Buying a Franchise in Malaysia: Review the Disclosure Document

A sales brochure may present a brand’s potential attractively, but the decision to buy a franchise should be based on documents you can scrutinise. The Franchise Disclosure Document helps prospective franchisees understand the offer and their responsibilities before making a commitment. In Malaysia’s franchise market, the key is not simply to receive this document, but to ensure that it is complete, its version is clearly identified and its contents are consistent with the agreement you will be signing.

1. Understand your right to receive documents before signing

Malaysia has specific legislation governing franchises: the Franchise Act 1998, which has been amended, including in 2020. Section 15 requires franchisors to provide the franchise agreement and disclosure document to prospective franchisees at least 10 days before the agreement is signed.

This period gives you time to examine the offer, seek advice and ask questions. Do not treat a sales presentation, package summary or message from a sales representative as a substitute for either document.

The official Franchise Disclosure Document format also states that franchisees must be given the disclosure document approved by the Registrar of Franchises. It stresses that statements in the document must be true, accurate and verifiable. It also states that changes to information in the disclosure document require the Registrar’s approval under Section 11.

When you receive an offer, request the following in writing:

• The complete disclosure document approved by the Registrar.
• The proposed franchise agreement you are being asked to sign.
• All appendices and schedules referred to in both documents.
• Confirmation of the document versions and the status of any amendments.

This is not a demand for access to every internal franchisor document. The aim is to ensure that the material needed to understand the offer is not scattered or missing.

2. Keep a record of receipt and track document versions

Create a dedicated folder for each brand you are assessing. Keep the original emails, attachments and covering letters, rather than just printed copies. Record the actual dates on which you receive the agreement and the disclosure document separately.

Use a simple checklist with fields for the document name, date received, version number if available, attachments supplied and any outstanding items. If a document has no date or version number, ask for written confirmation of which version applies to your offer.

Do not sign an acknowledgement of receipt dated earlier than the date you actually received the documents. If a standard form contains an incorrect date or document list, ask for it to be corrected before signing.

Report files that will not open, missing pages or schedules that are mentioned but not attached promptly by email. Keep the replies and replacement documents alongside the original records.

If a new version is supplied close to the signing date, do not simply replace the old file. Ask for a list of changes and seek advice from a lawyer on their implications for compliance with Section 15. Do not assume that all amendments have the same legal effect, or that the original signing timetable is necessarily still appropriate.

3. Check the disclosure against the actual offer

A disclosure document typically covers the franchisor’s profile, the franchise package, each party’s obligations, territorial rights, intellectual property and related information. Use its contents as a checklist, then compare them with the agreement and the written offer you have received.

Create a table with four columns: item, statement in the disclosure document, agreement clause and clarification required. Focus on whether the information is consistent, rather than simply looking for attractive figures.

For example, if the package is described as including equipment for opening the outlet, but the agreement’s schedule lists some of that equipment as separately chargeable, record the discrepancy. Ask whether this reflects a different package, a change to the offer or a documentation error. Do not make your own assumptions about which document takes precedence.

Your review should also cover written promises outside the main documents. If a sales representative promises a particular benefit by email, ask the franchisor to explain how that promise is recorded in the relevant documents.

An answer such as “this is our standard practice” does not resolve a discrepancy. Ask for a page or clause reference, confirmation from an authorised person and any necessary corrections. Any changes must also comply with the applicable legal requirements; a supplementary letter is not a shortcut around the approval process.

4. Resolve questions before setting a signing date

Gather your questions into a single numbered list so that responses are easy to track. Distinguish between missing information, unclear wording and discrepancies that need correcting. Give the same list to your lawyer so that the review focuses on the actual issues.

Before proceeding, make sure you can answer three questions:

1. Have I received the complete documents, and do I know which versions apply?
2. Have significant discrepancies been explained in writing and, where necessary, corrected?
3. Does the signing timetable comply with the required document delivery period?

Approval of the documents or registration of the franchise is not a guarantee of profitability and does not replace your own due diligence. If the franchisor refuses to provide documents, asks you to sign an inaccurate acknowledgement of receipt or presses you to sign before the review is complete, put your decision on hold and seek legal advice. Compliance queries can also be referred to the Office of the Registrar of Franchises.

Practical takeaway: Receive, record, compare and resolve discrepancies first. Set the signing date based on complete documentation and legal requirements, not sales pressure.