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Sohaib Ikram
Sohaib Ikram serves as the Director of Emerhub in Malaysia.
For investors looking to bring international brands to Malaysia or expand their business in the country, one of the most popular options is franchising. However, Malaysia has strict franchise laws, mandatory registration requirements, and industry-specific compliance standards that every franchisor and franchisee must follow.
This guide will walk you through how to legally open a franchise in Malaysia, covering key requirements and practical steps to get your business up and running without unnecessary delays or compliance risks.
How Does Franchising Work in Malaysia?
The franchising industry in Malaysia is regulated by the Franchise Act 1998 (FA 1998) which states that both local and foreign franchisors must register their franchise with the Registrar of Franchises under the Ministry of Domestic Trade and Consumer Affairs (KPDNHEP).
For Franchisors
A franchisor refers to the owner of the brand and business model. They are the ones that develop their own business systems and license them to franchisees. As a foreign franchisor, there are additional steps to take as outlined in the Franchise Act 1998, such as obtaining Section 54 Approval before selling franchises in Malaysia.
- Section 54: Mandates that any foreign individual or entity intending to sell a franchise in Malaysia must obtain prior approval from the Registrar of Franchises, which is part of the Ministry of Domestic Trade and Consumer Affairs. After approval, foreign franchisors can register their franchise.
In addition to this, a Franchise Disclosure Document outlining essential information on the business is required with the registration application. This document includes details of:
- Initial investment costs and ongoing fees.
- Information about the franchisor, including their experience and financial stability.
- Details on the franchise system and operational support provided.
- Financial performance representations, if applicable.
For Franchisees
A franchisee is an individual or company that purchases the rights to operate a business under a franchisor’s brand and system. Currently, all franchisees in Malaysia are required to register their franchise with the Registrar within 14 days of signing the franchise agreement.
Depending on your planned business activities and industry, you may require additional licensing and permits. This includes applying for a Food and Beverage License for those in the F&B business, or the Wholesale, Retail, and Trade License (WRT) for those engaged in wholesale and retail operations.
Requirements to Open Franchise in Malaysia for Foreigners
Legal Requirements for Franchising in Malaysia
Before launching your franchising business in Malaysia, it’s essential to meet specific legal requirements to ensure compliance with local laws and regulations. These requirements include:
- Business Operations: Franchisors must have operated the business for at least 3 years before franchising.
- Trademark Registration: The franchisor’s trademark or service mark must be registered with the Intellectual Property Corporation of Malaysia (MyIPO).
- Company Registration: The foreign entity should be registered as an Sdn. Bhd. with Suruhanjaya Syarikat Malaysia (SSM).
- Franchise Agreement Clauses: Must include a seven-day cooling-off period for franchisees with a minimum term of 5 years.
- Disclosure Requirements: Franchisors must provide all registration documents to franchisees at least 10 days before signing the agreement.
- Foreign Equity Restrictions: Companies with more than 50% foreign equity must obtain a Wholesale, Retail, and Trade License from the Ministry of Domestic Trade and Consumer Affairs.
Key Documentation to Open A Franchise in Malaysia
In addition to the legal requirements mentioned above, several key documents must be submitted during the franchise registration process. These documents must be certified true copies:
- Completed disclosure document (Form BAF1)
- Completed Form BAF2 (Applicant’s Profile)
- Copy or sample of the franchise agreement
- Operation and training manuals
- Certified true copy of registered trademark documents
- Certificate of incorporation
- Latest audited accounts for the last 3 years with financial statements
- 5-year franchise financial projection
- Prototype outlet photographs
- Company brochures, pamphlets, or annual reports
- Forms 24 and 49 (Company’s return for Board of Directors and Shareholders)
- Company’s organizational chart with names and positions of key personnel
- Obtain Section 54 Approval from the Registrar of Franchises
- Complete Section 6 Registration under the Franchise Act 1998
Emerhub simplifies the process of setting up a foreign franchise in Malaysia by handling key legal and administrative requirements. Our services include drafting a legally compliant franchise agreement to protect your business interests, obtaining necessary approvals, and preparing certified true copies of essential documents.
How to Open A Franchise in Malaysia As A Foreigner
As previously mentioned, an essential part of opening a franchise in Malaysia is to have a solid grasp of the Franchise Act of 1998. This act outlines the need for approvals, franchise registration, and compiling the necessary documentation involved in the process.
At Emerhub, we specialize in guiding foreign entrepreneurs through each step, making franchise establishment seamless and hassle-free. Here’s how we can help:
- Approval from Registrar of Franchises: The first step we will take is to obtain Section 54 approval from the Registrar of Franchises as per the Franchise Act 1998, especially if you are a foreign franchisor.
- Registering the Franchise: Following Section 6 of the Franchise Act 1998, we will register your franchise with the Registrar of Franchises before establishing a legal entity.
- Registering a Private Limited Company: As a foreign franchisor, registering a Sdn Bhd with SSM as a legal entity is mandatory to operate in the country. Our local experts will assist you with the process from start to finish.
- Preparing and Submitting Required Documents: This includes disclosure documents, franchise agreements, operations manual, and financial statements. Submissions are done on the MYFEX 2.0 online portal.
- Paying the Necessary Fees: Pay the application and registration fees. Wait for the Registrar’s approval which may take 2-6 months. After approval, make sure to display the Franchise Registration Certificate on your premises.
- Signing the Franchise Agreement: Sign the agreement with your franchisor and we’ll assist with obtaining any required business licenses and permits for your specific franchise. This includes a Signboard License or a Manufacturing License for businesses with manufacturing processes.
- Operational Compliance: Submit annual reports to the Registrar within 30 days of the financial year-end. This includes annual returns, updated audited accounts, etc.
Ready to launch your franchise in Malaysia? Complete the contact form below, and our expert local advisors will get in touch with you to guide you through every step of the process.
Frequently asked questions
The registration process can take 2-6 months for franchisors and 3-4 months for franchisees. This duration can vary depending on how quickly the applicant provides the required information and any backlog at the Registrar’s office.
No, membership in the Malaysian Franchise Association (MFA) is not mandatory for franchisors or franchisees in Malaysia. While the MFA provides valuable resources and support for expanding franchise businesses internationally, joining it is optional.
Yes, franchisees can sell or transfer their franchise, but this process is subject to specific conditions as specified in the Franchise Agreement and typically requires approval from the franchisor.
Yes, a franchisor can terminate a Franchise Agreement but termination conditions must be clearly stated and comply with the FA 1998. Termination can occur through court orders for legal disputes, force majeure events, and abandonment or insolvency.
