The Franchise Disclosure Document is the most important legal instrument in franchising. It is also the most commonly misunderstood and poorly prepared. In Malaysia, an inadequate FDD is the primary cause of registration delays, KUSKOP Information Requests, franchise disputes, and — in serious cases — legal liability that extends well beyond the franchise relationship.

This guide explains what the FDD is, what each of the 23 items requires, and how to prepare one that protects both you and your franchisees.

What Is the FDD and Why Does It Exist?

The Franchise Disclosure Document is a legally prescribed disclosure instrument required under Section 16 of the Franchise Act 1998. Its purpose is simple: give prospective franchisees all the information they need to make an informed decision about buying a franchise.

The FDD is not a contract. It is a disclosure document. It does not grant franchise rights — the Franchise Agreement does that. What it does is ensure the franchisee goes into the relationship with full knowledge of what they are buying, what it costs, and what the franchisor’s track record looks like.

The 14-Day Rule

The FDD must be delivered to the prospective franchisee at least 14 days before any franchise agreement is signed. This is a strict requirement under the Act. Franchisors who pressure franchisees to sign within the 14-day window expose themselves to legal liability — the franchisee can void the agreement and claim damages regardless of how well the outlet performs.

Who Prepares the FDD?

In Malaysia, the franchisor is responsible for preparing the FDD. It is strongly recommended — and in practice essential — to engage a lawyer or consultant with specific franchise experience to draft or review the FDD. A general corporate lawyer will not know the KUSKOP-specific requirements or the industry conventions around item disclosure.

The 23 Items — Item by Item

Item 1 — Franchisor’s Background

Provide the full legal name of the franchisor, its business form (company, partnership, etc.), and the address of its principal place of business. Also disclose the age of the business and the date the franchisor entity was incorporated.

This item establishes who the franchisor is from a legal identity perspective. It should match the SSM company extract exactly.

Item 2 — Business Experience

Describe the management team’s relevant business experience — not just in the franchise concept, but in managing franchise networks, if applicable. Include the resumes or career summaries of key principals.

KUSKOP wants to know that the people running the franchise have actually done this before. Vague descriptions of “years of experience” without specifics are not helpful.

Item 3 — Litigation History

Disclose all pending, concluded, or bankruptcy-related proceedings involving the franchisor or its directors and key shareholders. This includes:

Civil litigation (lawsuits by or against the company)
Criminal proceedings
Regulatory actions by government agencies
Arbitration proceedings
Insolvency or winding-up proceedings

Omitting material litigation is a serious compliance failure. Even if the matter was settled confidentially, it must be disclosed if it meets the threshold of materiality.

Item 4 — Bankruptcy

Specifically disclose whether the franchisor or any of its principals have been subject to bankruptcy proceedings, individual insolvency, or similar processes.

Item 5 — Franchisor’s Obligations

List everything the franchisor is obligated to do before the franchise opens and on an ongoing basis. This typically includes:

Pre-opening: site selection assistance, training, supply chain setup, opening support
Ongoing: operational support, marketing support, field visits, system updates, renewal processing

Be precise. Vague descriptions of support obligations create disputes later when franchisees feel the support they received fell short of what was promised.

Item 6 — Franchise Fee

Disclose the initial franchise fee in full — exact amount, payment method, payment schedule, and refund policy.

If the fee is tiered (different fees for different franchise types or territories), disclose each tier clearly.

The refund policy deserves careful thought. Malaysian courts have examined refund provisions in franchise agreements and looked at whether they are commercially reasonable. A “no refund under any circumstances” clause in the franchise agreement will attract scrutiny if the FDD is silent on this.

Item 7 — Other Fees Payable by the Franchisee

Disclose every fee the franchisee will pay beyond the initial franchise fee:

Royalty fees (percentage of sales, payment frequency)
Marketing or advertising levies
Technology or software fees
Renewal fees
Transfer or assignment fees
Any other recurring or one-time charges

Each fee should be described with its amount or rate, when it is due, and how it is calculated.

Item 8 — Estimated Initial Investment

Provide a realistic estimate of the total startup investment required to open and operate the franchise for the first three months. This should include:

Initial franchise fee
Fit-out and construction
Equipment and furnishings
Initial inventory
Utility deposits and startup operating costs
Working capital for first 3 months

Be honest. Overstating profitability expectations and understating costs is the most common basis for franchisee claims of misrepresentation.

Item 9 — Restrictions on Goods or Services

Disclose any restrictions on what the franchisee can sell, supply, or distribute. This includes:

Exclusive or preferred supplier arrangements (requiring franchisees to buy from approved suppliers only)
Restrictions on handling competing products
Limitations on the geographic scope of the franchisee’s activities

These restrictions must also appear in the Franchise Agreement and must be commercially justifiable.

Item 10 — Franchisee’s Obligations

List every material obligation of the franchisee. This is the franchisee’s side of the bargain — the counterpart to Item 5. Include obligations related to:

Site selection and lease approval
Fit-out and compliance with brand standards
Staffing and training
Hours of operation
Sales reporting and financial disclosure
Participation in franchisor programmes (marketing, promotions, training)
Minimum performance standards (if any)

Item 11 — Territory

Describe the territory granted (or not granted) to the franchisee. Key questions to answer:

Is the territory exclusive?
How is the territory defined (postal codes, radius, political boundaries)?
Can the franchisor open company-owned or other franchise outlets in the territory?
Can the franchisee operate outside the territory?
What happens to the territory on renewal or termination?

