What is the definition of Franchise Business

Franchising is a business strategy in which a well-established corporation (franchisor) allows another party (franchisee) to run a business using their brand name and established means of doing business. It is a method for replicating a successful company strategy in various areas.

In Malaysia, the Franchise Act 1998 (Act 590) defines a franchise as a contract or agreement (written or otherwise) between the franchisor and franchisee, granting the right to operate the business within the franchisor’s system, and often including the use of their intellectual property.

Here’s a breakdown of the key players involved:

Franchisor: The franchisor possesses exclusive ownership of the initial business concept. The organization has established a prosperous brand and operational framework and possesses the appropriate legal standing for the brand name, trademarks, and intellectual property. The franchisor provides licenses to franchisees, allowing them to operate under their established brand.

Franchisee: The franchisee is the individual or company who purchases the franchise license from the franchisor. They invest in the franchise, following the franchisor’s business model and operational guidelines. Franchisors generally receive an initial franchise fee from franchisees in addition to continuous royalties.
Steps to Starting a Franchise in Malaysia

1. Market Research

Before starting any business, performing a thorough market study is important. In the context of franchises, this means evaluating the current Malaysian franchise market, measuring the demand for specific goods and services, and finding well-known names along with possible rivals. Evaluate what’s already good and where there’s room for growth.

2. Select a Franchise

Carefully research the available franchise opportunities, both local and foreign. Investigate the franchisor’s history, its reputation in the industry, its financial standing, and how successful their franchisees are. Pay attention to the initial investment costs, ongoing fees, and the level of training and operational support provided. A key part of this phase is to thoroughly review the franchise agreement terms.

3. Franchise Agreement

Negotiate the terms of the franchise agreement to ensure they are fair and equitable for both you and the franchisor. It may be beneficial to obtain legal counsel during this stage. Pay special attention to the franchise fee, royalty payments, operational requirements set out by the franchisor, and under what conditions either party can terminate the agreement.

4. Franchise Registration

In Malaysia, the Franchise Act 1998 controls the registration of companies. Here’s what you need to know: If you are the operator, you must register your franchise with the Registrar of Franchises before giving the franchise system for sale to possible partners. If you are the owner, you must register your business with the Registrar, whether your company is local or foreign-based.

5. Business Licenses & Permits

On top of franchise registration, you’ll need to collect all the necessary business licenses and permits for the specific form of franchise you’re operating and for your selected business location. Typical permits may involve a general business license, a food and beverage license (if applicable), and signage permits.

Important Considerations

  • Franchise Act 1998: Become familiar with this central legislation governing franchises in Malaysia.
  • Malaysia Franchise Association (MFA): Access resources and guidance.
  • Franchise Consultants: Consider working with a consultant for specialized advice.

Franchising lowers typical startup risks by providing an organized route to company ownership. Investigating franchises can be the pathway to success if you’re a driven business owner in Malaysia.

If you have any questions about franchising or would like to discuss potential opportunities, feel free to contact us at WhatsApp | info@3sadviser.com | Facebook | LinkedIn .

Read More:

· Chains VS Franchises: Which is right for your business?
· 6 factors to check if your business is Franchise-Worthy!
· Mastering SOP: Quality Over Quantity!


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