The Malaysia Franchise Act was enacted in 1988. Since then, various ambiguities in the Act emerged that called for amendments. The Malaysian Parliament amended the Act on 20 September 2012, and these amendments are expected to take effect in early 2013.

The Act has now broadened the definition of the word “franchise”, and also covers franchise transactions which are completed outside Malaysia, but carried out within the country.

The new amendment has also created the requirement for the franchise to be registered before the franchisor can operate a franchise business or choose to sell the franchise to any other person. The Act goes on to elaborate in Section 6(2) on the consequences of failure to register:-

(2) “any franchisor who fails to comply with this section, unless exempted by the Minister under section 58, commits an offence and shall, on conviction, be liable—

(a) on is a body corporate, to a fine not exceeding two hundred and fifty thousand ringgit, and for a second or subsequent offence, to a fine not exceeding five hundred thousand ringgit; or

(b) if such person is not a body corporate, to a fine not exceeding one hundred thousand ringgit or to imprisonment for a term not exceeding one year or to both, and for a second or subsequent offence, to a fine not exceeding two hundred and fifty thousand ringgit or to imprisonment for a term not exceeding three years or to both.”.

The Act has also clarified and widened the powers of the Registrar to cancel registration of franchise businesses that do not comply with the rules provided for in the Act. For instance, it is now obligatory for the franchisor to seek approval from the Registrar if there are any changes as to the disclosure documents that each franchisor provided at the point of registration. Failure on the part of the franchisor in doing so, may result in the Registrar taking strict measures, either to suspend or terminate the franchise registration.

In spite of all the strict rules introduced in the amendments, franchisors have something to look forward to: the requirement to submit its annual report to the Registrar has been extended to 6 months from the end of each financial year of the franchise business, compared to 30 days from the anniversary date of the registration.

Additionally, it is now essential for the franchisee to give 6 months’ notice to the franchisor if the franchisee is interested to extend the franchise term. Section 19 of the Act has been amended and now provides that the franchisors must state in writing, in the disclosure documents, if they would be requiring any payment from the franchisee before signing of the franchise agreement for such extension.

These amendments, as discussed above, have indeed clarified certain aspects of the Act. However, what remains to be addressed is the main concern in respect of attracting foreign franchisors to Malaysia. Parliament has to find ways to improve or clarify other rules to help make Malaysia an easier venue for foreign franchisors (and Malaysian franchisees) to potentially benefit in this area of business. We look forward to further amendments to help resolve this main concern of the Malaysia Franchise Act 1998.