Make your own free website on Tripod.com

THE FRANCHISE ACT 1998 OF MALAYSIA

The FAQ to the Franchise Act 1998 of Malaysia is answered according to the interpretation and understanding of Delta Franchise System and our legal advisers.

 

FREQUENTLY ASKED QUESTIONS

What is the purpose of the Franchise Act?

When will the Act be officially implemented?

What entities are subject to the Act?

Are dealerships subject to the Act?

Our operations resemble a franchise but we do not call ourselves one. Are we subjected to the Act?

What implications does the Act have on franchisors?

What consequences arise from not complying with the Act?

Is a franchise subject only to the Franchise Act?

Are the changes substantial to our franchise agreement?

FOREIGN FRANCHISES

Is a franchise originating from a foreign country required to comply with the Act?

We are a Master Franchisee of a foreign franchise but all our outlets are company owned, we have not sub-franchised any outlet. Are we required to comply with the Act?

Does it mean that we have to amend the agreements with our foreign franchisors?

What needs to be amended to comply with the Act?

How do I register with the Ministry?


What is the purpose of the Franchise Act?

The purpose of the Franchise Act is primarily to provide a regulatory framework for franchises operating in Malaysia, be it home-grown or foreign.

 

<Back to Top>

When will the Act be officially implemented?

Introduced in October 1999, the act will be enforced in October 2000.

<Back to Top>

 

What entities are subject to the Act?

All franchise businesses (both local and foreign, operating in Malaysia) and all businesses having the characteristics of a franchise within the meaning of the word ‘franchise’ as defined in the Act. It is important to note that not labeling your business as such does not automatically put you outside the ambit of the Act. The emphasis here is on the nature and characteristics of your business.

<Back to Top>

Are dealerships subject to the Act?

Depending on the form of your operation etc., a dealership can fall within the description of a franchise. Again, the important thing is to consider whether the nature and characteristics of the dealership falls within the meaning of the word ‘franchise’ as defined in the Act.

 

<Back to Top>

Our operations resemble a franchise but we do not call ourselves one. Are we subjected to the Act?

If characteristics of your business operation fall within the ambit of a ‘franchise’ as defined in the Act (regardless of whether you identify yourself as one), you will need to register and comply with the Act. 

<Back to Top>

 

What implications does the Act have on franchisors?

The Act has profound implications on franchise practice and it is necessary that your business develop a system to incorporate these provisions. A number of provisions place franchisors at a great disadvantage. These implications would be explained to you during our Franchise Compliance Review.

<Back to Top>

 

What consequences arise from not complying with the Act?

The Act provides for substantial penalties for any non-compliance, including declaring your Franchise Agreement null and void.

<Back to Top>

Is a franchise subject only to the Franchise Act?

No. As a business, other relevant laws apply. The Act however, will prevail or supercede other legislation if a specific matter is provided under the Franchise Act as far as franchises are involved.

<Back to Top>

Are the changes substantial to our franchise agreement?

Yes. All franchises in Malaysia will need to amend their franchises to include the mandatory provisions of the Act. Most, if not all franchises will not have these provisions. Other parts of your franchise like management policies, management methods and procedures (including documentation) will also need to be changed, apart from the franchise agreement. We have specially devised a Franchise Compliance Review program to address these tasks.

<Back to Top>

 

Why would I need to change my policies and operating methods?

Certain provisions imply the necessary changes otherwise you will not be able to satisfy the requirements of the Act or protect your system effectively. However, to simplify  matters, we advise you to refer to our consultants, who will be too pleased to assist you. We are offering programs to assist you in dealing with the Act.

<Back to Top>

 

FOREIGN FRANCHISES

Is a franchise originating from a foreign country required to comply with the Act?

All franchises operating in Malaysia are subject to the Franchise Act. This includes foreign franchises.

<Back to Top>

 

We are a Master Franchisee of a foreign franchise but all our outlets are company owned, we have not sub-franchised any outlet. Are we required to comply with the Act?

Yes. The Act mentions any franchise entity operating in Malaysia whether it is a local franchise or foreign franchise.

<Back to Top>

Does it mean that we have to amend the agreements with our foreign franchisors?

Broadly, yes. If your franchise agreement contravenes the provisions of the Act, it must be amended otherwise, it can be declared null and void. On the other hand, you may not be sufficiently protected as you must provide certain terms to your sub-franchisees which may not be sufficiently covered in your master agreement.

<Back to Top>

 

What needs to be considered to comply with the Act?

First, your franchise agreement must be amended to include the requirements of the Act. Next, your management system and policies has to address certain areas to be consistent with  the Act. Thirdly, your formats and documentation may need to be reviewed in light of the changes. Lastly, your franchise has to be registered with the Ministry.

<Back to Top>

How do I register with the Ministry?

You are required to submit appropriate manuals, documents and details during registration. Advise and assistance on registration will be provided in our Compliance Review program.

<Back to Top>