Buying an Automotive Franchise: Check Franchise AP Eligibility

Buying automotive franchise rights does not necessarily give you the right to import vehicles. For prospective buyers in Malaysia’s franchise market, this distinction matters before assessing an acquisition price or committing capital. If the offer involves importing new vehicles, your checks should focus on eligibility for a Franchise Approved Permit (AP), rather than relying solely on a brand appointment letter.

1. Establish whether you are buying import or dealership rights

Under the policy of Malaysia’s Ministry of Investment, Trade and Industry (MITI), a Franchise AP is an approval allowing an AP-holding company to import new, completely built-up (CBU) motor vehicles of a specified brand from an overseas principal or manufacturer.

This differs from buying the right to operate a showroom that sources vehicles from a local importer. Do not assume that every branded dealership must hold its own Franchise AP, or that every agreement labelled a ‘franchise’ allows the buyer to import vehicles.

Ask the seller to provide a written explanation of how transactions work:

• Who buys the vehicles from the overseas principal?
• Which company holds the AP approval and allocation?
• Who handles shipping and import clearance?
• Does the company being acquired sell to other dealers or only to end customers?

Check the answers against approval letters, the agreement with the principal and purchase documents. If the offer covers only local distribution, do not value the acquisition as though you are also obtaining import rights.

2. Check share ownership and capital before making an offer

MITI’s Franchise AP policy requires at least 70% of the company’s shares to be owned by Bumiputera — Malaysia’s Malays and other indigenous peoples — and paid-up capital of at least RM1 million. These requirements apply specifically to Franchise AP companies, not to all franchise acquisitions in Malaysia.

Your review should go beyond the company’s current position. The ownership structure after the transaction must also be assessed. A share purchase, the introduction of investors or an issue of new shares could alter the ownership percentage on which eligibility depends.

Prepare a table of shareholders before and after the transaction with the company secretary. Ask an accountant to verify paid-up capital against the relevant corporate records. Do not treat shareholder loans or bank facilities as paid-up capital.

The minimum paid-up capital requirement is not an estimate of how much money is needed to run the business. Budgets for vehicle purchases, shipping, storage and operations must be calculated separately. Avoid committing all available funds to the acquisition price and leaving the company without enough cash to fulfil orders.

3. Verify the relationship that qualifies the company to import

MITI’s policy requires a valid exclusive franchise agreement with the principal or a qualifying subsidiary of the principal. Where the agreement is with a subsidiary, the principal must own at least 51% of that subsidiary’s shares, and the subsidiary must carry out manufacturing activities on the principal’s behalf.

A letter from a regional sales representative alone therefore does not necessarily establish the required relationship. If the agreement is made through a subsidiary, request evidence of its ownership chain and manufacturing role.

Also check the country from which vehicles will be shipped, the supplying factory and the vehicle types covered by the agreement. The policy permits the import of new CBU passenger vehicles directly from the principal or the principal’s overseas factory, as specified in the agreement.

MITI’s policy allows franchise rights to be acquired from an existing company. However, this should not be interpreted as an automatic transfer of all approvals to the buyer. Obtain confirmation from MITI of the process applicable to your transaction structure before finalising the purchase.

4. Check AP allocations, not promises about import volumes

Brand rights do not mean unrestricted freedom to import any number of vehicles. MITI’s policy links imports to an annual import plan agreed with the principal. Request the actual AP allocation documents and compare them with the sales plan used to set the acquisition price.

An AP issued through the online approval process for Form JK69 must be obtained before the vehicles arrive at the port. Imports are also subject to the AP’s validity period and the calendar-year limits set by MITI.

Build a timetable linking orders, approvals, shipping and arrival. Assess the impact of a delayed vessel or incomplete documentation. Do not finance orders on the assumption that approval will follow once the vehicles have been shipped.

5. Distinguish MITI approval from compliance with the Franchise Act

Malaysia has specific franchise legislation: the Franchise Act 1998, including its 2020 amendments, alongside registration regulations. MITI’s Franchise AP approval serves an import-related purpose; it does not automatically replace compliance with the Franchise Act where a transaction falls within its scope.

Ask a lawyer to assess these two sets of requirements separately. For transactions subject to the Franchise Act, Section 15 requires disclosure documents and a copy of the agreement to be provided at least 10 days before the agreement is signed.

Make confirmation of eligibility and the necessary approvals conditions of completion, with clear consequences if those conditions are not met. Check the MITI policy in force at the time of the transaction, as administrative requirements can change.

Practical action: Before making an offer, compile a file substantiating share ownership, paid-up capital, the relationship with the principal and AP allocations. Buy on the basis of verifiable rights, not promises that import rights will be obtained later.