Buying a Franchise in Malaysia: Check Who Owns the Equipment

Coffee machines, fridges, ovens and till systems may appear to be part of your franchise purchase. However, paying for a package does not necessarily make all that equipment yours. Prospective franchise buyers in Malaysia need to distinguish between assets they are buying, renting or receiving on loan. These distinctions determine the true cost, liability for damage and what you can take with you when the franchise relationship ends.

1. Break the package down into a clear asset list

Do not settle for descriptions such as “complete package” or “all equipment provided”. Ask for an itemised list that can be checked against quotations, invoices and schedules to the agreement.

For each major asset, record:

• Its type, brand, model, quantity and condition, including whether it is new or second-hand.
• Its separate price, if any, and who receives the payment.
• The name of the owner before and after payment.
• Whether it is purchased outright, rented, provided on loan or acquired through finance.
• The documents proving ownership and the conditions for transferring it.

Also distinguish physical equipment from the right to use software. Owning a till computer does not necessarily mean you own its sales software or can continue using it without a subscription.

For example, a machine may be supplied without a separate purchase price, but its use may depend on buying supplies from a particular supplier. That does not necessarily make it a free gift. Ask for the terms under which the machine is supplied, how long you can use it and the circumstances in which the supplier can reclaim it.

The outcome of your checks should be an asset list with unambiguous ownership details, not simply photographs of equipment in a sales brochure.

2. Check ownership against the documents and the law

Malaysia has specific rules under the Franchise Act 1998 [Act 590], including the 2020 amendments. Buying a franchise is not simply a matter of purchasing equipment or obtaining an ordinary business licence.

Under Section 15, the franchisor must provide the prospective franchisee with the franchise agreement and disclosure documents at least 10 days before the agreement is signed. Use this review period to compare the package description with the actual contract, rather than merely confirming the total fee.

Registration guidance from Malaysia’s Ministry of Domestic Trade and Cost of Living (KPDN) also lists disclosure documents, a sample franchise agreement, an operations manual and a training manual among the documents required for a registration application. However, the existence of these documents does not, by itself, prove that a particular machine will become yours.

Ask the franchisor to point out the clauses explaining ownership. If the equipment is subject to a separate agreement with a supplier or finance provider, obtain that document too before making a decision.

Look out particularly for the following discrepancies:

• The quotation says “purchase”, but the contract says “right to use”.
• The package states that equipment is included in the price, but a schedule imposes additional rental charges.
• The sales representative promises ownership after the final payment, but the contract does not set out a transfer process.

Ask for discrepancies to be resolved in writing. If the response changes the disclosed information, ask the franchisor to clarify the approval status of the relevant amendments; KPDN’s official format refers to the requirement for the Registrar’s approval of amendments under Section 11.

3. Calculate the full cost of using the asset, not just its purchase price

Compare options based on the total commitment over your planned period of use. A low purchase price may come with separate installation, maintenance or software licence fees.

Create a simple table with four columns: upfront payments, recurring payments, charges when problems arise and charges when the asset is returned. Include delivery, installation, user training, servicing, spare parts, and the cost of dismantling and transporting the equipment.

For rented assets, ask whether there is a minimum term and whether outstanding rental payments become payable if you stop using the equipment early. Do not assume that terminating the franchise agreement automatically ends an equipment contract with another party.

Then establish how responsibilities are divided:

• Who makes warranty claims and keeps the proof of purchase?
• Who pays for damage arising from normal use or negligence, or for loss?
• Must servicing be carried out by a specified provider?
• Is replacement equipment available, and who pays for it?
• Who must arrange suitable insurance cover?

Do not assume that the asset’s owner bears all the risks. The contract may place responsibility for looking after the equipment and paying for repairs on the user. Ask a legal adviser to review liabilities that are excessively broad or unclear.

4. Document acceptance and agree what happens when use ends

Before opening, prepare an equipment acceptance form. Record serial numbers, physical condition, accessories, test results and warranty start dates. Take photographs and keep invoices and related documents together in an asset register.

If the items delivered differ from the agreed list, record the discrepancies before accepting them unconditionally. For second-hand equipment, request any available service records and an appropriate technical inspection.

Also check what happens when you stop using the equipment. Must the assets be returned, can you keep them, or is there an option to buy? If purchase is permitted, how is the price determined? If return is compulsory, who pays for transport and how is the condition of the assets assessed?

Owning a machine does not necessarily entitle you to continue using the franchisor’s branding or software. Review these matters separately so that you do not mistakenly assume an asset that retains its value can be used without restrictions.

Practical step: before signing, make sure every major asset has an identified owner, written supporting evidence, a total financial commitment you can calculate, and clear arrangements for its return or transfer.