Buying a Franchise in Malaysia: Check the Parties to the Contract

You may choose a franchise because you trust its brand, but the agreement is usually signed with a business entity, not simply a brand name. In Malaysia’s franchise sector, the brand owner, local franchisor and company providing training may be different parties. Before signing, make sure you know who is granting the franchise rights, who receives your payments and who is responsible for fulfilling the contract.

1. Distinguish the brand name from the contracting entity

The same logo on a presentation, offer letter and sales office does not prove that they all belong to the same company. Start by noting the full name and registration number of the entity on every document you receive.

Compare the information in:

• The offer letter or letter approving your franchise application.
• The Franchise Disclosure Document.
• The draft agreement and all its schedules.
• Invoices for initial fees.
• Payment instructions and the bank account holder’s name.

Obtain the relevant corporate information from the Companies Commission of Malaysia (SSM) to check the entity’s name, registration number and status. This helps identify the contracting party, but company registration is not proof of franchise registration.

If company names differ between documents, ask for a written explanation. There may be a legitimate reason, such as using a related company for administrative matters. However, membership of the same corporate group does not, in itself, establish which party owes each obligation to you.

Prepare a simple table with four columns: entity name, role, supporting documents and responsibilities. Any blank fields indicate matters that still need checking.

2. Make sure the capacity in which the franchise is being granted is clear

Malaysia has specific legislation, the Franchise Act 1998 [Act 590], including relevant amendments. Government registration guidance also lists the 2020 amendments and related franchise regulations made in 2022. Buying a franchise is therefore not simply an ordinary commercial contract transaction without specific regulatory requirements.

When checking the contracting party, the key question is the capacity in which the company is offering you the franchise. Is it the franchisor, a master franchisee or merely a service provider to the network?

If the offer comes through a master franchisee, ask for an explanation and appropriate evidence of its authority to grant you a franchise. Check that the evidence refers to the same entity named in the draft agreement. Do not assume that a subsidiary has all the powers held by its parent company.

Section 15 of the Franchise Act 1998 requires the franchisor to provide the franchise agreement and disclosure documents to a prospective franchisee at least 10 days before the agreement is signed. Use this review period to cross-check the parties’ identities and capacities, rather than simply reviewing the fees.

If a party’s name changes in the final draft, pause the signing process until your lawyer has assessed the change and its implications for the disclosure documents and relevant compliance requirements.

3. Trace responsibilities when several companies are involved

Imagine that the agreement names Company A as the franchisor, Company B provides training and Company C supplies the sales system. This arrangement is not necessarily problematic. The risk arises when no one clarifies whether Company A remains responsible if B or C fails to perform its duties.

For each important obligation, ask:

• Which party promises to provide the service under the contract?
• Is another party delivering it on the franchisor’s behalf or under a separate contract?
• To whom should notice of a failure be sent?
• Who must remedy that failure?
• Will payments to another company count towards fulfilling your payment obligations?

Ask for the answers to be recorded in the appropriate documents, rather than left as verbal explanations. If you need to sign a separate agreement with a systems or training provider, check the parties and the scope of their responsibilities under that agreement too.

Look out for clauses allowing the franchisor to delegate tasks to related companies or external providers. Ask your lawyer to explain whether these clauses merely permit the use of other providers or also seek to transfer contractual responsibility.

The aim is not to ensure that one company handles everything. It is to ensure that no important obligation is left without a party that can be held accountable.

4. Check the signatory and final details

Having the correct company name does not complete the checks. Make sure the person signing on the company’s behalf has the appropriate authority. Ask for confirmation of their position and, where necessary, evidence of authority, such as a letter of authorisation or a relevant resolution. A lawyer can determine the appropriate form of confirmation based on how the document is to be executed.

Check the identity of the party on your side as well. If your company is intended to be the buyer, make sure the draft does not name you personally as the franchisee without explanation. This distinction can affect who holds the contractual rights and bears the obligations.

Before signing, cross-check the cover page, definitions of the parties, signature blocks, addresses for service of notices and payment schedules. Keep the final version together with all attachments and relevant written confirmations.

Practical step: Do not sign until you can clearly answer three questions: who am I contracting with, what authority do they have to grant the franchise, and who is responsible if the obligations are not fulfilled?