Franchise Agreement and Disclosure Document in Malaysia: What the Franchise Act 1998 Requires Before You Sign

Before a Malaysian franchisor can offer or sell a single outlet, section 6 of the Franchise Act 1998 requires the franchise to be registered with the Registrar of Franchises, and section 15 requires the disclosure document to reach the prospective franchisee at least ten days before signing. Skip either step and the franchisor risks prosecution, and the agreement itself risks being treated as unenforceable. This article sets out what the Act requires in the agreement, the disclosure document and the registration filing, and what it costs a growing brand to get the sequence wrong.

A business proves itself, an operator wants in, and someone drafts an agreement that looks like a licence — a fee changes hands, a shopfront opens, and the paperwork gets tidied up later. The Franchise Act does not ask what the document is called. It asks whether the arrangement functions as a franchise, and if it does, registration and disclosure obligations attach from the first offer, not from the point someone remembers to check.

Is your arrangement actually a franchise under the Act?

The Franchise Act 1998 defines a franchise by function, not by label. If one party grants another the right to operate a business using its trademark, trade secret or confidential system, exercises meaningful control or assistance over how that business is run, and charges a fee for the right, the arrangement is a franchise regardless of what the contract calls itself. This catches a number of licensing and distribution arrangements that were never intended to be franchises — a licensed retail concept with a prescribed fit-out and operating manual, for example, can cross the line without anyone deciding it should. Getting this classification right first matters because every obligation below only bites once the arrangement is a franchise in law.

Do you have to register before you sign your first franchisee?

Yes. Section 6 requires a franchisor to register the franchise with the Registrar of Franchises before making an offer to sell it, subject to limited exemptions. Since the Franchise (Amendment) Act 2020 took effect on 28 April 2022, this applies equally to local and foreign franchisors — foreign franchisors previously only needed a lighter-touch approval, and now go through the same registration as everyone else. Registration is filed through the MyFEX 2.0 portal and, since the 2020 amendment, runs on a five-year cycle rather than indefinitely, so an existing registration needs active renewal rather than one-time filing.

The amendment also brought franchisees and master franchisees into the registration system, with the franchisor responsible for filing the franchisee's registration through MyFEX 2.0, and introduced a requirement to display the franchise registration at a conspicuous position in the place of business. Franchisors who registered before the 2022 changeover had a three-year grace period to re-register — that window closed in August 2025. If your registration predates the amendment and was never renewed under MyFEX 2.0, treat that as a live compliance gap rather than a historic formality.

What must the disclosure document contain, and when do you have to hand it over?

Section 15 requires the franchisor to give the prospective franchisee the disclosure document, together with the franchise agreement and any other prescribed material, at least ten days before the franchisee signs anything. The ten days is a floor, not a target — it exists so the franchisee has time to take the numbers to an accountant and the agreement to a lawyer before money changes hands. The disclosure document itself typically covers the franchisor's background and any relevant litigation history, audited financial statements, the franchise fee and other payments due, the total initial investment required, sourcing and equipment obligations, the respective obligations of franchisor and franchisee, the territory granted, and the term with its renewal and termination conditions.

What terms does the Act force into the agreement itself?

Several protections are mandatory regardless of what the parties would otherwise prefer to negotiate, and they cannot be waived by contract wording. The table below sets out the core ones.

Both parties also carry a statutory duty of good faith toward each other for the life of the relationship, and none of these protections can be contracted away by clever drafting — a clause purporting to shorten the cooling-off period or waive the cure period is not effective just because the franchisee signed it.

What happens if you sell an unregistered franchise, or skip the disclosure step?

Operating without registration is an offence, not a paperwork lapse. Two independent professional sources report the corporate penalty at up to RM250,000 for a first offence and up to RM500,000 for a subsequent one, with individuals facing a fine or imprisonment on top — though the exact figures for individual offenders vary slightly between sources and have not been checked against the Act's current penalty schedule this session, so treat the individual figures as indicative rather than exact until confirmed. Malaysian case law has also treated a franchise that was never validly registered as ineffective, which is the more commercially dangerous outcome for a franchisor that has already collected fees and opened outlets on the strength of it — that case authority has not been independently verified this session and is flagged accordingly.

Skipping or shortening the ten-day disclosure window creates a related but distinct problem: a franchisee who was rushed into signing, or who never received the required disclosure, has grounds to challenge the agreement even if registration itself was in order. Neither failure is easily fixed after the fact — retrofitting compliance once outlets are already trading is materially harder than sequencing it correctly from the first offer.

What this actually costs when it goes wrong

Registration realistically takes a few months to complete once the disclosure document, financials and agreement are in order, so a franchisor who starts documenting compliance only after a dispute or a funding round is already behind. A franchisee who successfully challenges an unregistered or improperly disclosed franchise can unwind the agreement and seek a refund, which lands as a cash outflow at the worst possible time — mid-expansion. Individual exposure for the people who signed off on an unregistered franchise is a separate risk from the company's own fine, and it does not go away because the business later corrects course. And practically, a bank or investor conducting due diligence on a franchising business will treat an unregistered or non-compliant franchise system as a red flag that stalls financing until it is fixed — the compliance gap becomes a deal problem, not just a regulatory one.

Frequently Asked Questions

How do we know if our arrangement is actually a franchise?

It turns on substance, not the label on the document — whether the other side is using your mark and system under your control in exchange for a fee. We assess the specific arrangement before advising on registration.

Is registration compulsory for every franchise?

The Franchise Act requires registration before a franchisor offers or sells a franchise, subject to limited exemptions. We confirm what applies to your business and the filing sequence to follow.

What must the disclosure document contain, and when does it have to go out?

It is a prescribed set of information covering financials, fees, obligations, territory and term, and it must reach the franchisee at least ten days before signing. We prepare it as part of this work.

Can we franchise without a registered trademark?

It is a poor foundation. The mark is the core of what is being franchised and should be secured first.

We registered before the 2020 amendment — are we still covered?

Registrations now run on a five-year cycle, and the grace period for re-registering under MyFEX 2.0 closed in August 2025. If your registration predates the amendment and was never renewed, treat it as a live compliance gap, not a formality.

Can you advise us as a prospective franchisee rather than a franchisor?

Yes. Reviewing a disclosure document and agreement before signing is one of the most valuable things a prospective franchisee can do, and the ten-day window exists precisely to give time for that review.

Getting this documented properly

A franchise that is registered late, disclosed late, or drafted without the Act's mandatory terms is exposed on the exact three fronts that matter most to a growing brand: the regulator, the franchisee, and whoever is financing the next round of expansion. Legal That Works advises Malaysian businesses on franchise agreements and disclosure documents — from assessing whether an arrangement is a franchise in law through to registration, the disclosure document, the agreement itself and the operations manual that makes it enforceable. If you are about to sign your first franchisee, or bring an existing network into compliance, speak to us before the next offer goes out rather than after.

This article is for general information only and does not constitute legal advice. Every transaction and every set of facts is different. Obtain specific advice from a qualified adviser before acting on any part of it.

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