Franchise Agreement (Malaysia)
FRANCHISE AGREEMENT
Franchise Act 1998 (Malaysia) | Franchise (Amendment) Act 2012 | Trade Marks Act 2019
THIS FRANCHISE AGREEMENT is entered into on [Agreement Date]
BETWEEN:
(1) [Franchisor Name], of [Franchisor Address], Franchise Registration No. [Franchise Registration Number] (hereinafter referred to as the "Franchisor"); AND
(2) [Franchisee Name], of [Franchisee Address] (hereinafter referred to as the "Franchisee").
BACKGROUND
A. The Franchisor is the owner of the [Franchise System] (the "Franchise System") and is duly registered with the Registrar of Franchises at the Ministry of Domestic Trade and Cost of Living (KPDNHEP) under Section 6 of the Franchise Act 1998.
B. The Franchisor has provided the Franchisee with a disclosure document as required by Section 18 of the Franchise Act 1998 not less than ten (10) business days before the date of this Agreement.
C. The Franchisee wishes to operate a franchise outlet under the Franchise System and the Franchisor is willing to grant such rights on the terms set out in this Agreement.
1. GRANT OF FRANCHISE
1.1 Subject to the terms of this Agreement, the Franchisor grants to the Franchisee the non-transferable right to operate one (1) franchise outlet of the [Franchise System] at the approved outlet address of [Outlet Address] (the "Outlet").
1.2 The Franchisee is granted an exclusive territory of [Exclusive Territory] (the "Territory"), within which the Franchisor shall not appoint another franchisee operating the same Franchise System.
1.3 The Franchisee shall operate the Outlet strictly in accordance with this Agreement, the Operations Manual, and all applicable Malaysian laws including the Food Act 1983, the Food Regulations 1985, and the Local Government Act 1976.
2. FEES AND ROYALTIES
2.1 The Franchisee shall pay the Franchisor an initial franchise fee of [Initial Franchise Fee] upon signing this Agreement.
2.2 The Franchisee shall pay a monthly royalty of [Royalty Rate]% of the Outlet's gross sales to the Franchisor by the 15th day of each subsequent month, together with a marketing fund contribution of [Marketing Fund]% of gross sales.
2.3 All fees are exclusive of Service Tax under the Service Tax Act 2018. The Franchisee shall pay any applicable Service Tax in addition to the fees stated.
3. OBLIGATIONS OF THE PARTIES
3.1 The Franchisor shall: (a) provide initial training to the Franchisee and its key staff; (b) supply the Operations Manual; (c) provide ongoing operational support; and (d) conduct periodic inspections of the Outlet to maintain quality standards.
3.2 The Franchisee shall: (a) operate the Outlet exclusively in accordance with the Operations Manual; (b) maintain the quality standards required by the Franchisor; (c) attend all required training programmes; (d) use only approved suppliers and products; (e) display the Franchise System's trademarks only as authorised; and (f) permit the Franchisor's inspection of the Outlet at any time during business hours.
4. TERM AND RENEWAL
4.1 This Agreement shall have an initial term of [Franchise Term] years from [Agreement Date].
4.2 The Franchisee has the right to renew this Agreement for a further [Renewal Term] years upon payment of a renewal fee of [Renewal Fee], subject to Section 21 of the Franchise Act 1998, provided that the Franchisee has complied with all material obligations during the initial term and the Outlet continues to meet the Franchisor's standards.
5. TERMINATION
5.1 Grounds for termination and the procedure for termination shall be as set out in Section 24 of the Franchise Act 1998. The Franchisor may terminate this Agreement immediately upon written notice if the Franchisee: (a) fails to pay royalties for two consecutive months; (b) materially breaches the Operations Manual affecting food safety or brand standards; or (c) becomes insolvent under the Insolvency Act 1967.
5.2 Upon termination or expiry, the Franchisee shall: (a) immediately cease use of the Franchise System's trademarks and signs; (b) return the Operations Manual and all Franchisor materials; and (c) not represent itself as an authorised franchisee.
6. DISPUTE RESOLUTION
6.1 Any dispute arising from this Agreement shall first be referred to the Registrar of Franchises for mediation under Section 57 of the Franchise Act 1998 before any court or arbitration proceedings are commenced.
6.2 This Agreement is governed by the laws of Malaysia. If mediation fails, disputes shall be referred to the courts of Malaysia or to arbitration under the Arbitration Act 2005 before the Asian International Arbitration Centre (AIAC).
