Do you know that franchise is required to be registered with the Registrar of Franchises, Ministry Of Domestic Trade and Consumer Affairs (MDTCA) in Malaysia?

Question: What is Franchise?

Under the Malaysian Franchise Act 1998 (“Franchise Act”) –

“franchise” means a contract or an agreement, either expressed or implied, whether oral or written, between two or more persons by which-

(a) the franchisor grants to the franchisee the right to operate a business according to the franchise system as determined by the franchisor during a term to be determined by the franchisor;

(b) the franchisor grants to the franchisee the right to use a mark, or a trade secret, or any confidential information or intellectual property, owned by the franchisor or relating to the franchisor, and includes a situation where the franchisor, who is the registered user of, or is licensed by another person to use, any intellectual property, grants such right that he possesses to permit the franchisee to use the intellectual property;

(c) the franchisor possesses the right to administer continuous control during the franchise term over the franchisee’s business operations in accordance with the franchise system; and

(e) in return for the grant of rights, the franchisee may be required to pay a fee or other form of consideration.

Question: Who needs to register?

Franchisor, Master Franchisee, Franchisee of Foreign Franchisor.

Question: What are the consequences of not registering the franchise arrangements?

There is a specific penalty provision for a franchisor who fails to register with the Registrar of Franchises, Ministry Of Domestic Trade and Consumer Affairs (MDTCA).

The penalty for a body corporate: a fine of not more than RM250,000.00 and for a 2^nd or subsequent offence, a fine not exceeding RM500,000.00.

There is also a general penalty clause (section 39) for any person who commits an offence under the Franchise Act –

• body corporate – a fine of between RM10,000.00 to RM50,000.00. For a 2^nd and subsequent offence, a fine of between RM20,000.00 to RM100,000.00
• person who is not a body corporate – a fine of between RM5,000.00 to RM20,000.00 or imprisonment for a term not more than 6 months. For a 2^nd or subsequent offence, to a fine of between RM10,000.00 to RM50,000.00 or imprisonment for a term not exceeding 1 year.

Upon sentencing a franchisor for an offence under this section, the court may-

• declare the franchise agreement between the franchisor and any franchisee to be null and void;
• order that the franchisor refunds any form of payment which he has obtained from any franchisee; or
• prohibit the franchisor from making any new franchise agreement or appointing any new franchisee

Question: What is a licensing agreement?

A licensing agreement is a legal contract between 2 parties. It usually involves a person who grants the right to another to use its brand name or trade mark for producing or selling goods. A person who grants the right is called a licensor and the person who has been granted the right is called a licensee.

Question: What is the difference between Franchising and Licensing?

In brief, their differences are as below –

This article does not constitute legal advice.