Franchising is a business concept that allows a brand to expand its reach through a local affiliate who is allowed to carry the brand name and sell the products. This way of doing business has a significant number of advantages for both parties involved and it is an increasingly popular means of starting a business in Malaysia.
Franchise programs in Malaysia are available to locals and foreign investors interested in becoming affiliates of an already existing business overseas. The choices are varied in terms of business sectors, with opportunities in the food and services sectors, the entertainment, and the retail fields.
This is a short guide on how tofor all investors who are considering this business option.
The advantages of a franchise in Malaysia
Becoming the owner of a franchise business can be a beneficial option for investors who are looking to do business in Malaysia with lower risks compared to starting a new business. What’s more, the affiliation with a global brand will allow local entrepreneurs to access the know-how and benefits of the larger company, apart from granting them instant brand recognition.
The franchisee (the local entrepreneur who purchases the franchise) will be sheltered from a potential business let down because the brand he/she acquires is already an established one. The franchisee will not own the actual brand, but he/she will be able to use the company logos and name to sell its products according to a pre-established business model. On the other hand, the franchisor (the company owner that sells the brand rights) will be able to expand its brand with fewer liabilities (it is not liable for the franchise set up by the franchisee).
Before entering into a franchise, investors are advised to research the franchise system and, whenever possible, visit other franchises and meet with the representatives of the business.
What to consider when opening a franchise
The franchise agreement is the basis on which a local investor will be able to set up and run the franchise. The manner in which the local affiliate will report to the franchisor is detailed in this document. The terms and conditions for franchising may vary from one franchisor to another and can depend on brand particularities. Some franchisor may demand part of the profits and an initial franchising fee can apply.
We recommend that investors explore all of the available options for franchising and find out the conditions for carrying out a business in this manner. The decision to join a franchise should be a documented one and investors are advised to research the conditions for franchising and the history of the franchise and the brand.
The process of opening a franchise in Malaysia
In Malaysia, the Franchise Act governs the formation and the management of such an establishment. The rules and regulations apply to the franchise agreement and to the registration of the franchisor and the franchisee. The Act also governs the manner in which a franchise business may be advertised, purchased and sold. The Franchise Act applies to all franchises that operate in Malaysia.
Once they decide to become franchisees, investors in Malaysia will need to complete a series of steps related to entering the franchise business and opening a new company in Malaysia.
Detailed below are the main procedures needed to open a franchise in Malaysia:
- explore the business options and perform a due diligence: the importance of the research phase was detailed above; however, investors can perform an in-depth investigation called due diligence to find out everything there is to know about the operations of the company; this will help entrepreneurs take an informed decision;
- incorporate a new company in Malaysia: there are a number of options for company formation in Malaysia and the private limited company is the common choice for franchising;
- apply for and obtain the relevant business licenses: companies in selected business fields, such as the food industry, will require special permits and licenses in order to operate; this applies to franchises and investors are advised to find out what additional licenses they need to obtain from the local authorities;
- hire employees in Malaysia.
Investors who open a company in Malaysia will need to observe the requirements for the incorporation of private and public limited companies. These refer to the minimum share capital, the number of shareholders and the management of the corporation. Companies need to prepare the annual financial statements and comply with the taxation rules. A corporate income tax of 25 percent applies to business profits derived from the country.
Franchising can be a profitable business option for investors. A key to starting a franchise business is to research the right franchise and enter knowingly into the agreement, fully prepared for the benefits and business responsibilities that arise with entering into a franchise.
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