Franchising & Licensing Questions
A Franchise is the grant of a license or a right from one party to another for the operation of a business in accordance with a business system.
Examples of franchise includes:
Franchisor is the owner and granter of right to conduct the business.
Franchisee is the recipient of right to conduct the business.
Every franchise business in Malaysia is made compulsory to register with Registrar of Franchise (ROF) authorised by the Franchise Act 1998. Incompliance is an offence.
The registration should be done at Franchise Development Division, Ministry of Domestic Trade, Co-operatives and Consumerism (KPDNKK)
In order to begin a franchise business in Malaysia, a company should have
- Run the business for more than 3 years
- Register as sdn bhd company at Suruhanjaya Syarikat Malaysia (SSM)
- Completed operation manual and training manual.
Under the Franchise Act, it is compulsory for the Franchisor to submit a copy of the franchise agreement to the Franchisee at least 10 days before both parties execute the agreement. There are also certain terms and conditions which must be included in the franchise agreement before it can be valid. Further, the franchise agreement must be in writing and it must set out the obligations of both the Franchisor and the Franchisee.
The terms and conditions that must be incorporated into the agreement are as follows:
- The obligations of both the franchisor and franchisee
- The duration of the franchise
- The terms of renewal
- The effect of termination or expiration of the franchise agreement
- The franchise fee, royalty, promotion fee or any type of payment payable by the franchisee
- The type and particular of the assistance to be provided by the franchisor
- The name and description of the product and business under the franchise
- The territorial rights granted to the franchisee
Licensing agreement can provide similar clauses as per franchise agreement. For businesses that do not fulfil the requirement of franchisee provided by the Registrar of Franchise can license their business by using licensing agreement.
Yes. The minimum term of the franchise agreement shall be at least 5 years with an option to renew for a further term at the discretion of the franchisee.
For licensing agreement, there’s no minimum period.
One of the parties may terminate the agreement when there is a breach by another party under the agreement. Common examples of breach includes:-
- Non-payment of fees
- False accounting
- Non-competition restrictions
- Confidentiality covenants
- Voluntary abandonment of the franchise business
- Misuse of the franchisor’s trademarks or intellectual property rights
- Mutual agreement
There is no minimum amount of royalty or licensing fees. However, when the franchisee is required to pay any fees, the rates must reflect the amounts declared by the Malaysian Franchisor in the disclosure documents registered with the Registrar or provided for in the franchise agreement/licensing agreement.