How to Register a Franchise in Saudi Arabia

Omar Baghdadi • October 22, 2024

Franchises are a popular way of expanding businesses, where the franchisor grants another party (the franchisee) the right to use its brand and business system in exchange for certain fees. To regulate the process of franchising in Saudi Arabia, the Ministry of Commerce has issued the Franchise Law and its executive regulations. This article explains how to register a franchise in the Kingdom and the legal procedures involved.

1. Saudi Franchise Law

The Saudi Franchise Law, issued by Royal Decree No. (M/22) on 9/2/1441H, provides a legal framework to regulate the relationship between the franchisor and the franchisee. It aims to ensure transparency and fairness in this type of commercial contract. The law includes several provisions governing registration procedures, disclosure, the relationship between the parties, and their rights and obligations.

2. Requirements for Franchise Registration in Saudi Arabia

To obtain a franchise license in the Kingdom, several conditions must be met according to the Franchise Law, including:

Existence of a Documented Franchise Agreement: A franchise agreement must be concluded between the franchisor and the franchisee, and it must be clear and well-defined, including all details related to the rights and obligations of both parties.

Registration with the Ministry of Commerce: The franchise agreement must be registered with the Saudi Ministry of Commerce, as the law requires this registration for the agreement to be considered legal and enforceable.

Full Disclosure: The franchisor is required by law to provide a disclosure document to the franchisee at least 14 days before signing the agreement. This document should contain all necessary information such as the company's financial history, franchise costs, main terms, and any additional obligations.

3. Franchise Registration Procedures

To complete the registration process, the following steps must be followed:

Prepare the Disclosure Document: The franchisor must prepare the required disclosure document according to the template provided by the Ministry of Commerce. It should include detailed information about the rights and obligations of the franchisor and the franchisee, costs, terms, and potential risks.

Sign the Franchise Agreement: After the disclosure phase, both parties can sign the franchise agreement. The agreement must be written and well-defined, including all rights and obligations.

Submit the Registration Application: The franchisor must submit a registration application for the franchise agreement through the website of the Saudi Ministry of Commerce. The application must include specific documents such as:

A copy of the franchise agreement.

The disclosure document.

Identity documents of both parties.

Any other documents required by the Ministry.

Pay the Fees: Registering a franchise requires the payment of fees set by the Ministry. The fees can be paid through the Ministry of Commerce’s electronic services.

Review and Approval: The Ministry of Commerce will review the submitted documents to verify that all conditions are met. If the documents are complete and correct, a franchise registration certificate will be issued.

4. Fees and Required Documents

Fees: The fees vary depending on the type of franchise and the size of the business. Current fees can be found on the Ministry of Commerce’s website.

Required Documents: The documents required for registration include the franchise agreement, the disclosure document, identity proof, and any other documents requested by the Ministry.

5. Importance of Franchise Registration

Legal Protection: Registering a franchise ensures legal protection for both parties and serves as legal evidence of the validity of the relationship between them.

Transparency and Credibility: Registration enhances transparency between the franchisor and the franchisee, helps build trust, and ensures compliance with the agreed terms.

Reducing Disputes: Through franchise registration, the likelihood of disputes is reduced as the terms and details are well-documented and clear to both parties.

6. Essential Elements of a Franchise Agreement

To ensure the validity of the franchise agreement, it must include the following elements:

Description of Products or Services: Define the products or services that will be sold or provided under the franchise.

Agreement Duration and Renewal: Specify the time period of the franchise agreement and the terms of renewal.

Obligations of the Parties: Clearly and comprehensively define the obligations of the franchisor and the franchisee.

Fees and Costs: Specify all fees and costs related to the franchise, including initial franchise fees and monthly or annual fees.

Dispute Resolution Mechanism: Define how disputes will be resolved if any disagreements arise between the parties.

7. Electronic Procedures for Franchise Registration

The Saudi Ministry of Commerce allows franchise registration electronically through the “Maarouf” platform or the Ministry’s website, which simplifies the registration process for both parties, saving time and effort. The franchisor and franchisee can submit their applications and complete procedures electronically, as well as monitor the status of the application periodically.

8. Conclusion

Franchises are effective tools for transferring business knowledge and expanding operations. The Saudi Franchise Law represents an important step toward regulating this sector and ensuring the rights of the parties involved. For a successful franchise process, parties must adhere to the conditions and procedures set by the Ministry of Commerce and ensure that the franchise is properly registered.

Investors and entrepreneurs wishing to enter the franchising sector should carefully review the applicable laws and regulations and seek legal advice if necessary to ensure compliance with the law and avoid any future legal issues.

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