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Summary of Malaysia Law

In this guide, we will provide an Overview of Malaysian Legal System related to Company Registration in Malaysia.
 

1. Digital Signature Act 1997 [Act 562]

This act is framed based on the UNCITRAL Model Law on Electrical Signatures with a few modifications. As per this act, electronic signatures cannot be used where a signature is needed on a document and instead, there should be a digital signature. If the document does not mandatorily need a signature, an electronic signature can be made use of and based on this, the document’s approvals and validity can be tracked.

To brief it out, if you need a signature on a document, you need to make sure that you have a digital signature platform in place which is in accordance with the Digital Signatures Act 1997/98 of the Malaysia Standard, to ensure that the digital signature is valid and not forgeable.
 

2. Franchise Act

For all registrations, the Franchise Act differentiates clearly between franchisors of Malaysia or any foreign country.

a) Foreign Franchisor

As per the Franchise Act, foreign franchisors necessarily have to gain an approval from the Registrar of Franchises’ if they are planning to operate their franchise in Malaysia or if the franchise will be operated by a citizen of Malaysia. Hence, before a foreign franchisor plans to carry out negotiations or discussions with any franchises based in Malaysia, they have to first obtain an approval so that the foreign franchisor will be able to sell their franchise in Malaysia. Also, the approvals might also come with certain conditions as laid down by the Registrar as per the Franchise Act.

Once the Registrar gives the required approval, a foreign franchisor would be able to sell the franchise in Malaysia or to a citizen of Malaysia by entering into an agreement. However, the agreement would be subject to the registration of the franchisee operating in Malaysia and they will have to obtain an appointment as the foreign Franchisors of Malaysia for the same. During this process, a copy of the franchise agreement has to be submitted along with the other documents to the Registrar as they are required for the registration process. The Registrar is free to impose any conditions as per their will and it might also direct the franchise to enter into agreements if they find it to be a violation of the Franchise Act. The main intent behind registration for the local franchisee is to have a control over the franchisee, as Malaysia would not be able to control any foreign Franchisor due to the territorial restrictions and laws and enforcing any rule might prove to be difficult if not for this.

Also, if the foreign franchise will appoint a franchisee as a master franchisee, then it will have to register itself as a franchisor before it can grant any further franchisees inside Malaysia or to any citizen of Malaysia and if not, it would be considered to be an offence as per the Franchise Act.

b) Malaysian Franchisor

Any franchisor in Malaysia has to register its franchise with the Registrar prior to granting franchisee licenses to any other individual, if it does not have an exemption from the Minister. If the franchisees are granted without the approval, it would be an offence as per the Franchise Act.  The application for registration must be submitted in the format prescribed and should also include all the documents required such as the audit statements, financial details, auditors reports, operation and training manual of the franchise and also the details of directors of the franchisor. A franchisor will only be able to apply after they have completed 3 years of business operation in Malaysia.

However, once a Malaysia Franchisor is registered, the Malaysian Franchisees of that franchisor do not have to register with the Registrar as the Registrar will be able to control all the franchisees by controlling the franchisor.

Also, the franchise broker must register with the Registrar and the form should include the documents required. Generally, the registration is valid for one year from the date of registration, unless there are any exception cases as determined by the Registrar.  The Registrar is also allowed to impose any conditions on the franchise and is also allowed to govern the suspension, termination, prohibition or denial of registration for a franchise broker or can even govern the manner of sale of franchise chosen by the franchise broker.

Before the registration application, both the foreign franchisor and Malaysian franchisor should comply by the Trade Marks Act of 1976. By registering the trademark, the franchisor will be able to gain statutory protection as offered by the Trade Marks Act of 1976 and no third party would be able to use the trademark of the Franchisor which might put the goodwill or reputation of the franchisor at stake or infringe the trademark.

As the Franchise Act is well laid out, even advertising and sale or purchase of franchise is governed by this act. If an individual wishes to publish or distribute such an ad, he or she must first file a copy of the advertisement at least five days in advance with the Registrar before it gets published first or used first. The Registrar has the right to prohibit any such advertisements that may seem to be misleading, fraudulent or false.

The Franchise Act is applicable on sale of all franchises in Malaysia wherein the franchised business will be operating in Malaysia. To fall under the purview of Franchise Act, the following criteria have to be fulfilled:

  • The operation of franchisee should be based on the system decided by franchisor.
  • All trademark and intellectual property rights of the franchisor can be used by the franchisee.
  • Continuous control can be exercised by the franchisor on the operations of the franchisee based on its system.
  • All the training, marketing, business and technical support for the franchisee will be provided by the franchisor.
  • The Franchisee will pay the franchisor either monetarily or in a non-financial consideration for the franchise rights.
  • The franchisee is a separate business than the franchisor and they cannot be a partnership.

Usually, the franchise rights vary across different types of businesses and also depend based on the business model.
 

Personal Data Protection Act 2010

Passed in May 2010 and enforced on 15th November 2013 after receiving the Royal Assent on 2nd June 2010, The Personal Data Protection Act of 2010, commonly known as PDPA, was given a three-month sunrise period as per the Government Gazette.

The main intent of PDPA is to govern the personally identifiable data collected during commercial transactions. The PDPA Department has declared recently that all the employment related data that is collected will also fall under the purview of PDPA.

However, it is not applicable on the information processed by credit reporting agencies with the intent of reporting business credits, as per the Credit Reporting Agencies Act of 2010. The State Governments and Federal Government of Malaysia do not come under this act. Also, the personal data that is processed outside of Malaysia does not come under this Act unless there is any further processing happening in Malaysia.

It is also applicable to parties that are not established in Malaysia but are using the equipment in Malaysia to process personal data for any other cause apart from transit through Malaysia.

There are a wide range of entities that will have to register under the PDPA Act of 2010.

Some of the entities that have to register under PDPA are as follows (Personal Data Protection Act PDPA 2010 Class of Users):

  • Banking & Financial Institutions
  • Insurance
  • Health
  • Tourism & Hospitality
  • Transportation
  • Education
  • Direct Selling
  • Services (such as legal, audit, accountancy, engineering, architecture, retailer, wholesaler, employment agency services)
  • Real Estate
  • Utilities

If you wish to register under the PDPA Act of 2010, you will require:

  • Payment of Registration Fees.
  • The Memorandum of Association and Articles of Association for public and private companies.
  • If you are any other type of company, you will have to get along the documents you had required during establishment.

You can have a look at the flow chart of the registration process, as released by the Malaysian Institute of Accountants to have a better understanding.

When you register under PDPA, you will be given a registration certificate which will be valid for a period of twelve months unless it is revoked by the Registrar.

The renewal of this certificate will be charged annually.

In case on non-renewal, it will attract a fine of two hundred and fifty thousand ringgit (MYR 250,000) and/or a jail period for a maximum of two years.

You will also have to display the certificate of registration at the principal place of your business along with a copy of this certificate across all your branches. In case it is not displayed, you will be liable for a fine of ten thousand ringgits (MYR 10,000) and/or a jail period of one year.

If you wish to seek further information about this act, feel free to navigate here.