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.

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

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.

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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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.

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.

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.

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.

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.

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

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.

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.

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.

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.

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

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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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.

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.

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.

“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.

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.

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.

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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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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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—

that the offence was committed without his knowledge, consent or connivance; and

that he had taken all reasonable precautions and had exercised due diligence to prevent the commission of the offence.

An offer under subsection (1) may be made at any time after the offence has been committed, but before any prosecution for it has been instituted.

If the amount specified in the offer is not paid within the time specified in the offer or within such extended period as the Registrar may grant, prosecution for the offence may be instituted at any time after that against the person to whom the offer was made.

If an offence has been compounded under subsection (1), no prosecution shall be instituted in respect of the offence against the person to whom the offer to compound was made.

All sums of money received by the Registrar under this section shall be paid into and form part of the Federal Consolidated Fund.

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In exercising any of the powers of enforcement under this Act, an authorized officer shall on demand produce to the person against whom he is acting the authority card signed by the Registrar and issued to him.

For the purposes of subsection (1), the authorized officer may issue orders to any person to further his investigation and secure compliance with this Act.

In addition to his powers under subsections (1) and (2), in any case relating to the commission of an offence under this Act, an authorized officer carrying on an investigation may exercise all or any of the powers in relation to police investigation in seizable cases given by the Criminal Procedure Code [Act 593].

An authorized officer may, in the premises entered under subsection (1), search and seize—

An authorized officer conducting a search under subsection (1) may, if in his opinion it is reasonably necessary to do so for the purpose of investigating into the offence, search any person who is in or on such premises.

An authorized officer making a search of a person under subsection (3) may seize, detain or take possession of any book, accounts, document, computerized data, mark, signboard, card, letter, pamphlet, device or thing found on such person for the purpose of the investigation being carried out by such officer.

Where, by reason of its nature, size or amount, it is not practicable to remove any book, accounts, document, computerized data, mark, signboard, card, letter, pamphlet, device or thing seized under this section, the seizing officer shall, by any means, seal such book, accounts, document, computerized data, mark, signboard, card, letter, pamphlet, device or thing in the premises or container in which it is found.

A person who, without lawful authority, breaks, tampers with or damages the seal referred to in subsection (5) or removes any book, accounts, document, computerized data, mark, signboard, card, letter, pamphlet, device or thing under seal or attempts to do so commits an offence.

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Where the premises are unoccupied, the seizing officer shall whenever possible post a list of the things seized conspicuously on the premises.

An order for the forfeiture or for the release of any book, account, document, computerized data, mark, signboard, card, letter, pamphlet, device or thing seized under this Act shall be made by the court before which the prosecution with regard thereto has been held and an order for the forfeiture of the book, account, document, computerized data, mark, signboard, card, letter, pamphlet, device or thing shall be made if it is proved to the satisfaction of the court that an offence under this Act has been committed and that the book, account, document, computerized data, mark, signboard, card, letter, pamphlet, device or thing was the subject matter of or was used in the commission of the offence notwithstanding that no person may have been convicted of the offence.

If there is no prosecution with regard to any book, account, document, computerized data, mark, signboard, card, letter, pamphlet, device or thing seized under this Act, such book, account, document, computerized data, mark, signboard, card, letter, pamphlet, device or thing shall be taken and deemed to be forfeited at the expiration of one calendar month from the date it was seized unless a claim to it is made before that date in the manner set out in subsections (4), (5) and (6).

Any person asserting that he is the owner of such book, account, document, computerized data, mark, signboard, card, letter, pamphlet, device or thing referred to in subsection (3) and that it is not liable to

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forfeiture may personally or by his agent authorized in writing give written notice to an authorized officer of his claim.

On receipt of such notice under subsection (4), the authorized officer shall refer the claim to the Registrar who may direct that such book, account, document, computerized data, mark, signboard, card, letter, pamphlet, device or thing be released or forfeited, or may direct the authorized officer to refer the matter to a court for decision.