Franchisor
________________
Signature
Franchisee
________________
Signature
What Is a Franchise Agreement (Malaysia)?
A Franchise Agreement in Malaysia sets out the scope, fees, and conditions on which the licensor permits the licensee to use the rights.
Section 6 of the Franchise Act 1998 requires every franchisor to register its franchise with the Registrar of Franchises at the Ministry of Domestic Trade and Cost of Living (Kementerian Perdagangan Dalam Negeri dan Kos Sara Hidup, KPDNHEP) before offering or selling any franchise in Malaysia. A person who carries on a franchise business without registration commits an offence under Section 54 of the Franchise Act 1998, attractable a fine not exceeding RM 250,000 or imprisonment not exceeding five years or both.
Section 18 of the Franchise Act 1998 requires a franchisor to provide a prospective franchisee with a disclosure document at least ten business days before the franchise agreement is signed. The disclosure document must contain details of the franchisor's business history, financial statements, franchise fees, royalties, obligations, territorial rights, and dispute resolution mechanisms. A franchise agreement signed in breach of the disclosure obligation may be voided at the franchisee's election.
The Franchise Act 1998 imposes minimum content requirements on franchise agreements under Section 18A (as inserted by the Franchise (Amendment) Act 2012), including the duration of the agreement, territorial rights, renewal conditions, training obligations, grounds for termination, and provisions for dispute resolution. Franchise agreements must be in Bahasa Malaysia (the national language under the National Language Acts 1963/67) or accompanied by a certified Bahasa Malaysia translation.
The Trade Marks Act 2019 protects the franchisor's brand. The Intellectual Property Corporation of Malaysia (MyIPO) manages trademark registration, and franchise agreements must include a licence to use the registered trademark. The franchise relationship also intersects with the competition law framework under the Competition Act 2010 — exclusive territory grants and tying arrangements must comply with Section 4 of that Act as assessed by the Malaysia Competition Commission (MyCC).
The legal framework governing the Franchise Agreement (Malaysia) in Malaysia draws on several key statutes and regulatory bodies. Under Malaysian law, the Contracts Act 1950 (Act 136) governs contractual obligations. The Companies Act 2016 (Act 777) regulates corporate entities through the Companies Commission of Malaysia (SSM). The Employment Act 1955 (Act 265) and the Department of Labour govern employment matters. The Personal Data Protection Act 2010 (Act 709) and the Personal Data Protection Department protect personal data. The Inland Revenue Board of Malaysia (LHDN) administers tax obligations. The Industrial Court adjudicates employment disputes under the Industrial Relations Act 1967 (Act 177). Parties executing a Franchise Agreement (Malaysia) in Malaysia should confirm the document reflects current law, including any amendments enacted since the original drafting date. The Companies Act 2016 (Act 777) sets the foundational requirements.
When Do You Need a Franchise Agreement (Malaysia)?
A Franchise Agreement in Malaysia is needed whenever a franchisor grants a franchisee the right to operate under its system, and registration with KPDNHEP is mandatory before the agreement can be lawfully offered.
A Franchise Agreement is required when a Malaysian food and beverage business — one of the most active franchise sectors in Malaysia — grants a franchisee the right to operate an outlet under its brand, menu, and systems. The Food Act 1983 and Food Regulations 1985 impose food safety obligations on franchisees, and the Franchise Agreement must address compliance.
A Franchise Agreement is needed when a retail chain, convenience store operator, or service business expands through franchising rather than direct company-owned outlets. Under Section 6 of the Franchise Act 1998, the franchisor must register the franchise before the first franchisee is signed, regardless of the number of outlets.
A Franchise Agreement is required when a foreign franchisor grants franchise rights to a Malaysian master franchisee who will sub-franchise in Malaysia. The master franchisee becomes a sub-franchisor and must separately comply with the Franchise Act 1998 registration requirements for the sub-franchises.
A Franchise Agreement is needed when a professional services firm — education centre, tutoring franchise, healthcare clinic chain — expands by franchising its systems and brand in Malaysia. Section 18A of the Franchise Act 1998 mandates specific disclosures about earnings projections and support obligations.
A Franchise Agreement is required when renewing or transferring an existing franchise. Section 21 of the Franchise Act 1998 gives the franchisee a right to renew on terms no less favourable than those originally offered, and any transfer of the franchise business requires the franchisor's consent under Section 22.
