Franchise law and regulations may seem a bit confusing to some people. They’re also newly established, making it harder to find experts to break it down for you and walk you through the entire process.

Below, you’ll find franchise laws in Saudi Arabia simplified with further exposition for each one to arm you with the knowledge you need.

History Of Saudi Franchise Law

The Kingdom of Saudi Arabia introduced the new Franchise Law in 2020, facilitating expanding brands through licensing or franchising. However, nothing ever comes without challenges. The new franchising legal regime in the KSA is associated with some difficulties that one must consider.

Though it’s relatively new, the Saudi franchise laws were under discussion since 2016. The Saudi Franchise Law became effective on 22 April 2020. Before that, there was no defined franchise law in Saudi Arabia. Instead, franchise arrangements in Saudi Arabia were managed by other practical laws, mainly the Commercial Agencies Law issued by the Minister of Commerce. 

Find more information about the terms of the Saudi franchise law directly from the source.

The Objective Of Franchise Law

The Kingdom of Saudi Arabia established the franchise laws for several reasons, to facilitate franchising nationally and internationally, which would’ve been more problematic without a set of particular laws and regulations to control all franchise arrangements.

With the new franchise laws, Saudi Arabia will be able to: 

• Encourage franchising activities in the Kingdom by setting a regulatory framework that restrains the relationship between franchisors and franchisees, consolidates the freedom of agreement, and establishes the franchisor/franchisee relationship on transparency as the core principle.
• Provide the necessary protection for franchisors and franchisees, specifically upon the termination of the franchise agreement. 
• Assure a full disclosure of rights, duties, and risks related to franchise opportunities; To help potential franchisors make proper investment decisions.
• Raise the quality of goods and services offered around the Kingdom and ensure their constant growth.

Franchising Rules And Regulations

Franchising as a term is not unexplored in Saudi Arabia. However, now that there is a specific law for franchising, the regulations will seem more solid and precise.

• A business or a brand may only be able to offer a franchise opportunity after operating according to the franchise business model for at least one year, by two persons or in two separate locations or more.
  The franchisor can be one of these two individuals or any person within their group.
• If the franchisor’s business is established offshore (out of Saudi Arabia), the franchisee registered in the country must operate the business for at least one year to act as a Master Franchisee and sell this franchise to others.
• Notice that the Minister has the right to amend the terms stipulated in this statement.

Franchise Agreement Format

There are many details in the Saudi franchise laws about information disclosure, the responsibilities of each party, and the legal obligations of each, but our main focus here is the format of the Franchise Agreement itself, as it has various requirements that must be considered. 

1. The franchise agreement must be written in Arabic and signed by both parties. If it is written in another language, it must be translated into Arabic by an authorized association.
2.   Other than the main point of arrangement between the two parties, the franchise agreement must include the following:

• The franchise business and its explanation, the duration of the contract, the methods of amending it, and its geographical scope.
•  All elements that the franchisee must pay to the franchisor, including financial fees for the franchise, the cost of training the franchisee’s staff, technical support, etc…
• The obligations of the two parties regarding employees’ training and preparation. 
• The franchisor is obliged to provide technical and marketing expertise along with other sorts of guidance when needed.
• The franchisee is committed to adhering to the instructions, the method of marketing, and the display to preserve the identity of the franchise.
• All obligations on the franchisor related to the supply of any good or service to the franchisee.
• Franchisee’s commitment regarding obtaining the goods or services from the franchisor directly or through another party based on the franchisor’s instructions.
• The franchisee’s right to use any branded elements and any other intellectual property rights related to the franchise business.
• The method for settling any dispute related to the franchise agreement.
• The effects of any change in the ownership of the franchise, the franchisor, or the person controlling any of them.
• Any other item specified by the Regulations or required by any party.

Basically, each franchise agreement terminates by the end of the agreement period, if the franchisee wishes to renew or extend the agreement, he should send a written notice to the franchisor within around five months (180 days) before its expiry date to renew or extend the agreement for a period similar to its previous period or as the parties agree.