Franchising & Licensing

In Malaysia, franchising and licensing are governed under different laws. Franchising is governed under the Franchise Act 1998 (“the Act”) and is regulated by the Registrar of Franchises (“Registrar”) under the purview of Ministry of Domestic Trade and Consumer Affairs. Licensing, on the other hand, is a form of private contract between parties and is governed under the law of contract. As such, if franchising is taken up as a mean of business expansion, then compliance with the Act is necessary and registration with the Registrar is also required. Licensing, on the other hand, is a contractual arrangement between parties and such contract has to be precisely drafted to reflect the parties’ intention and has to comply with the law of contract.

Franchising and licensing have always been mixed up by business owners, as both models share the similar elements. For instance, both franchising and licensing resemblance have the resemblance of granting rights to use a brand name to another party in running the business.

In a franchise model, the franchisor will grant to the franchisee the right to use the trademark and the established system in running the business. In consideration, the franchisee will pay all relevant fee e.g. one-off franchise fee, royalty payment and etc stipulated in the franchise agreement to the franchisor. The franchise agreement shall also contain all mandatory requirements as stipulated in the Act, failing which  shall render a franchise agreement null and void.

On the other hand, in a licensing model, the licensor will grant to the licensee the right to use the intellectual property including trademark, trade secrets, confidential information and etc in running the business. In consideration, the licensee will pay all relevant fee e.g. one-off licensing fee, commission and etc stipulated in the licensing agreement to the licensor. However, unlike a franchise model, a licensor has far less control on the licensee’s daily business operation.

Training and Support

In a franchise model, the franchisor will provide training to the franchisee prior to the operation of business whereas in a licensing model, the licensor usually only provides training and support in relation to product knowledge.

Control

In a franchise model, the franchisor has a tighter operational control continuously to mandate how a franchisee should operate the franchised business. There is usually a set of manuals to be followed by the franchisee. In contrast, for a licensing model, the licensor usually has little to no operational control as to how a franchisee should operate the licensed business.

Fee

In a franchise model, the franchisee will pay various fee such as initial franchise fee, royalty fee, advertising fee and etc continuously to the franchisor whereas in a licensing model, the licensee will typically pay only the licensing fee and commission to the licensor.

Choosing the Right Model

There is no right or wrong in choosing either a franchising model or a licensing model in expanding your business. It all rests completely on your needs and goals as a business owner.

Contact us now to schedule a consultation as to which model is suitable for you. We are able to help you in structuring your business model as well as preparing the necessary agreements in expanding your business.