Parties in Malaysia should prepare a Franchise Agreement (Malaysia) proactively rather than waiting for a dispute to arise. Courts interpret agreements based on the written terms rather than oral representations. Under Malaysian law, the Contracts Act 1950 (Act 136) governs contractual obligations. The Companies Act 2016 (Act 777) regulates corporate entities through the Companies Commission of Malaysia (SSM). The Employment Act 1955 (Act 265) and the Department of Labour govern employment matters. The Personal Data Protection Act 2010 (Act 709) and the Personal Data Protection Department protect personal data. The Inland Revenue Board of Malaysia (LHDN) administers tax obligations. The Industrial Court adjudicates employment disputes under the Industrial Relations Act 1967 (Act 177). Where the transaction involves regulated activities, prior approval from the relevant authority may be required before execution.
What to Include in Your Franchise Agreement (Malaysia)
A Franchise Agreement in Malaysia under the Franchise Act 1998 must contain the following mandatory and recommended elements.
Registration and Disclosure: Confirmation that the franchisor is registered with the Registrar of Franchises at KPDNHEP under Section 6 of the Franchise Act 1998, and that the disclosure document was provided to the franchisee at least 10 business days before signing under Section 18.
Grant of Franchise Licence: A clear grant of the right to operate the franchise system — including use of the franchisor's trademarks (registered under the Trade Marks Act 2019 with MyIPO), trade name, proprietary systems, and confidential operational manuals — within a defined territory and for a defined term.
Fees and Royalties: The initial franchise fee (payable on signing), ongoing royalties (typically a percentage of gross sales, payable monthly), and any marketing fund contributions. All fees must be stated in Ringgit Malaysia (RM) and subject to Service Tax under the Service Tax Act 2018 where applicable.
Territory: A precisely defined exclusive or non-exclusive territory within Malaysia. Exclusive territories must comply with the Competition Act 2010 — the Malaysia Competition Commission (MyCC) assesses whether territorial restrictions significantly prevent competition.
Training and Support: The franchisor's obligations to provide initial training, ongoing support, operations manuals, and marketing assistance. Section 18A of the Franchise Act 1998 requires disclosure of training details in the franchise disclosure document.
Operating Standards: The franchisee's obligation to operate the business strictly in accordance with the franchisor's operations manual, quality standards, and branding guidelines. Failure to meet standards is a typical ground for termination.
Duration and Renewal: The initial term (typically five to ten years), the conditions for renewal under Section 21 of the Franchise Act 1998, and any renewal fee. The Franchise Act 1998 gives the franchisee a right to renew unless there has been a material breach.
Termination and Post-Termination: Grounds for termination by either party, notice periods, and post-termination obligations — including cessation of use of trademarks, return of manuals, and a post-termination non-compete restriction within the territory. Section 24 of the Franchise Act 1998 sets out specific grounds and procedures for termination.
Dispute Resolution: Mandatory mediation under the Franchise Act 1998 before litigation or arbitration. Section 57 of the Franchise Act 1998 provides that disputes shall first be referred to the Registrar of Franchises for mediation before court proceedings are commenced.
Additional compliance elements for a Franchise Agreement (Malaysia) used in Malaysia include: Under Malaysian law, the Contracts Act 1950 (Act 136) governs contractual obligations. The Companies Act 2016 (Act 777) regulates corporate entities through the Companies Commission of Malaysia (SSM). The Employment Act 1955 (Act 265) and the Department of Labour govern employment matters. The Personal Data Protection Act 2010 (Act 709) and the Personal Data Protection Department protect personal data. The Inland Revenue Board of Malaysia (LHDN) administers tax obligations. The Industrial Court adjudicates employment disputes under the Industrial Relations Act 1967 (Act 177). Forms-legal.com provides this template as a starting point for Malaysia-compliant documentation.
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Reference this free template in an article, syllabus, or research note:
Forms Legal. (2026). Franchise Agreement (Malaysia) (Malaysia) [Legal document template]. Forms Legal. https://forms-legal.com/malaysia/business/contracts/franchise-agreement-malaysia
"Franchise Agreement (Malaysia) (Malaysia)." Forms Legal, 2026, https://forms-legal.com/malaysia/business/contracts/franchise-agreement-malaysia.
