What Are The Terms Of The Franchise Agreement? Here Are The Main Term

When thinking about franchising, the first question that pops to mind is “What are the terms of a franchise agreement?” A franchise contract or franchise agreement is a commercial contract regulated by specific laws and regulations in many countries. It is a contract in which one party (the franchisor) grants another party (the franchisee) the right to use a brand, its identity, business model, service, or product in exchange for a financial fee or a percentage of profits.

Franchise contract aims to expand the scope of commercial activity, increase revenues, and gain a better position in the market. This contract is subject to specific provisions of the Saudi commercial system, which determine each party’s conditions, requirements, rights, and obligations. A franchise contract ends by the end of its established period, by agreement, or by the judiciary. In this article, we will discuss the terms of a franchise agreement and its conditions in detail.

What Are The Terms Of The Franchise Agreement?

The franchise contract includes many conditions that must be agreed upon by the contracting parties. These conditions vary between different contracts according to the type of activity, industry, and the franchisor’s policy. However, some general terms may be included in franchise agreements as follows:

• Brand usage rights.
• Geographic area.
• Duration.
• Financial obligations.
• Training and support.
• Quality and standards.
• Intellectual property rights.

Learn more about what is a franchise arrangement.

Franchise Agreement’s Definition

To deeply understand the terms of the franchise agreement, one must know the definition of the franchise contract: The franchise contract or franchise agreement is a commercial contract that allows a company or an individual the rights and privileges of the parent company (the franchisor) to use its brand, business model, and administrative system in operating and managing a branch or business unit in another location.

Franchise Administration

to further understand the terms of a franchise agreement, we shall also discuss its advantages. Franchise contracts have numerous advantages that support businesses and enhance the success of franchised branches or commercial units. Here are some of the main advantages of franchise contracts in Saudi Arabia:

• Benefiting from the well-known brand: The franchisee can benefit from the fame and presence of the parent company’s distinctive brand in the Saudi market. This helps him build trust among local customers and enhances product or service acceptance.
• Marketing and Promotion Support: The franchisor provides support in the fields of marketing, advertising, and promotion to the franchisee, which helps him build brand awareness and attract customers, and this can include local marketing strategies and promotional tactics appropriate to the Saudi market.
• Legal and Regulatory Privileges: The franchise agreement in Saudi Arabia is subject to local laws and regulations that provide legal protection for the contracting parties, and these legal frameworks contribute to enhancing confidence and stability in the relationship between the franchisor and the franchisee.
• Access to a Developing Market: Saudi Arabia is a developing and dynamic market. The franchise contract provides an opportunity for brands to access this market, expand their presence, and distribute their products or services in the Kingdom.

Terms and Conditions of Franchise Agreement

What are the terms of the franchise agreement? The franchise agreement requires many terms, and it can vary according to each country, but there are some solid terms as follows:

• Obtaining a license from the General Authority for Economic Control and Investigations before starting the franchise process.
• A formal management franchise contract agreement must be drawn up that outlines the responsibilities, rights, and obligations of both parties, including the use of the brand, business model, specifications, and procedures for the business.
• The agreement should specify financial terms, such as initial and ongoing fees for use, financial support, and revenue-sharing methods.
• The agreement may stipulate the specific location to open the branch, space requirements, and interior and exterior design.

Franchise Agreement In The Saudi Commercial System

After we talked about what are the terms of the franchise agreement? We’ll talk about the franchise contract concerning the commercial system. The Saudi commercial system includes many aspects such as companies, contracts, intellectual property, competition, arbitration, insurance, taxes, and customs. The franchise contract is also subject to the provisions of the Saudi commercial system in general, but some special provisions regulate this type of contract. Among these provisions are the following:

• The franchise contract must be in writing, signed by both parties, and registered with the Ministry of Trade and Investment.
• The contract must also contain the data of the two parties, the brand, business model, service, or product granted, the duration of the contract, its geographical scope, the financial fees or agreed-upon percentage, and the rights and obligations of each party.
• The franchise agreement must be compatible with Islamic Sharia and the regulations and laws in force in the Kingdom of Saudi Arabia, and must not include any condition that limits freedom of competition, harms the public interest, or violates public morals.
• The franchise has the right to practice the commercial activity granted to him under the contract within his specified geographical scope, and to benefit from the support, training, supervision, marketing, promotion, and innovations provided by the franchisor.

Conditions Of The Saudi Franchise Agreement

In Saudi Arabia, the conditions of the franchise contract are subject to the provisions of the Saudi commercial system and its executive regulations. The following are some general conditions that may be part of the franchise contract in Saudi Law:

• Licensing and registration.
• Brand and business model.
• Financial obligations.
• Training and support.
• Monitoring and quality.
• Contract duration and termination.

What is an Agricultural Franchise Agreement?

The agricultural franchise contract is a commercial agreement that allows agricultural companies or institutions to grant the right to use and market agricultural products and technologies developed to other parties, which act as agricultural partners or independent farmers. Agricultural franchising is considered a type of expansion in agricultural activities, where the parent company Or the agricultural franchisor exploits its reputation and agricultural experience to expand the scope of its production and market its products through partners or other farmers.

Essential Terms of Agricultural Franchise Agreement: 

The Brand

Agricultural contracts specify the brand used for the agricultural products and technologies awarded and stipulate the right of the partner to use the trademark and benefit from its reputation.

Technology and Knowledge

Agricultural contracts include terms related to the agricultural grant and advanced farming techniques granted by the agricultural enterprise of the franchisor to the franchisee, including updates and technical support.

Financial Obligations

Agricultural contracts specify whether there are registration fees, annual fees, or commissions paid by the franchisee to the parent company or agricultural franchisor.

Quality and Standards

Agricultural franchise contracts specify the quality standards and specifications to which the products and donated technologies must comply.

Duration and Termination

Agricultural contracts specify the duration of the agreement, conditions for renewal and termination, and the procedures required to terminate the contract before the specified date.

You can learn more about the types of franchise opportunities.