Buying a Franchise in Malaysia: Licences vs Franchises

An offer to use a well-known brand may be marketed as a “licensing package”, “business partnership” or “exclusive distributorship”. However, the package name does not necessarily reflect its legal status. Before entering Malaysia’s franchise market, buyers need to understand whether an offer is actually a franchise. This distinction affects registration obligations, contract terms and the protections they should receive before making a commitment.

1. Assess the actual relationship, not the package name

A licence generally grants permission to exercise a right, such as using a trade mark, subject to certain conditions. A franchise, by contrast, involves a business relationship with specific elements defined by law. Putting the word “licence” on the front of a contract does not, in itself, exempt an offer from franchise regulations.

Section 4 of the Franchise Act 1998 defines a franchise by reference to the elements of the relationship between the parties. These include the right to operate a business according to a system determined by the franchisor, the use of relevant trade marks or intellectual property, ongoing control over operations, business assistance, and payment or other consideration. The franchisee’s status as a separate business is also relevant.

No single feature necessarily determines the answer. Royalties, for example, are not conclusive evidence that a licence is a franchise. Equally, the absence of a payment called a “franchise fee” does not necessarily mean that the relationship is not a franchise. The arrangement must be assessed as a whole.

Ask a lawyer to review not only the main contract, but also its appendices, mandatory manuals and operating requirements that will apply once the business opens.

2. Map out who controls your business

Prepare a simple table with three columns: what is controlled, who makes the decisions, and which document establishes that control. The aim is to understand the actual relationship before discussing the package price.

Ask the seller the following questions:

• Must the premises layout, staff uniforms and customer service methods follow the brand’s system?
• Who determines the products, suppliers and material specifications?
• Can the brand owner audit operations or require changes to working practices?
• Is training, operational guidance or management assistance provided on an ongoing basis?
• What charges apply to the use of the brand and system, even if they are described as management or membership fees?
• Will you be running your own business, or effectively acting as an agent on the seller’s behalf?

For example, an offer that permits only the use of a trade mark differs from a package that also prescribes a comprehensive operating system, ongoing inspections and business assistance. However, do not draw a legal conclusion from this example alone.

Keep written answers and promotional materials. If the sales presentation promises complete freedom but the manual imposes detailed controls, flag that discrepancy for your lawyer to review.

3. Match the offer to the correct registration

Malaysia has specific legislation governing the sale of franchises: the Franchise Act 1998, including its 2020 amendments. Under section 6, a franchisor must register the franchise before operating a franchise business or offering it for sale, subject to the applicable provisions.

Do not confuse company registration with franchise registration. Records held by the Companies Commission of Malaysia provide information about a business entity; they are not a substitute for proof of registration with the Registrar of Franchises. Trade mark registration is likewise not evidence that a franchise offering has been registered.

Ask for proof of registration and check the following:

• The name of the entity offering the package and the entity that will sign the contract.
• The brand and business covered by the registration.
• The registration’s validity period and current status.
• The seller’s authority to offer the package if it is not the original brand owner.

Official registration guidance lists the Franchise (Determination of Period of Effectiveness of Registration) Regulations 2022 and explains that registration lasts five years for franchisors and master franchisees. A copy of an old certificate alone is therefore not enough to establish current status.

Clarify any doubts with the Registrar of Franchises through current official channels. Also ask your lawyer to explain your own registration obligations as a prospective franchisee, based on the structure of the offer.

4. Do not let a label strip away protections

If the arrangement is a franchise, the relevant protections cannot be set aside simply by calling the contract a licence. For example, section 15 requires the disclosure document and a copy of the franchise agreement to be provided at least ten days before the agreement is signed.

Section 18(4) also requires the franchise agreement to include a cooling-off period of at least seven working days. This right is distinct from the time allowed to assess the offer before signing. Obtain an explanation of how to exercise it and how any payments already made will be treated.

If the seller says these protections do not apply because the package is “only a licence”, ask for written reasons for an independent lawyer to assess. The Contracts Act 1950 is also relevant to general contractual matters, but it does not replace the specific obligations under the Franchise Act.

Equally, avoid assuming that every registration problem automatically makes a contract void or guarantees a full refund. The legal consequences depend on the facts, the relevant provisions and court decisions.

5. Set conditions before committing funds

Before paying a deposit, obtain written clarification of the nature of the relationship, evidence of any applicable registration, and the identity of the payment recipient. Make sure the deposit refund terms are stated, including what happens if the legal review identifies problems.

If the offer’s status remains unclear, postpone signing, leasing premises and buying brand-specific equipment. These costs may be difficult to recover even if negotiations are eventually called off.

Practical steps: assess the substance of the relationship, verify registration and obtain an independent legal review before paying. In the franchise sector, clarity about legal status from the outset helps both parties build a more accountable business relationship.