Managing Malaysia’s 10-Day Franchise Disclosure Period

When an established business is ready to take on franchisees, do not rush to set a signing date as soon as a candidate agrees verbally. In Malaysia, providing documents before the agreement is signed is a legal obligation, not merely an administrative task. An orderly process gives prospective franchisees time to understand their commitments and builds trust within the franchise community from the outset.

1. Understand the obligations before setting a date

The Franchise Act 1998, as amended by the Franchise (Amendment) Act 2020, regulates franchising in Malaysia. For the pre-signing process, the key provision is Section 15: the franchisor must provide the prospective franchisee with a copy of the franchise agreement and the relevant documents submitted to and approved by the Registrar at least 10 days before the agreement is signed.

These documents are not sales brochures or summaries of the business opportunity. The package includes the full disclosure document, the franchise agreement and relevant supporting documents, including the operations manual, training manual and audited financial statements for the latest three years. Confirm the scope of the package to be provided with a franchise lawyer, based on your registration documents.

Do not confuse this disclosure period with the cooling-off period. Under Section 18, the franchise agreement must provide a cooling-off period of at least seven working days during which the franchisee may terminate the agreement. That period applies after the agreement has been entered into; it does not replace the review period before signing.

The franchisor’s obligation to register before offering a franchise is separate. Providing disclosure documents does not, in itself, authorise the offering of an unregistered franchise.

2. Establish a delivery process you can evidence

Appoint a coordinator to manage document delivery, enquiries and the signing schedule. In a small business, this role could be handled by the administration manager, but responsibility must be clear. Avoid a situation where the sales team assumes the lawyer has sent the documents while the lawyer is waiting for instructions from the owner.

Before sending the documents, confirm the identity of the intended franchisee. If a company will sign the agreement, record its name and authorised representative. Do not assume that sending documents to a founder personally will necessarily be sufficient for any company subsequently established to open the outlet.

Prepare a delivery record containing:

• The recipient’s name and the prospective franchisee’s legal entity.
• A complete list of documents, with each document’s version number or date.
• The date and method of delivery.
• Evidence of receipt and confirmation that the files can be opened.
• The planned signing date, after checking that the minimum period will be met.

If you use a digital storage platform, make sure access does not expire while the candidate is still reviewing the documents. Keep a fixed copy of the package provided so that its contents can be identified later. This is a recommended administrative control, not a suggestion that the law requires a particular delivery platform.

An acknowledgement of receipt should simply record delivery. It should not contain a waiver of rights or a declaration that the candidate understands every risk without having had the opportunity to seek advice.

3. Use the review period to address substantive questions

For owners accustomed to making quick decisions, the waiting period may feel like a delay. However, it is an opportunity to explain how the business will operate when run by someone else.

Encourage prospective franchisees to seek independent legal and financial advice. Arrange a briefing once they have had time to read the documents, rather than asking them to confirm their understanding as soon as the files are handed over.

Focus discussions on commitments that can easily be misunderstood:

• Recurring payments beyond the initial fee.
• Obligations to buy from designated suppliers.
• The limits of opening assistance and ongoing support.
• Responsibility for rent, staff and working capital.
• Conditions for renewal, termination and transfer of the business.

Keep a log of questions and written answers. If a candidate asks whether a particular level of sales is guaranteed, do not offer unsupported assurances. Distinguish the performance of company-owned outlets from projections, and explain the assumptions used.

As an internal control, avoid applying pressure through promotions said to expire before the review is complete. Do not use deposits or site reservations to make candidates feel that their decision is irreversible. Any advance payment should be reviewed from a legal perspective and clearly explained.

4. Set out what happens when documents change

Candidates’ questions sometimes lead to changes to the agreement or disclosure information. Do not quietly replace files and proceed with the original signing date.

The Registrar’s guidance on the disclosure document format states that amendments to information in that document require the Registrar’s approval under Section 11. Seek advice on approval requirements before using an amended version.

If changes are made, pause the signing process. Identify the affected documents, obtain any necessary approvals, provide the correct versions and ask your lawyer to confirm whether the disclosure period needs to start again. Do not assume that every correction has the same legal effect.

Before signing, the coordinator should confirm that the documents went to the correct recipient, the package is complete, evidence of receipt has been retained and the minimum period has been met. Build in extra time so that access delays or important questions do not force a rushed decision.

Practical step: Create a disclosure file for each prospective franchisee. Do not allow signing to proceed until delivery has been confirmed, outstanding questions have been resolved and the scheduled review period has been completed.