The court to which the matter is referred shall issue a summons requiring the person asserting that he is the owner of the book, account, document, computerized data, mark, signboard, card, letter, pamphlet, device or thing and the person from whom it was seized to appear before the court and upon his appearance or default to appear, due service of the summons being proved, the court shall proceed to the examination of the matter and on proof that an offence under this Act has been committed and that such book, account, document, computerized data, mark, signboard, card, letter, pamphlet, device or thing was the subject matter or was used in the commission of such offence, shall order the same to be forfeited or may, in the absence of such proof, order its release to the person entitled to it.

Any book, account, document, computerized data, mark, signboard, card, letter, pamphlet, device or thing forfeited or deemed to be forfeited shall be delivered to the authorized officer who shall dispose of it in accordance with the directions of the Registrar.

Where any book, account, document, computerized data, mark, signboard, card, letter, pamphlet, device or thing seized under this Act is of a perishable nature or where the custody of such book, account, document, computerized data, mark, signboard, card, letter, pamphlet, device or thing involves unreasonable expense and inconvenience, such book, account, document, computerized data, mark, signboard, card, letter, pamphlet, device or thing may be sold by the authorized officer at anytime and the proceeds of the sale held by the authorized officer to abide by the result of any prosecution or claim under this section, or be disposed of in accordance with the provisions of this section.

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A record in writing shall be made by the authorized officer effecting the release of anything under subsection (1) specifying in detail the circumstances of and the reason for the release, and he shall send a copy of such record to the Public Prosecutor within seven days of the release.

If the person fails to attend as required, the authorized officer may report the failure to a Magistrate who shall issue a warrant to secure the attendance of the person.

The person shall be legally bound to answer all questions relating to the case put to him by the authorized officer, but the person may refuse to answer any question the answer to which would have a tendency to expose him to a criminal charge or penalty or forfeiture.

A person making a statement under this section shall be legally bound to state the truth, whether or not the statement is made wholly or partly in answer to questions.

The authorized officer obtaining information from a person shall first inform that person of the provisions of subsections (2)

and (3).

A statement made by a person under this section shall, whenever possible, be reduced into writing and signed by the person making it or affixed with his thumb print after it has been read to him in the language in which he made it and after he has been given an opportunity to make any corrections he may wish.

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to require the production of records, accounts, computerized data and documents kept by a franchisor, franchise broker or franchisee and to inspect, examine and copy any of them;

to require the production of any identification document from any person in relation to any case or offence under this Act;

to make such inquiry as may be necessary to ascertain whether the provisions of this Act have been complied with.

The Registrar may approve or refuse an application under subsection (1) without giving any reason for the refusal.

An application which is approved under this section 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.

the Registrar, Deputy Registrar, Assistant Registrar or any officer or person duly authorized under this Act for or on account of or in respect of any act ordered or done for the purpose of carrying into effect this Act; and

any other person for or on account of or in respect of any act done or purported to be done by him under the order, direction or instruction of the Minister, Registrar, Deputy

Registrar, Assistant Registrar, or any officer or person duly authorized under this Act if the act was done in good faith and in a reasonable belief that it was necessary for the purpose intended to be served by it.

prescribing the forms, procedure and other requirements for the purposes of this Act;

prescribing the form and content of disclosure documents;

prescribing the fees payable under this Act, and the manner for collecting and disbursing such fees;

prescribing the procedure for appeal under this Act;

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prescribing the procedure and requirements for the registration of any franchise granted or sold in or outside

Malaysia by a franchisor or a franchise broker before the commencement of this Act;

prescribing the remuneration for the services of the

Franchise Advisory Board; and

providing for such other matters as are contemplated by, or necessary for giving full effect to, the provisions of this

Act and for their due administration.

The regulations made under subsection (1) may prescribe any act in contravention of the regulations to be an offence and may prescribe penalties of a fine not exceeding fifty thousand ringgit or imprisonment for a term not exceeding one year or both.