Empowering Entrepreneurs with Saudi Franchise Law

Saudi franchise law plays a key role in Saudi Arabia’s strong focus on entrepreneurship, continuously developing new economic activities through comprehensive research, development, production, and distribution of innovative products and services.

The Kingdom actively enhances the commercial and investment environment with effective laws and regulations that ease trade procedures, including the franchise system, which supports entrepreneurship and protects both franchisees and franchisors. This approach significantly boosts the quality of goods and services, fosters sustainable investment growth, and increases job opportunities nationwide across various sectors.

What is Saudi Franchise Law​?

Franchise or commercial franchise is essentially, according to Article 1 of the Saudi Arabia franchise law, an agreement between two parties: the first is known as the franchisor, and the second as the franchisee. It is important to note that in Saudi Arabia, both parties can be either individuals or companies.

Under Saudi franchise law​, the franchisor grants the franchisee the right to operate the business under the franchise for their own account, relying on the trademark or trade name owned by the franchisor or licensed for use. This also includes transferring technical expertise and know-how, and specifying the proper method of operating the franchise business, in exchange for financial or non-financial consideration, excluding payments made by the franchisee for goods or services.

It is also worth noting, according to Article 4 of the franchise law Saudi Arabia and Article 2 of its Implementing Regulations, that certain agreements are not considered franchises, including:

1. Franchises granted or issued by royal decrees.
2. Contracts subject to the Commercial Agencies Law in Saudi Arabia.
3. Agreements limited to the purchase or sale of goods, provision of services under a specific trademark, or use of any intellectual property rights for any goods or services.
4. Arrangements where the franchisee is fully owned by the franchisor, directly or indirectly.
5. Agreements or arrangements concluded to implement the franchise agreement, including:
   1. Agreements between the owner and the tenant, or between subtenants.
   1. Agreements between partners or shareholders.
   1. Loan agreements between creditors and debtors.
   1. Agreements between an employer and an employee regarding their employment relationship.
6. Agreements where a non-profit entity purchases goods for its members, provides them with services, or assists them in acquiring goods or benefiting from services.
7. Licenses or permits issued by a governmental authority.

Read About: Discover The Types of Business Licenses in Saudi Arabia

What are the regulations for drafting a franchise agreement in Saudi Arabia?

Article 11 of the Saudi franchise law and Article 8 of its Implementing Regulations outline all the rules that must be observed by the franchisor and the franchisee when drafting a franchise or commercial franchise agreement in Saudi Arabia. The key requirements under the Saudi franchise law include:

1. The agreement must specify the nature of the franchised activities, the duration of the agreement, the method for amendments, and the geographic scope of the franchise.
2. All payments the franchisee must make to the franchisor should be detailed, including franchise fees, employee training costs, technical support, and the method for calculating any payment for goods or services provided by the franchisor or any party within its group.
3. The responsibilities of both parties regarding the training of the franchisee’s employees by the franchisor.
4. The franchisor’s commitment to provide technical, marketing, and other expertise necessary for the nature of the franchise.
5. The franchisee must follow the franchisor’s instructions regarding marketing, presentation, and maintaining the franchise’s identity.
6. Any obligations of the franchisor to provide goods or services, and the franchisee’s responsibility to obtain them directly from the franchisor or through another party as directed by the franchisor.
7. The franchisee’s rights to use trademarks and other intellectual property, and the obligations of both parties in case of infringement, including compensation.
8. A clear mechanism for resolving any disputes related to the agreement.
9. The franchisee’s right to grant sub-franchises and the conditions governing such rights.
10. Effects of any change in the ownership of the franchisee, the franchisor, or any controlling party.
11. Any restrictions on transferring the franchise rights to another party.
12. Identification of the owner of the trademark, trade name, or other intellectual property used in the franchise, and the franchisor’s relationship with the owner if it is not the franchisor.
13. Rights and obligations of both parties upon termination of the agreement.
14. The franchisee’s right to renew, not renew, or extend the agreement.
15. Rights and obligations of both parties after the agreement ends or expires.
16. Any restrictions on engaging in competing activities during the agreement’s term or after its termination, in compliance with competition laws.
17. The franchisee’s obligation not to harm the reputation of the franchisor or the franchise business.
18. The franchisee’s obligations regarding the business location or premises, and the right to change them according to the agreement.
19. Obligations of both parties regarding confidentiality and protection of information.

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Additionally, under the Saudi franchise law, the agreement must be written and signed by both parties. If drafted in a language other than Arabic, it must be translated into Arabic by a certified translator. These provisions ensure that all franchise agreements in Saudi Arabia comply with the requirements of the Saudi franchise law and provide a clear framework for the rights and obligations of both franchisors and franchisees.

What are the obligations of a franchisee in Saudi Arabia?

Article 9 of the Saudi Franchise Law stipulates that, unless otherwise agreed in writing with the franchisor, the franchisee is required to comply with the following obligations under the Saudi Franchise Law:

1. Franchisor approval for changes: The franchisee must obtain the franchisor’s approval before making any changes to the products, services, or the method of operating the franchise business, in accordance with the Saudi Franchise Law.
2. Providing business data: The franchisee must provide the franchisor with all relevant business information, including financial and accounting data, to enable the franchisor to develop and improve the franchise business model, as required by the Saudi Franchise Law.
3. Allowing inspections: The franchisee must allow the franchisor or its representatives to inspect the facilities used for operating the franchise, provided that such inspections do not disrupt the franchisee’s business or cause harm.
4. Approval for relocation: The franchisee must obtain the franchisor’s approval before changing the location of the franchise business.

Why Choose “Etqan Law Firm” for Commercial Franchising?

You can rely on the experts at Etqan Law Firm for several reasons that make our services in commercial franchising stand out:

• Extensive Legal Expertise: The firm possesses deep knowledge of international law and the Saudi legal system concerning commercial franchising, ensuring precise and comprehensive advice.
• Innovative Problem-Solving: We provide complete solutions for any challenges or obstacles you may face in obtaining a franchise, ensuring smooth progress throughout the process.
• Customized Client Services: We focus on addressing the specific needs of each client, delivering services tailored to their exact requirements.
• Comprehensive Coverage: We handle all aspects of commercial franchising, from drafting contracts to implementing all necessary terms and legal procedures.
• Trusted Reputation: The firm has a proven track record of successful cases and satisfied clients, reflecting the quality and reliability of our services.

Learn About: How to Start Business in Saudi Arabia for Foreigners?

Conclusion

To ensure the success of your business under the Saudi Franchise Law and protect your rights as an investor or franchisee, contact the experts at Etqan Law Firm today for specialized legal advice and full support in drafting contracts, ensuring compliance, and managing every step of your franchise successfully.
The Etqan Al Mutamayza Law Firm is ready to provide the essential support you need. You can reach their team at the following mobile numbers: +96656113776, +966541110440, +966504315333.

Additionally, feel free to visit our branches located at:

• Jeddah: Al-Aziziyah District, Mohammed bin Abdulaziz Street (Tahlia)
• Riyadh: King Abdulaziz Street, across from the Kingdom Tower
• Dammam: Al-Ashri’a Street, Al-Badeea, Dammam 32415.

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