for the application made under subsection (1)

may be subject to such conditions as the Registrar may impose.

Upon approving the application under subsection (1), the

Registrar may require the applicant to pay such amount of fee as may be prescribed.

*NOTE—See section 27 Franchise Act (Amendment) 2020 [Act A1617].

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Section 10 shall apply to the period of effectiveness of the registration of franchise which is renewed under this section.

Display of registration of franchise

Any franchisor or franchisee who fails to comply with subsection (1) commits an offence.

*Amendments to supporting documents for registration of franchise

The documents in subsection (1) shall be filed with the

Registrar together with the prescribed fee.

The Registrar may, at any time, require additional information on the amendments made under this section.

Any person who fails to comply with this section commits an offence.

Notice of suspension, termination, etc., of registration

After the expiry of the period of fourteen days mentioned in subsection (1) and after considering any representation made by the applicant or franchisor under that subsection, the Registrar shall decide whether to proceed with the proposed action or to take no further action.

The Registrar shall give the applicant or franchisor written notice of his decision under subsection (2) and the decision shall take effect from the date on which the written notice is served on the applicant or franchisor.

Cancellation from register

The Registrar shall cancel the registration of the franchise from the register if he is satisfied that—

by submitting the application in such form as may be determined by the Registrar together with the prescribed fee; and

by filing with the Registrar any information, which shall be determined by the Registrar, 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.

The Registrar may impose conditions on the registration of a franchise broker or franchise consultant.

Upon approving the application under subsection (1), the

Registrar may require the applicant to pay such amount of fee as may be prescribed.

The conditions in subsection (3) may include conditions governing the sale of a franchise by a franchise broker or franchise consultant and conditions on the conduct, suspension, termination, prohibition or denial of registration of a franchise broker or franchise consultant.

The registration under this section shall be effective for two years from the date of registration, unless determined otherwise by the

Registrar.

(Deleted by Act A1617).

(Deleted by Act A1617).

*NOTE—See section 26 Franchise Act (Amendment) 2020 [Act A1617].

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The provisions relating to confidential information and the prohibition on carrying on a similar business in sections 26 and 27 are also applicable to a franchise broker or franchise consultant.

Any franchise broker or franchise consultant who fails to comply with subsection (1) commits an offence and shall, on conviction, be liable to a fine not exceeding ten thousand ringgit, and for a second or subsequent offence, to a fine not exceeding twenty-five thousand ringgit.

Renewal of registration of franchise broker or franchise consultant

An approval for the application made under subsection (1) may be subject to such conditions as the Registrar may impose.

Upon approving the application under subsection (1), the

Registrar may require the applicant to pay such amount of fee as may be prescribed.

Subsection 14(5) shall apply to the period of effectiveness of the registration of a franchise broker or franchise consultant which is renewed under this section.

Any franchise broker or franchise consultant who fails to comply with subsection (1) commits an offence and shall, on conviction, be liable to a fine not exceeding ten thousand ringgit, and for a second or subsequent offence, to a fine not exceeding twenty-five thousand ringgit.

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Display of registration of franchise broker or franchise consultant

Any franchise broker or franchise consultant who fails to comply with this section commits an offence.

Compulsory practice

The documents in subsection (1) shall be the same documents submitted to the Registrar under sections 7 and 11.

A person who fails to comply with this section commits an offence.

Annual report

The report shall contain the disclosure documents which have been updated.

The Registrar may review the report and disclosure documents and—

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Any person who fails to comply with this section commits an offence.

Appeal against Registrar’s decision

The Minister’s decision on the appeal shall be final.

A franchise agreement shall contain but is not limited to—

(Deleted by Act A1617).

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 under subsection (4), an amount to cover the reasonable expenses

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incurred by the franchisor to prepare the agreement may be retained by the franchisor from the initial fees paid under section 19; however, all other moneys shall be refunded to the franchisee.

A person who fails to comply with this section commits an offence.

Payment of franchise fee, etc.

based on franchises granted at different times, and such discrimination is reasonably related to the differences in time;

related to one or more programmes for making franchises available to persons with insufficient capital, training, business experience or education, or lacking other qualifications;

related to efforts by the Government or any of its agencies to promote variation in products or service lines or business formats or designs;

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related to efforts by one or more franchisees to cure deficiencies in the operation of franchised businesses or defaults in franchise agreements; or

based on other reasonable distinctions considering the purposes of this Act and is not arbitrary.

