Introduction
Franchising has become a powerful business model globally, enabling established brands to expand rapidly while providing entrepreneurs with opportunities to operate proven businesses.
In Saudi Arabia, the introduction of the Saudi Franchise Law (Royal Decree No. M/22, 2019) has been a turning point, establishing a robust franchising legal framework to ensure transparency, protect rights, and foster a competitive market.
This article delves into key aspects of the Saudi Franchise Law, its purpose, benefits, and challenges while touching on the Saudi Franchise Expo 2025 as a related event that highlights the growing business opportunities in Saudi Arabia.
What is a Franchise Agreement?
The franchise agreement is the document that outlines the terms and conditions between the franchisor and the franchisee. In Saudi Arabia, franchise agreements must include fundamental elements to ensure clarity and compliance with local laws, such as:
- Rights and Obligations: Detailing the rights and obligations of both parties.
- Fees and Payments: Specifying the fees that the franchisee must pay to the franchisor.
- Duration of the Franchise and Renewal: Defining the contract’s duration and how it can be renewed.
- Protection of Consumers: Ensuring that the franchise operations comply with consumer protection laws and regulations, protecting the rights and interests of customers.
Understanding Saudi Franchise Law: Key Legal Considerations
The Saudi Franchise Law, enacted in 2019, governs franchising activities in the Kingdom and aims to create a fair and transparent environment for both franchisors and franchisees. Below are the key legal considerations for franchising in Saudi Arabia:
- Franchise Disclosure Requirements: Franchisors must provide a Disclosure Document at least 14 days before signing a franchise agreement. This document must include details about experience, corporate structure, operational structure, financial performance, statements of the franchisor, legal obligations, and fees,
- Franchise Agreements & Contractual Obligations: Franchise agreements must be drawn in Arabic and registered with the Ministry of Commerce. The contract must clearly outline the rights and obligations of both parties, including branding, royalties, and training support.
- Intellectual Property Protection: The franchisor must ensure that all trademarks, patents, and copyrights are legally registered and protected in Saudi Arabia. Franchisees are obligated to use the franchisor’s intellectual property (IP) strictly as per the contract.
- Dispute Resolution & Termination: The law outlines procedures for dispute resolution, arbitration, and contract termination. If a dispute arises, parties are encouraged to seek mediation before resorting to litigation.
- Foreign Investment & Compliance: The Franchise operator must comply with the Investment Law and implemented Compliance with Zakat, tax, and Saudization policies is essential for sustainable franchise operations.
Purpose of the Franchise Law
- Promote Economic Growth: By establishing a clear franchising legal framework in KSA, the law encourages establishment and operation of franchises, contributing to the Kingdom’s Vision 2030 goals of economic diversification.
- Attract Investment: The law aims to create a favorable environment for both local and international investors by providing legal certainty and protection.
- Protect Franchisees: By mandating comprehensive disclosure and fair contractual terms, the law protects the interests of franchisees, ensuring they make informed decisions in light of the financial and operational information about the franchisor.
Benefits of the Franchise Law
- Legal Clarity: The law provides a structured framework governing franchise relationships, reducing ambiguities and preventing potential disputes.
- Enhanced Transparency: Mandatory disclosure requirements ensure that franchisees have access to vital information, promoting trust between parties.
- Encourages Investment: By protecting the rights of both franchisors and franchisees, the law makes the Saudi market more attractive to investors.
- Economic Growth: Facilitating the establishment of franchises contributes to job creation and the introduction of new products and services in the market.
Challenges and Considerations
- Compliance Costs: Franchisors may incur additional expenses related to preparing disclosure documents, legal consultations, and registration fees.
- Localization Needs: International franchisors must adapt their business models to align with Saudi cultural norms and regulatory requirements.
- Ongoing Obligations: Both parties must adhere to continuous obligations, such as maintaining records, renewing registrations, and complying with any updates to the law.
Saudi Franchise Market & Expo 2025: A Gateway to Growth
The franchise business sector in Saudi Arabia has experienced significant growth, driven by the Kingdom’s efforts to diversify its economy under Vision 2030. Sectors such as food & beverage, retail, healthcare, education, and hospitality have seen remarkable expansion, making Saudi Arabia a leading franchise destination in the Middle East.
The Saudi Franchise Expo 2025, being held at the Riyadh International Convention & Exhibition Center, is a key event that showcases the potential of the Saudi franchise market. This expo serves as a strategic hub for:
- Connecting global and local franchisors with investors.
- Providing insights into market trends and investment potential.
- Offering legal and operational guidance for franchise success.
The expo also highlights the importance of understanding the franchising legal framework in KSA, ensuring that businesses and investors are well-equipped to navigate the regulatory landscape.
