Buying a Franchise in Malaysia: Check the Disclosure Document First

Before entering Malaysia’s franchise market, do not base your decision solely on sales brochures or brand presentations. The Franchise Disclosure Document is essential for assessing an offer before you sign an agreement. This guide focuses on reviewing that document, identifying discrepancies and recording answers so that your purchase decision rests on written information rather than assumptions.

1. Understand your right to receive documents before signing

Malaysia has specific legislation, the Franchise Act 1998, which has been amended, including through amendments in 2020. The Act governs the sale of franchises in Malaysia. Its registration framework also includes regulations such as the Franchise (Forms and Fees) (Amendment) Regulations 2022.

Under Section 15, the franchisor must provide the prospective franchisee with the disclosure document and a copy of the franchise agreement at least 10 days before the agreement is signed. The government’s official disclosure document format also specifies that the disclosure document supplied must have been approved by the Registrar of Franchises.

Do not confuse this period with the cooling-off period. Section 18(4) requires the agreement to include a cooling-off period of at least seven working days, during which the franchisee may terminate the agreement. If this right is exercised, any refund is subject to the provisions of the Act, including deductions for reasonable expenses incurred by the franchisor in preparing the agreement. Ask a lawyer to explain the calculation and procedure before you sign.

In practice, record the date on which you receive both documents. Keep the delivery email, attachments and version numbers. If you have received only sales slides, a package summary or an incomplete draft, do not assume that the disclosure requirement has been met.

2. Make sure the documents relate to the correct offer

Start by identifying the party that will receive your money and sign the contract. The brand name on the shopfront may differ from the franchisor’s company name. This is not necessarily a problem, but the relationship must be clear.

Check the following:

• Entity name: Are the company name and registration number consistent across the disclosure document, agreement, invoices and payment recipient details?
• Franchise registration: Request proof of registration and check its current status with the Registrar of Franchises through official channels. Company registration with the Companies Commission of Malaysia is not a substitute for franchise registration.
• Document version: Are dates, amendments and appendices clearly identified?
• Type of offer: Do the documents cover the outlet format you intend to buy, such as a kiosk or a full-sized shop?
• Authority to offer the franchise: If you are dealing with a master franchisee or representative, request written clarification of their authority.

According to the official guidance on the disclosure format, amendments to information in the document require the Registrar’s approval under Section 11. If a salesperson says the package has changed but the documents have not been updated, ask which version has been approved and which will form the basis of your transaction.

Do not treat registration or document approval as a guarantee of profitability. These checks establish the basis of the offer; they do not prove that your chosen location will succeed.

3. Check the disclosure against the contract and your cash flow

Read the disclosure document alongside the draft agreement, rather than in isolation. Prepare a table with four columns: item, disclosure statement, contract clause and unanswered questions. This helps you spot costs or conditions that might otherwise emerge only at a late stage.

Start with all fees and charges. List the initial fee, royalties, marketing contributions, renewal fees, transfer fees and system fees. Record how each is calculated, when it is payable and any applicable taxes. If royalties are based on sales, make sure the definition of sales is clear: how are discounts, customer refunds and sales through delivery platforms treated?

Separate estimates from commitments. Fit-out costs in a presentation may be estimates only, while the contract may require particular specifications. Request a list of what is included and excluded, then obtain quotations for major costs. Do not assume that the package price covers rental deposits, premises licences, opening stock and working capital.

Scrutinise performance figures. If you receive sales or payback projections, ask what they are based on. Do they use figures from franchisor-owned outlets, franchisee-owned outlets or a combination of both? Have rent, the owner’s salary, royalties and financing costs been deducted? Projections are not guarantees; use more cautious assumptions in your own budget.

Check conditions that could change costs over the contract term. These include mandatory purchases from specified suppliers, equipment upgrades and refurbishment requirements. Ask who sets the costs, when changes can be made and how notice will be given.

4. Resolve discrepancies before committing

Send the franchisor a written list of questions. Avoid general questions such as “Are there any hidden costs?” Instead, identify specific discrepancies: “The disclosure document lists one system fee, but the contract clause allows additional charges. What types of charges are these, and how will they be determined?”

Ask for the answers to be reflected in the appropriate documents, rather than relying solely on messages from a salesperson. If there are significant changes, seek legal advice on their implications for disclosure and the signing timetable. Do not assume that every change automatically has the same legal consequences.

Be cautious about reservation deposits. Check who will receive the money, what it is for, the refund conditions and what happens if the legal review identifies problems. Do not assume that the cooling-off period necessarily protects all separate payments made beforehand.

Practical action: Before signing, make sure you have the complete documents, a table of resolved discrepancies and a budget that accounts for all written commitments. If material points remain unclear, postpone your decision and seek an independent review.