Payment of franchise fees or royalty

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

If a franchisee is required to make any payment under section 23, 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 in subsection (3) shall be submitted to the Registrar together with the annual report under section 16.

A person who fails to comply with this section commits an offence.

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Promotion fees, etc.

The payment required to be made under subsection (1) shall be deposited into the Fund.

Registration of trade mark

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 under subsection (1).

A person who fails to comply with subsection (1) or (2)

commits an offence.

* NOTE— The Trade Marks Act 1976 [Act 175] has since been repealed by the Trademarks Act 2019

[Act 815]—see section 164 of Act 815.

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Prohibition against similar business

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 under subsection (1).

A person who fails to comply with subsection (1) or (2)

commits an offence.

Waivers void

This section shall not prevent any person from entering into a settlement agreement or executing a general release regarding a potential or actual civil action filed in respect of the franchise nor shall it prevent the arbitration of any claim.

A franchisor and a franchisee in their dealings with one another shall avoid the following conduct:

The franchisee shall operate the business separately from the franchisor, and the relationship of the franchisee with the franchisor shall not at anytime be regarded as a partnership, service contract or agency.

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.

A franchisor and a franchisee shall protect the consumer’s interests at all times.

Termination of franchise agreement

“Good cause” shall include, but is not limited to—

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

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 similar business under another mark in the same area subsequent to the expiration of the franchise agreement; or

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

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 term

Except when a franchisee has breached the terms of a previous franchise agreement, a franchisor shall extend the franchise term to

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another period if the franchisee has applied for the extension of term under subsection (1).

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.

The Franchise Advisory Board shall consist of such persons, not exceeding fifteen in number, as the Minister may, from time to time, appoint.

The members to be appointed under subsection (1) shall be persons who have wide knowledge and experience in matters relating to franchises.

The members of the Franchise Advisory Board may receive such remuneration as may be prescribed for their services.

Functions of Franchise Advisory Board

The Minister and the Registrar shall not be bound to act upon the advice or report of the Franchise Advisory Board.

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employs any device or scheme in order to defraud;

makes any untrue statement of a material fact or omits to state a material fact which renders his statement to be misleading;

engages in any act, practice or course of business, which operates or would operate as a fraud or deceit upon any person, commits an offence and shall, on conviction, be liable—

if such person is a body corporate, to a fine not exceeding two hundred and fifty thousand ringgit, and for a second or subsequent offence, to a fine not exceeding five hundred thousand ringgit; or

if such person is not a body corporate, to a fine not exceeding one hundred thousand ringgit or to imprisonment for a term not exceeding one year or to both, and for a second or subsequent offence, to a fine not exceeding two hundred and fifty thousand ringgit or to imprisonment for a term not exceeding three years or to both.

Subsection (1) shall also apply to a franchise broker or franchise consultant.

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Offence of holding out as a franchise

if such person is a body corporate, to a fine not exceeding two hundred and fifty thousand ringgit, and for a second or subsequent offence, to a fine not exceeding five hundred thousand ringgit; or

if such person is not a body corporate, to a fine not exceeding one hundred thousand ringgit or to imprisonment for a term not exceeding one year or to both, and for a second or subsequent offence, to a fine not exceeding two hundred and fifty thousand ringgit or to imprisonment for a term not exceeding three years or to both.

Obstruction of officers

obstructs any person appointed under this Act acting in pursuance of this Act;

fails to comply with any requirement properly made to him by an authorized officer under this Act; or

without reasonable cause fails to give to an authorized officer any assistance or information which may reasonably be required by the officer for the purpose of the performance of his duties under this Act, commits an offence.

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General penalty

if such person is a body corporate, to a fine of not less than ten thousand ringgit and not more than fifty thousand ringgit, and for a second or subsequent offence, to a fine of not less than twenty thousand ringgit and not more than one hundred thousand ringgit; or

if such person is not a body corporate, to a fine of not less than five thousand ringgit and not more than twenty-five thousand ringgit or to imprisonment for a term not exceeding six months, and for a second or subsequent offence, to a fine of not less than ten thousand ringgit and not more than fifty thousand ringgit or to imprisonment for a term not exceeding one year.

Upon sentencing a franchisor for an offence under this section, the court may—