Franchising in Saudi Arabia under the Franchise Law: conditions for granting a franchise, the disclosure document, registering the agreement, key clauses, renewal and termination, franchisee rights, and the difference between a franchise and a commercial agency.
A successful restaurant in Riyadh wants to expand to Jeddah and Dammam without funding every branch itself. Or an investor wants to open an outlet of a global brand in the Kingdom. Either way, the route is franchising. But Saudi Arabia is one of the few countries in the region with a dedicated, detailed franchise law, which sets conditions before granting a franchise, mandatory disclosure, registration with the Ministry of Commerce, and limits on termination.
In this guide we explain the Franchise Law for franchisors and franchisees: conditions for granting, the disclosure document, registration, key clauses, renewal, termination and compensation, and common mistakes.
What Is a Franchise, and When Was the Law Issued?
The Franchise Law was issued by Royal Decree on 9 Safar 1441H (8 October 2019) in 27 articles, followed by Implementing Regulations. It defines a franchise as granting a person (the franchisee) the right to carry on business for its own account, linked to a trademark or trade name owned or licensed by the franchisor, with know-how provided and the method of operation specified, in return for financial or non-financial consideration.
That consideration does not include what the franchisee pays as the price of goods or services it buys. Franchising is common in restaurants, cafés, retail, education, fitness and services.
Conditions for Granting a Franchise
Having a successful business is not enough to franchise it. Under Article 5 of the Law, a franchise opportunity may not be offered or granted until the franchise model has been operated for at least one year, by at least two persons or in at least two different outlets, and the Minister may amend these periods.
Before granting a franchise, a franchisor practically needs:
- A registered trademark or a documented right to use it. See our guide to trademark registration in Saudi Arabia.
- A documented business model in operations manuals and standards.
- Financial data from the operating period on which the disclosure document is based.
- A franchise agreement and disclosure document compliant with the Law.
If the franchisor plans to expand outside the Kingdom, international trademark protection has become easier since the Kingdom joined the Madrid System. Read our guide to international trademark registration.
The Disclosure Document: The Franchisor's Key Obligation
The franchisor must give the prospective franchisee the disclosure document at least 14 days before signing the agreement or before the first payment, whichever comes first. It must be:
- In Arabic, or accompanied by a certified translation if in another language.
- Clear and accurate, including the material information about the franchisor and its business.
- Inclusive of past or projected financial information, if any.
The franchisor must also continue to disclose material changes during the term. If the franchisor materially breaches its disclosure or registration obligations, the franchisee may, under Article 19, claim compensation for the harm without terminating the agreement.
Registering the Franchise Agreement and Its Key Clauses
The franchise agreement and disclosure document must be registered with the Ministry of Commerce according to the procedures and periods set out in the Implementing Regulations. The agreement must be in Arabic and signed by both parties, and must cover at least:
| Clause | What to define |
|---|---|
| Franchised business | Description of the business, goods and services |
| Term and amendment | The agreement's term and how it may be amended |
| Territory | The city or region, and whether it is exclusive |
| Consideration | Initial fee, ongoing royalty and marketing fees |
| Training and support | Scope of training and technical and marketing support |
| Supply | Whether the franchisee must buy from the franchisor or designated suppliers |
| Dispute resolution | The competent court or arbitration |
If the franchisor is foreign, consider the effect of withholding tax on royalties paid to it, as explained in our guide to international commercial contracts.
Obligations of Both Parties During the Franchise
Franchisor's Obligations
- Defining the rights granted and the business model, and delivering the operations manuals.
- Training the franchisee's staff and providing technical and marketing know-how.
- Supplying the agreed goods and services to the franchisee.
- Not establishing a competing business in the defined territory, or granting that right to others, during the term.
Franchisee's Obligations
- Obtaining the franchisor's consent to change goods, services, the operating method or location.
- Providing the franchisor with the agreed financial and accounting data.
- Allowing the franchisor or its representatives to inspect the premises without disrupting business.
- Obtaining the franchisor's consent before assigning the agreement or changing control of the franchisee, subject to exceptions set out in the Law.
