Industry Guide to Franchise Business in Malaysia

Step by Step Guide to Set Up a Franchise Business in Malaysia

Ever wonder how other franchise businesses are able to work their way branching out locally and internationally such like Starbucks, 7 Eleven, Family Mart that can be easily found anywhere in Malaysia?

This article will show you the steps to kickstart your franchise business in Malaysia.

What is Franchise Business

Franchise businesses are the businesses that:
owners establishing their brand’s trademark then license the rights of their business to a third party to operate. Franchising is a legal way to grow your businesses while building a business relationship with a third party (also known as franchisee) of your business.
Franchising has become more and more common in Malaysia, and it potentially reduces the risk compared to business start-up as it has already established a name that others know.

As a franchisor (the person with the ownership of your own brand trademarks and brand name). You will have the rights to grant permission to franchisee to develop and open your franchise in other locations, the business systems, supplies, trainings, and on-going support.

How To Start

All businesses are rather a marathon than a sprint. You want your business to run for as long as they can and hope to expand your business and gain the recognition it so deserves. Let’s take a look at what are some things you need to look into to open your franchise business.

Budgeting

Be it a business or a franchise, all that require funds to start. Having a budget plan out is important to see through all the plan you have in store for your franchise business.

Market Surveying

After having your budget all sorted out, you should start surveying other franchises on the market. It doesn’t have to be the same market you do, but to understand what led to their success and how can you as well have a success story of your own. With the advancement of technology and internet, it is easier now to conduct research online on any franchises using websites search engine.

Advice from consultants & lawyers

To start a franchise business of your own can be challenging without any aids from other franchises that already existed. It is important to consult your lawyers or franchise consultant to get insights that you might miss.

Business Plan

If you have already owned a business, then you’ll know that a business plan is essential for all businesses to have. A good business plan should include all goals, objectives, budget planning, analysis, list products and services, projected profits, etc.

Familiarise with Franchise Act in Malaysia

In Malaysia, the franchise business is governed by the Franchise Act 1998 (the “Franchise Act”) that regulates the franchising industry not only in terms of any franchise agreement but implements a systematic scheme of registration for the Franchisor, Franchisee and franchise brokers. On top of that, the advertising and sale or purchase lish or distribute such an advertisement, he or she must first file a copy of the advertisement at least five days in advance with the Registrar before the first release of such ad.

The Franchise Act applies to all the franchise in Malaysia (whereby the franchised business operates in Malaysia) if it fulfils the following:

1. The franchisee operates a business according to a franchise system which is determined by the franchisor;
2. The franchisor grants to the franchisee the use of its trademarks and intellectual property rights;
3. The franchisor has the right to exercise continuous control over the franchisee’s business operations in accordance with the franchise system;
4. The franchisor provides assistance to the franchisee in terms of training, marketing, business or technical assistance and the provision or supply of materials;
5. The franchisee pays a fee or some other non-financial consideration in return for the franchise, and
6. The franchisee operates business separately from the franchisor. (So, a partnership or agency does not constitute a franchise.)

In addition, the Franchise Act distinguishes clearly between franchisors of Malaysia or any foreign country.

a) Foreign Franchisor

According to the Franchise Act, all foreign franchisors have to gain an approval from the Registrar of Franchises’ before they operate their franchise in Malaysia or if a Malaysian will operate the franchise. Therefore, a foreign franchisor must obtain an approval before he or she carry out negotiations or discussions with any franchises based in Malaysia. In addition to this, the approvals might come with certain conditions as imposed by the Registrar (in accordance with the Franchise Act). Once the required approval is obtained from the authority, a foreign franchisor will be able to sell the franchise in Malaysia (or sell to a citizen of Malaysia).

The main intent behind registration for the local franchisee is to have a control over the franchisee. Please note that in the case the foreign franchise appoints a franchisee as a master franchisee; it will have to register itself as a franchisor before it can grant any further franchisees inside Malaysia or to any citizen of Malaysia. Failure to stay complaint is considered an offence as per the Franchise Act.

b) Malaysian Franchisor

In Malaysia, any franchisor has to register its franchise with the Registrar before granting franchisee licenses to any other individual (if it does not have an exemption from the Minister). It would be an offence as per the Franchise Act if the franchisees were granted without the approval. A franchisor will only be able to apply after three complete years of business operation in Malaysia. That said, once a Malaysia Franchisor is registered, the Malaysian Franchisees of that franchisor is not required to register with the Registrar, as the Registrar will be able to control all the franchisees by controlling the franchisor.

Find out more info on the Franchise (Amendments) Act 2020 which will soon come to force here.

Setting Up a Legal Entity for Your Franchise Business

Should you any assistance required on how to start your franchise business, we are glad to help you out.

Are you ready to form your Sdn Bhd with Malaysia’s #1 award-winning Online Company Secretary? Contact us now via WhatsApp @018-767 8055

Want to know more about starting a Sdn Bhd? What’s the best way to start one, and what should you be mindful of? Register and find out in our upcoming webinar!