جميع التعاقدات مع العملاء موثقة بشكل رسمي عبر النفاذ الوطني
The Kingdom of Saudi Arabia is eager to foster entrepreneurship through the establishment of new economic ventures and the creation of a conducive business environment. One of the regulatory frameworks facilitating this objective is the franchise system.
And building on our prominent position in supporting Saudi Arabia's business sector, we at Ahmad Bashmakh Group for business services are dedicated to enhancing the information regarding the franchise system "Franchising" and are pleased to share this article with you.
Which aims to explore the advantages of this system and the terms for involvement in the Kingdom of Saudi Arabia, which will contribute to boosting entrepreneurship and enhancing the business and investment climate. Furthermore, we will delve into the significance of franchising and its influence on the local economy and market.
What is the franchise contract?
According to Article 1 of the Saudi Commercial Franchise System, a franchise is a contract or agreement between two parties. The franchisor and franchisee, who can be individuals or businesses, enter into an agreement granting the franchisee the privilege to conduct business under the brand or trademark, which may include receiving technical support and know-how, in return for a fee or a specified share of earnings.
It is notable that in accordance with Article 4 of the Saudi Franchise Law and Article 2 of its Executive Regulations, the following do not fall under the category of franchise agreements:
Franchises granted by royal decrees.
Contracts are governed by the commercial agency system.
Contracts restricted to the sale of goods or the provision of services under a particular brand.
Arrangements where the franchisee becomes the direct or indirect owner of the franchisor.
Contracts related to the implementation of the franchise agreement, including:
Agreements between the owner, tenant, and subtenant.
Contracts established between partners or shareholders.
Loan agreements between creditors and debtors.
Agreements that are made between the employer and the worker.
Contracts that a nonprofit organization enters into for buying goods or providing services to its staff.
Licenses granted by a governmental entity.
What are the regulations governing the Franchise Contract in Saudi Arabia?
The 11th article of the Saudi Franchise Law and the 8th article of its Executive Regulations outline the necessary provisions that should be included in a franchise agreement in Saudi Arabia. The agreement must be documented and signed by both parties, and if it's in a foreign language, it must be translated into Arabic by an accredited translator. The agreement should encompass the following:
Defining the scope of the franchise, its duration, modification procedures, and geographic coverage.
Financial compensation for the franchise, training for the franchise owner's employees, and technical support.
The obligations of both parties regarding the training of the franchise owner's employees.
The franchisor's commitment to providing technical expertise, marketing support, and other assistance to the franchise owner.
The franchise owner's commitment to adhering to guidelines, marketing strategies, and maintaining the franchise identity.
The franchisor's obligations to supply goods or services and the franchise owner's rights to receive them.
The franchise owner's rights to use trademarks, other intellectual property, and mechanisms for dispute resolution.
The franchise owner's right to grant sub-franchises and the specifics surrounding that process.
The implications of any changes in the ownership of the franchisee or franchisor.
Restrictions on the transfer of rights under the agreement to third parties.
Determining the owner of trademarks or intellectual property and their relationship with the franchisor.
Rights of both the franchisor and franchisee regarding the termination of the agreement.
Renewal or non-renewal of the agreement and the rights of each party regarding this matter.
The termination of the agreement and its consequences for each party's rights
Restrictions on the conduct of competitive business during or after the duration of the agreement.
Obligation to confidentiality of information and data protection.
What are the requirements for obtaining a franchise in Saudi Arabia?
Article 5 of the Saudi Franchise Law stipulates that franchise operations must be conducted for a minimum period of one year before offering or granting the franchise opportunity. At least two individuals or sales agents must operate the franchise model during this period, with the possibility that one of these individuals may be the franchisor or another person from their group.
If the franchisor does not directly manage the franchise operations, then the franchise owner who has the right to grant sub-franchises, offer, or grant franchises must engage in the business or have one of the franchise owners do so for a minimum period of one year before doing so.
What are the obligations of the franchisee in Saudi Arabia?
