The Franchise Act 1998 (Act 590) is the cornerstone of franchise regulation in Malaysia. For business owners considering franchising, understanding this law is not optional — it is the foundation everything else is built on.

This guide explains what the Act requires, what it prohibits, and what happens when franchisors or franchisees break the rules.

Overview of the Franchise Act 1998

The Franchise Act 1998 was enacted to:

Regulate and promote franchising activities in Malaysia
Protect the interests of prospective and existing franchisees
Require franchisors to make full and fair disclosure
Establish the registration and licensing framework under KUSKOP
Create offences and enforcement mechanisms for non-compliance

The Act applies to any business arrangement that meets the legal definition of a franchise — regardless of what the parties choose to call it. Calling an agreement a “licence” or “distribution arrangement” does not remove it from the Act’s scope if the substance of the relationship meets the statutory definition.

The Statutory Definition of a Franchise

Under Section 2 of the Act, a franchise means:

An agreement between two or more persons whereby one party (the franchisor) grants to another party (the franchisee) the right to use a franchise programme which includes, but is not limited to, a name, trademark, service mark, logo, or any proprietary right of the franchisor, or any representation of the franchisor, in connection with the sale or supply of goods or services.

The definition also requires that the franchisor provides:

A business format or system
Operational support
The right to operate under a marketing or business plan

This is intentionally broad. Courts and KUSKOP look at the economic substance of the arrangement, not the label the parties give it.

The Franchise Disclosure Document — 23 Items

The most significant compliance obligation under the Act is the Franchise Disclosure Document. Section 16 of the Act requires every franchisor to provide a complete FDD to prospective franchisees before any agreement is signed.

The 23 Required Items

The complete FDD must contain all of the following:

Franchisor’s background — corporate identity, principals, history, and ownership structure
Business experience — the franchisor’s management team’s relevant experience
Litigation history — pending, concluded, or bankruptcy proceedings involving the franchisor
Bankruptcy — whether the franchisor or its principals have been subject to insolvency proceedings
Franchisor’s obligations — what the franchisor must do before and after the franchise opens
Franchise fee — initial fee, method of payment, and conditions for refund
Other fees — royalties, marketing levies, technology fees, and any recurring charges
Initial investment — estimated total startup costs, including the initial franchise fee
Restrictions on goods or services — any limitations on what the franchisee can sell or supply
Franchisee obligations — site selection, hours of operation, staff training, and performance standards
Territory — whether the franchisee receives exclusive territory or not
Trademarks — information about all registered and unregistered marks covered by the franchise
Patents, copyrights, and proprietary information
Obligation to participate in the franchise operation
Financing arrangements — any financing the franchisor offers or arranges
Franchisor’s assistance — operational, marketing, and training support
Sales performance representations — financial performance data from existing outlets
Franchisee outlet information — number of existing outlets, location, and financial performance summary
Financial performance — where available, a comparison of franchisee performance data
Franchise agreement — a copy of the proposed franchise agreement as an exhibit
Receipt acknowledgment — a form for the franchisee to acknowledge receipt of the FDD
Financial statements — audited financial statements of the franchisor for the most recent fiscal year
Miscellaneous — any other information material to the franchise decision

Critical Rules Around the FDD

The 14-day rule: The FDD must be delivered to the prospective franchisee at least 14 days before the franchise agreement is signed. This is a strict requirement. Franchisors who pressure franchisees to sign before the 14 days have elapsed expose themselves to legal liability.

Annual updating: The FDD must be updated annually or when any material change occurs. An FDD that is accurate at the time of registration but becomes materially inaccurate over time still creates risk.

Item 17 — Financial Performance: This is the most contested item in practice. Malaysian franchisors often have limited financial performance data from their own outlets and are reluctant to disclose it. The Act requires disclosure where information is available — it does not require franchisors to fabricate data they do not have.

Registration Requirements

Who Must Register

Every franchisor who markets or offers a franchise in Malaysia must register with KUSKOP through the MyFEX 2.0 portal before any public offering is made.

This includes:

Malaysian companies offering franchises domestically
Foreign franchisors offering franchises to Malaysian residents
Master franchise holders who sub-franchise in Malaysia

The Registration Process

Prepare the FDD — complete all 23 items to KUSKOP’s satisfaction
Submit via MyFEX 2.0 — upload the FDD and pay the registration fee
KUSKOP review — the Ministry reviews for completeness and compliance
Registration granted — the franchise is entered in the register of franchises
Public listing — the franchise appears in the MyFEX franchise marketplace

The registration is valid for 12 months and must be renewed annually.

Grounds for Refusal

KUSKOP may refuse registration if:

The FDD is incomplete or contains misleading information
The franchisor does not meet the two-outlet, one-year requirement
The proposed franchise agreement contains provisions that are unfair or unconscionable
The franchisor or its principals have a history of fraud or misconduct

Rights and Obligations of Franchisors

Under the Act, franchisors have the following obligations:

Provide complete and accurate disclosure via the FDD
Operate in good faith toward franchisees
Provide the support services promised in the FDD
Maintain the registered franchise registration and renew annually
Notify KUSKOP of material changes to the franchise programme
Not market the franchise before registration is complete

Franchisors retain rights to:

Set quality and operational standards for the franchise network
Enforce compliance with the franchise agreement
Modify the franchise programme (with appropriate notice to franchisees)
Terminate franchisees who breach the agreement

Rights and Obligations of Franchisees

Franchisees have the right to:

Receive complete and accurate information before signing
Operate their franchise without undue interference from the franchisor
Receive the support services promised in the FDD
Renew the franchise agreement on the terms stated in the original agreement

Franchisees are obligated to:

Operate the franchise in accordance with the franchisor’s standards
Pay all fees and royalties on time
Maintain confidentiality of proprietary information
Participate in required training programmes
Meet minimum performance standards (if specified in the agreement)

Enforcement and Penalties

Offences by Franchisors

A franchisor who:

Offers a franchise without being registered commits an offence
Fails to provide the FDD at least 14 days before signing
Provides false or misleading information in the FDD
Fails to renew the registration annually

…is liable on conviction to a fine not exceeding RM 50,000 or imprisonment for a term not exceeding two years, or both, for a first offence. Subsequent offences carry higher penalties.

Grounds for Franchisee Compensation

Where a franchisor fails to comply with the Act or the FDD, franchisees may:

Apply to court to void the franchise agreement
Claim damages for losses suffered as a result of the breach
Report the franchisor to KUSKOP for enforcement action

The Relationship Between the Act and Contract Law

The Franchise Act 1998 operates alongside general contract law principles. A franchise agreement that complies with the Act can still be challenged on grounds of:

Misrepresentation
Unconscionable terms
Breach of contract
Frustration

The Act does not replace the Franchise Agreement — it sets a minimum standard of conduct and disclosure. Franchise disputes in Malaysia typically involve both statutory claims under the Act and common law claims for breach of contract.

Key Takeaways for Business Owners

Get the FDD right first. Everything else follows from it. An incomplete or misleading FDD is the single most common source of franchise disputes in Malaysia.
Register before you market. Operating without MyFEX 2.0 registration is a criminal offence, not just a compliance technicality.
The 14-day cooling period is not negotiable. Build it into your sales process from day one.
The Act protects you too. Many franchisors do not realise that the Act also protects them from franchisees who misrepresent their financial position or fail to meet their obligations.
Get specialist legal advice. The Act’s interaction with contract law, consumer protection legislation, and competition law requires a lawyer with specific franchise experience.

Need help preparing your FDD or navigating MyFEX 2.0 registration? Contact SQV’s team for a consultation.