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author = {{Forms Legal}},
title = {Franchise Agreement (Malaysia) (Malaysia)},
year = {2026},
howpublished = {\url{https://forms-legal.com/malaysia/business/contracts/franchise-agreement-malaysia}},
note = {Free legal document template. Based on Companies Act 2016 (Act 777)}
}
Frequently Asked Questions
Yes. Under Section 6 of the Franchise Act 1998, every franchisor — whether Malaysian or foreign — must register its franchise with the Registrar of Franchises at the Ministry of Domestic Trade and Cost of Living (KPDNHEP) before offering or selling any franchise in Malaysia. The registration process requires submission of the franchise agreement, the disclosure document, audited financial statements, and details of the franchisor's business history. A franchise business operated without registration contravenes Section 54 of the Franchise Act 1998, which provides for a fine not exceeding RM 250,000 or imprisonment not exceeding five years or both. Foreign franchisors must appoint a local representative or master franchisee and ensure Malaysian law compliance. The Franchise Act 1998 also requires all franchise agreements to be in or accompanied by a Bahasa Malaysia translation.
Under Section 18 of the Franchise Act 1998, a franchisor must provide a prospective franchisee with a disclosure document at least ten business days before the franchise agreement is signed. The disclosure document must contain: the franchisor's business history and corporate structure; details of any litigation or insolvency in the preceding five years; a copy of the current franchise agreement; the financial statements of the franchisor for the preceding three years; a list of current franchisees; details of the franchisee's territory and exclusive rights; the initial franchise fee and royalties; the franchisee's total initial investment estimate; training and support provided; renewal, transfer, and termination conditions; and dispute resolution procedures. A franchise agreement signed without the required disclosure may be voided at the franchisee's election, and the franchisor may be prosecuted for the offence under Section 54 of the Franchise Act 1998.
A franchisee in Malaysia may terminate a Franchise Agreement in the circumstances specified in the agreement itself and under the Franchise Act 1998. Section 24 of the Franchise Act 1998 allows the franchisee to terminate if the franchisor has materially breached the agreement and failed to remedy the breach within the notice period specified. The franchisee may also terminate if the franchisor becomes insolvent under the Insolvency Act 1967 or if the franchisor has made material misrepresentations in the disclosure document under Section 18 of the Franchise Act 1998. Before terminating or commencing legal proceedings, Section 57 of the Franchise Act 1998 requires the parties to attempt resolution through the Registrar of Franchises' mediation process. The franchisee who terminates without valid grounds under the franchise agreement and the Franchise Act 1998 may be liable for damages under Section 74 of the Contracts Act 1950.
Royalties in a Malaysian Franchise Agreement vary significantly by industry and brand. The typical structure involves an initial franchise fee payable on signing (ranging from RM 10,000 for small-scale service franchises to RM 500,000 or more for established F&B brands), plus ongoing royalties calculated as a percentage of the franchisee's gross monthly sales — typically 3% to 8% for F&B franchises and 2% to 10% for service franchises. Many franchisors also charge a marketing fund contribution of 1% to 3% of gross sales. The Franchise Act 1998, Section 18, requires all fee details to be disclosed in the disclosure document. Service Tax under the Service Tax Act 2018 applies to franchise royalties if the franchisor is a registered taxable person, and the franchise agreement should clarify whether royalties are inclusive or exclusive of SST. The Inland Revenue Board of Malaysia (LHDN) taxes royalty income under the Income Tax Act 1967.
When a Franchise Agreement expires in Malaysia, the franchisee's rights under the Franchise Act 1998 depend on whether a renewal right exists and has been exercised. Section 21 of the Franchise Act 1998 gives the franchisee the right to renew on terms no less favourable than those originally offered, provided the franchisee has complied with all material terms of the existing agreement. The franchisor must give the franchisee notice of the expiry date and the renewal terms at least six months before the agreement expires. If the franchisee does not exercise the renewal option, all rights under the franchise — including the licence to use trademarks registered with MyIPO under the Trade Marks Act 2019, use of the operations manual, and the right to operate the system — terminate on the expiry date. Post-expiry non-compete and non-solicitation obligations specified in the franchise agreement remain binding subject to the Section 28 Contracts Act 1950 reasonableness test.
This template is provided for informational purposes only and does not constitute legal advice. Laws vary by jurisdiction and change over time. Consult a qualified attorney for advice specific to your situation.Full disclaimer
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