The eighth article of the Saudi Franchise Law outlines the essential obligations that the franchisor must adhere to unless otherwise agreed upon in accordance with the franchise owner. These obligations include:
Defining the rights granted to the franchise owner within the framework of the franchise.
A clear outline of the franchise business model in detail, including the criteria and guidelines that the franchise owner must adhere to during franchise operation, enabling them to successfully run these operations. Additionally, providing them with an operations manual.
Training for the franchise owner's employees.
Providing technical expertise, marketing support, and any other required expertise for operating the franchise.
Supplying goods and services related to the franchise to the franchise owner, either directly or through a third party, except for goods and services purchased from external sources.
Maintaining the confidentiality of information, accounting data, and financial details related to the franchise owner's operations.
Responding to franchise owner requests for details regarding the financial considerations required from them or paid to them within the framework of franchise operations.
Not establishing a facility engaging in activities similar to those of the franchise owner in the specified area outlined in the franchise agreement, or granting the right to do so to any other person during the term of the agreement.
What are the conditions for obtaining Franchise in Saudi Arabia?
There are some important conditions for obtaining the franchise contract in Saudi Arabia, including:
Providing capital for startup and paying franchise fees.
Providing sales outlets and maintenance facilities that meet the requirements of the franchisor company.
Implementing the contract terms before the decision to grant the franchise is made.
Defining your desired activity and ensuring it aligns with the company's requirements.
Searching for a company that offers franchises in the same industry or activity.
Agreeing to the company's terms and conditions.
Providing the required financing.
Providing the location and ensuring it fits the company's requirements.
Submitting an application along with the required documents such as the commercial register and tax card.
10 Obtaining approval from the company after fulfilling all the conditions.
What are the obligations of the franchise owner in Saudi Arabia?
Article 9 of the Franchise System in Saudi Arabia outlines the obligations that the franchise owner must adhere to unless otherwise agreed upon in accordance with the franchisor. These obligations include:
The necessity of obtaining the franchisor's approval before making any modifications to the goods or services provided, or in the way franchise operations are conducted.
Providing data related to franchise operations to the franchisor enables them to develop the franchise model, including relevant financial and accounting data associated with those operations.
Facilitating the inspection of facilities used in franchise operations by the franchisor or their representatives, while ensuring no disruption or delay to the franchisee's operations or causing any harm to them.
Obtaining the franchisor's approval before changing the location of franchise operations, whether by relocating to a new site or making modifications to the current location.
Providing the disclosure document containing all the terms of the franchise agreement for potential franchisees to review before obtaining the right to use your brand.
To assist you in preparing your project and completing all necessary procedures to turn it into a successful business franchise, we offer you the Franchise Consulting Department at Ahmed Bashmmakh Group For Business Services This department includes a team of experts and professionals who have contributed to the development of many successful brands. We can also help those interested in obtaining a commercial franchise right for a successful project, including drafting the necessary contracts and agreements to ensure your success opportunities.
The most important points
The franchise contract is an agreement that grants the franchisee the right to conduct business related to the trademark or trade name in exchange for a financial or non-financial consideration, subject to certain conditions. Several types of contracts and agreements are exempt from this classification according to Saudi laws.
The the regulations governing the franchise contracts in Saudi Arabia include a written and signed agreement between the parties, specifying the franchise operations, their duration, and the financial consideration. Additionally, it outlines the obligations of both parties and their rights concerning training, technical support, intellectual property, and other aspects.
Conditions for granting franchises in Saudi Arabia include practicing franchise operations for a period of not less than one year before offering the opportunity, with at least two persons operating the franchise model. If the franchisor does not participate in the work, the franchisee must carry out the operations for a similar period.
The essential obligations for a franchisor in Saudi Arabia, according to Article 8 of the Commercial Franchise System, include defining rights, clarifying the business model, providing training and expertise, delivering goods and services, and refraining from establishing competitive facilities or granting rights to others during the agreement period.
The franchisee in Saudi Arabia is obliged to adhere to several conditions according to Article 9 of the Commercial Franchise System, including obtaining the franchisor's approval before any modification, providing required data, facilitating facility inspections, and obtaining approval before changing the business location.
