Registration of Franchise

Franchising is a way for businesses to grow the brand and expand the market. In a way, it is a method of marketing and distributing products and/or services. On the other hand, from the perspective of the franchisee can buy into an established business instead of having to build a brand from scratch.

1. Do You Have to Register Franchise?

Yes. It is mandatory to register franchise under Section 6(1) of the Franchise (Amendment) Act 2020. The law requires a franchise to be registered with the Franchise Registry before the operation of the franchise or before the franchise makes an offer to sell the franchise to another entity in Malaysia.

It is trite law that the failure to register a franchise before entering into an agreement for the franchise is an offence (see below).

Case: Tea Delights (M) Sdn Bhd & Anor v. Yeap Win Nee & Anor [2015] 1 LNS 936

“[12] The importance of the registration of such franchise is well explained by the learned Mary Lim J in the case of Noraini Alias v. Rangkaian Hotel Seri Malaysia [2009] 9 CLJ 815 as follows:

A quick perusal of the Act shows the regulation of franchise is through a system of registration of franchises. The importance of registration is reflected in the imposition of penalties. Unless the person, class of persons, business or industry is exempted from all or any of the provisions of the Act, including the requirement of registration, the failure to register before offering the franchise for sale is an offence. [Emphasis Added].”

Failure to register the franchise may result in a penalty. If the franchisor is a corporate entity, the fine can be as high as RM250,000 for the first offence, and RM500,000 for the second or subsequent offence.

However, if the franchisor is not a corporate entity, the first offence may lead to a fine of up to RM100,000, imprisonment for up to 1 year, or both. For the second or any subsequent offence, the penalty increases to a fine of up to RM250,000, imprisonment for up to 3 years, or both.

2. Where Can You Register Franchise?

The application for registration shall be done on https://myfexv2.kpdn.gov.my/.

Note: Previously, the application for registration of franchisor must be made to Head of the Franchise Development Division, the Registrar of Franchises and franchises are governed under Ministry of Domestic Trade and Consumer Affairs.

3. Submission of Documents to Franchise Registry

To register a franchise with the Franchise Registry, the following documents/information shall be submitted:

1. A copy or sample of franchise agreement
2. Operation manual
3. Training manual
4. Business Registration Certificate
   Note: The documents from Companies Commission of Malaysia (SSM) must be complete with the following:
   - Company Corporate Information
   - Summary of Share Capital
   - Directors and Officers Information
   - Shareholders' Information
5. Past three (3) years of audited financial statement showing profit
6. A copy of trademark certificate from the Intellectual Property Corporation of Malaysia (MyIPO)
7. Business brochures of company
8. Complete disclosure documents
9. Bankruptcy search results for the directors of the company from Department of Insolvency Malaysia
   - Note: This bankruptcy search can be done at: https://e-insolvensi.mdi.gov.my/
10. Prototype outlet management account (profit/loss) for at least six (6) months operations for each package offered
11. Organizational chart of the company
12. Additional documents:
    - Annual Franchise Business Report (LTPF)
    - Previous Registration Certificate
    - Previous Approval Letter
    Note: These additional documents are only for re-registration

4. Issues with Foreign Franchise

As a matter of fact, even a foreign franchisor is required to register its franchise. Prior to the registration, the foreign franchisor has to be approved by the Franchisor Registrar to sell a franchise in Malaysia.

In DR H K Fong Brainbuilder Pte Ltd v. SG-Maths Sdn Bhd & Ors [2021] 1 CLJ 155, the court ruled that all franchises, both local and foreign, must be registered with the Franchise Registry. Despite the plaintiff’s argument that the requirement of registration only applies to local franchisors, the High Court decided that not requiring foreign franchisors to register could lead to non-compliance with the franchise laws which is intended to protect the franchisees.

Disclaimer:

1. Notwithstanding the above, this article is not intended to serve as legal advice and should not be a substitute for professional legal consultation.

2. Every effort has been made to ensure the accuracy and reliability of the information presented in this article.

3. For advice or opinions regarding the information provided or related matters, please contact the author(s) directly.