Amendments That Will Propel the Franchise Industry Forward

It was recently reported that the franchise industry would have contributed 2.6% or some RM22.5 billion to Malaysia’s total gross domestic products (GDP) in 2012. Consistent with Malaysia’s goal of becoming a high-income country by 2020, the government targets a 4.3% contribution from the franchise industry to the country’s GDP by 2016 and subsequently a 9.4% contribution by 2020.

The aforementioned indicates that the franchise industry also plays a vital role in contributing and forming the nation’s growth. In order to ensure a healthier and smoother development for the franchise industry, the government has launched necessary initiatives and the latest being strengthening the law governing the industry.

There are numerous changes to the latest Franchise (Amendment) Act 2012, but the most instrumental ones are as follows:

1) Section 37A – Offence of holding out as a franchise

It is an offence if a self-proclaimed franchisor or franchise business is not registered with the Registrar.

  • Self-proclaimed franchise business committing the offence for the first time could be fined with RM250,000 and RM500,000 for subsequent offences.
  • Self-proclaimed franchisor will be fined with RM100,000 or imprisonment not exceeding one year and  fined with RM200,000 or imprisonment not exceeding two years for subsequent offences.

2) Section 13 – Registrar has rights to cancel franchise application

To manage the performance of franchisors in the country, the Registrar will now have the rights to revoke the Franchisor’s status if he does not comply and adhere to the governing regulations such as failing to submit annual report or is found to be insolvent.

3) Section 26 (a) & 26 (b) – Confidentiality

Due to the nature of the franchise industry’s involvement in trade recipes, operation manuals and other forms of know-how, an extended restriction on confidentiality will be imposed not only on the franchisees and their employees but also on the  their directors, spouses and immediate family members of the directors.

4) Section 6B – Registration of Franchisee

The registration of the franchisee with the Registrar should be carried out within 14 days from the date of the signing of the franchise agreement. This is to ensure the rights of the franchisee are being protected when he ventures into the franchise industry; and it also allows the Ministry to monitor and ensure that the franchisor honours and performs his duties of supporting his franchisee.

These amendments will undoubtedly ensure that both franchisors and franchisees operate their business activities with the proper business ethics. This goes to show that our Government acknowledges the fact that the franchise industry is an entity that will help to proper our nation’s economic growth and in ensuring that this growth is not being abused, manipulated and/or jeopardized, these stringent regulations are being enforced.

Franchising is the future form of business strategy for businesses that are interested in business expansion. We strongly advise all business owners and entrepreneurs who are interested in this pathway to engage and seek professional advices from reputable franchising consultancy firms or franchise consultants in order to stay ahead and to avoid unnecessary obstacles upon venturing into the franchise industry.