Territory is one of the most negotiated elements of franchise agreements in Malaysia. The FDD description must be precise and must match the Franchise Agreement.

Item 12 — Trademarks

Identify all trademarks covered by the franchise, including:

The name, logo, and any get-up of the brand
Registration status with MyIPO
Any pending applications
Any limitations on the franchisee’s right to use the marks

This item protects both parties — the franchisor by establishing clear ownership, the franchisee by confirming they have the right to use the marks.

Item 13 — Patents, Copyrights, and Proprietary Information

Disclose any patents, copyrights, trade secrets, or confidential information included in the franchise. Describe what the franchisee can and cannot do with this intellectual property.

Item 14 — Obligation to Participate in the Franchise Operation

Disclose the minimum level of personal involvement required of the franchisee — specifically, whether the franchisee is required to personally operate the franchise (as opposed to hiring a manager to run it on their behalf).

Most single-unit franchise models require active owner-operator involvement. This must be clearly stated.

Item 15 — Financing Arrangements

If the franchisor offers or arranges financing for the franchisee — installment payment plans for the franchise fee, equipment financing, working capital loans — disclose the terms.

If no financing is offered (which is common), state this explicitly.

Item 16 — Franchisor’s Assistance

This item supplements Item 5 and should be read together with it. Provide more detail on the nature, frequency, and scope of the franchisor’s operational and marketing support.

Item 17 — Financial Performance Representations

This item covers any representations the franchisor makes about the financial performance of franchise outlets. In many markets, this is the most legally significant item in the FDD.

Malaysian franchisors are not required to include financial performance data — but if they do, it must be accurate, properly sourced, and clearly labelled as to its scope and limitations.

Common approaches in Malaysia:

No representation: State explicitly that no financial performance data is provided and the franchisor makes no representations about future performance
Own outlet data: Disclose historical financial performance from company-operated outlets, clearly labelled as such
Franchisee data: Aggregate data from franchisee outlets, with appropriate caveats about variance

If you choose to make no financial performance representation, write this clearly. Do not leave Item 17 blank — KUSKOP reviewers will flag it.

Item 18 — Franchisee Outlet Information

Disclose the number and location of all existing franchise outlets. Include:

Total number of outlets (company-owned and franchise)
Location of each outlet
Summary of financial performance across the network (if available)

This gives prospective franchisees a picture of the network’s maturity and geographic spread.

Item 19 — Financial Performance

Where the franchisor has financial performance data from franchisee outlets (separate from Item 17), provide it here with appropriate caveats about variance between outlets.

Item 20 — Franchise Agreement

Attach a complete copy of the proposed Franchise Agreement as an exhibit to the FDD. This must be the actual agreement — not a draft, summary, or term sheet.

The Franchise Agreement exhibit must be consistent with every representation made in the FDD. Any inconsistency is a red flag for KUSKOP reviewers and for franchisee lawyers.

Item 21 — Receipt Acknowledgement

Include a form for the franchisee to sign acknowledging receipt of the FDD and the date on which it was received. This is the legal record that establishes the start of the 14-day cooling period.

The acknowledgement form should be a separate document, not part of the FDD itself.

Item 22 — Financial Statements

Attach the franchisor’s most recent audited financial statements. KUSKOP requires this to verify the franchisor’s financial standing and to give franchisees information about the health of the business they are buying into.

If the franchisor is a newly incorporated entity without audited accounts, disclose this and provide whatever financial information is available (management accounts, bank statements, etc.).

Item 23 — Miscellaneous

This catch-all item covers any other information material to the franchise decision that does not fit neatly into the other 22 items. It is commonly used for:

Franchise association membership
Franchisee training programme details
Any material contracts that affect the franchise relationship
Any other disclosure the franchisor considers relevant

Changes to the franchise fee or royalty structure
Changes to the franchisee’s territory or exclusivity
Changes in the franchisor’s financial position (audited statements older than 18 months)
Changes in litigation status
Material changes to the support model

KUSKOP requires FDDs to be updated annually as part of the renewal process.

How SQV Helps with FDD Preparation

SQV prepares and reviews FDDs for Malaysian franchisors. Our approach:

Discovery session — we spend time understanding your franchise model, fees, obligations, and history before writing a single word
Draft preparation — all 23 items drafted specifically for your franchise
Cross-check — we verify internal consistency between items and with the Franchise Agreement
KUSKOP review — we pre-audit against KUSKOP requirements to identify issues before submission
Ongoing updates — we manage FDD updates as your franchise programme evolves

Most of the FDDs we review when people bring them to us for the first time have at least 8–10 substantive issues that could cause registration delays or legal exposure.

Need help preparing or reviewing your FDD? Contact SQV for a fixed-fee FDD review.

The Franchise Disclosure Document (FDD) — Malaysian Guide