Buying a Franchise in Malaysia: Check the Broker Before You Pay

A broker can help you explore franchise opportunities, but their recommendations may not reflect your interests alone. When buying a franchise in Malaysia, you need to know whom the intermediary represents, how they are paid and what authority they have. Before paying a fee or deposit through a broker, carry out specific checks on the person handling your purchase.

1. Verify the broker’s identity and status

Malaysia regulates franchising through the Franchise Act 1998 [Act 590], including amendments currently in force. Section 14 provides for the registration of franchise brokers. Official registration guidance also lists the Franchise (Qualifications of a Franchise Broker) (Amendment) Regulations 2022 as part of the relevant regulatory framework.

Do not assume that a business card, social media account or company registration alone proves that someone meets the requirements to act as a franchise broker. Ask for evidence of their broker registration and verify their status with the Registrar of Franchises. If someone uses a title such as consultant or introducer, ask them to explain the work they actually do; a marketing title alone does not clarify their legal obligations.

Start a due diligence file containing:

• The individual’s full name and the name of the entity issuing invoices.
• Broker registration details and verifiable supporting evidence.
• A letter of appointment or confirmation of their relationship with the franchisor.
• The scope of services, fees and the party responsible for each task.

Contact the franchisor through its official channels to confirm the appointment. Ask whether the broker merely introduces prospective buyers or is also authorised to handle negotiations. Broker registration is not a guarantee that an opportunity is right for you.

2. Find out who pays the commission

The key question is not simply “How much is your fee?” but “Who pays you if I buy?” A broker may receive payment from the buyer, the franchisor or under another arrangement. Do not make assumptions; ask for a written explanation before treating a recommendation as independent advice.

Ask whether commission rates vary by brand, whether there are rewards for completing a transaction and whether the broker represents only a particular selection of brands. This information helps you understand why certain options are given priority. Commission does not in itself make a recommendation unsound, but financial interests should be transparent.

If you are charged a fee, make sure the letter of appointment explains what work you will receive in return. For example, does the fee cover a shortlist of brands, arranging meetings or help with gathering documents? Agree when the fee is payable and what happens if you do not proceed with a purchase.

Also distinguish broker fees from deposits or franchise fees. Request separate invoices where payments serve different purposes. Do not rely on vague terms such as “processing fee” without an explanation of the recipient, purpose and refund conditions.

3. Separate the broker’s claims from the franchisor’s evidence

Prepare a simple table with three columns: the broker’s claim, supporting evidence and confirmation from the franchisor. Use it to record matters that influence your buying decision, such as site suitability, total investment or buyer selection criteria.

For example, if the broker says your site has “already been approved”, ask for written confirmation from an authorised representative of the franchisor. If the broker says financing is “guaranteed to be approved”, obtain a decision directly from the finance provider. An intermediary cannot replace the decision of the party that actually grants approval.

Under Section 15 of the Franchise Act 1998, the franchisor must provide the franchise agreement and disclosure documents to a prospective franchisee at least 10 days before the agreement is signed. A broker’s sales presentation is no substitute for these documents. Use the review period to compare the broker’s explanations with the official documents, rather than rushing to sign.

Appoint your own lawyer to review legal matters. If the broker recommends an adviser, ask about their relationship and ensure the terms of engagement identify who the client is. You need to know whether the adviser is genuinely acting for you.

4. Keep control of payments and the final decision

Before transferring money, obtain official payment instructions stating the recipient’s name, account number, payment purpose and the basis on which payment is being requested. If the broker asks for money on behalf of the franchisor, confirm their authority to receive it directly with the franchisor.

Do not pay into a personal account simply because you are told the matter is urgent. If the recipient’s name differs from the party named in the documents, put the payment on hold until the discrepancy is explained in writing. Keep invoices, receipts, appointment letters and important correspondence in one file.

Warning signs include a reluctance to explain commission arrangements, obstacles to contacting the franchisor and pressure to pay before checks are complete. These are not automatic proof of fraud, but they are reasonable grounds to postpone your decision and seek independent verification.

Practical action: before paying a broker, make sure you have four things in writing: their registration status, whom they represent, how their remuneration is calculated and their authority to receive money. If any one of these remains unclear, do not rush ahead with the purchase.