Renewal, Termination and Compensation
Renewal
Under Article 15, the franchisee notifies the franchisor in writing of its wish to renew at least 180 days before the agreement expires, and renewal is for a similar term and on similar conditions, subject to exceptions in the Law.
Termination
Under Article 18, the franchisor may not terminate the agreement before its term without the franchisee's written consent except for a legitimate reason, including:
- A material breach not cured within 14 days of notice.
- Abandoning or stopping business for more than 90 consecutive days.
- Losing the licenses required to operate.
- Commercial fraud or infringement of intellectual property rights.
Any agreement in which the franchisee waives its statutory rights is void, except in a final settlement or as the Law permits. So a franchisor cannot draft clauses that strip the franchisee of its protection.
Franchise or Commercial Agency?
| Aspect | Franchise | Commercial agency |
|---|---|---|
| Core of the relationship | Running the business under the franchisor's name and model | Distributing the principal's products or representing it |
| Consideration | Initial fees and royalties | Margin or commission |
| Know-how | Essential: manuals, training and standards | Usually limited |
| Governing law | Franchise Law | Commercial Agencies Law |
Mischaracterizing the relationship means the wrong law applies to it. For the rules on agency, see our guide to the Commercial Agencies Law in Saudi Arabia.
Common Franchising Mistakes, and When You Need a Lawyer
- Granting a franchise before one year of operating the model in two outlets or by two persons.
- Delivering the disclosure document late or after receiving a payment.
- A generic disclosure document lacking material or financial information.
- Not registering the agreement with the Ministry of Commerce.
- An English-only agreement without a certified Arabic version.
- Arbitrary termination clauses that conflict with the legitimate grounds in the Law.
- An undefined territory that invites disputes over exclusivity.
- To prepare and register the franchise agreement and disclosure document, see our intellectual property and franchise service.
- To protect your mark before franchising, request our local and international trademark registration service.
- If the franchisor is foreign, request a review of international commercial contracts and certified legal translation.
- For broader protection of your assets, read about intellectual property protection in Saudi Arabia.
Frequently Asked Questions
What are the conditions for granting a franchise in Saudi Arabia?
A franchise opportunity may not be offered or granted until the franchise model has been operated for at least one year by at least two persons or in at least two different outlets, together with providing the disclosure document and registering the agreement with the Ministry of Commerce.
When must the disclosure document be delivered?
At least 14 days before signing the franchise agreement or before the franchisee's first payment, whichever comes first, and it must be in Arabic or accompanied by a certified Arabic translation.
Must a franchise agreement be registered?
Yes. The franchise agreement and disclosure document must be registered with the Ministry of Commerce according to the procedures and periods set out in the Implementing Regulations.
Can the franchisor terminate the agreement before it expires?
Not without the franchisee's written consent, except for a legitimate reason, such as a material breach not cured within 14 days of notice, stopping business for more than 90 consecutive days, losing required licenses, or commercial fraud.
What is the difference between a franchise and a commercial agency?
In a franchise, the franchisee runs the business for its own account under the franchisor's name, model and know-how in return for fees. In a commercial agency, the agent distributes the principal's products or represents it, and each is governed by its own law.
Franchising your brand or buying a franchise? Start with a contract that protects you
We prepare and register franchise agreements and disclosure documents for franchisors, and review agreements offered to franchisees before they sign or pay.
info@novalegal.sa | Al Sahaba Road, Al-Ishbiliyah District, Riyadh
Conclusion: Franchising Is Structured Growth with Clear Rules
Franchising in Saudi Arabia offers franchisors fast growth and franchisees a shortcut into the market with a proven brand. But the Law sets clear conditions: at least a year of operation, a disclosure document 14 days in advance, registration with the Ministry of Commerce, and protection for the franchisee against unjustified termination. Meeting them from the start protects both sides.
The Nova Legal team in Riyadh offers our intellectual property and franchise service to franchisors and franchisees, from protecting the brand to drafting and registering the agreement. Address: Al Sahaba Road, Al-Ishbiliyah District, Riyadh – Building 2/2 Al Hamra City, Second Floor, Office 202.