The Kingdom has shown significant interest in supporting the national economy, advancing sustainable development, and expanding Saudi Arabia’s production base by regulating franchising and paving the way for investors. In discussing the Kingdom’s efforts to attract investment opportunities, it is essential to highlight the Monsha’at initiative, affiliated with the Saudi Ministry of Commerce, which aims to facilitate investment pathways for investors.

The Franchise Law defines franchising as an arrangement whereby a person, referred to as the franchisor, grants another person, known as the franchisee, the right to carry out business activities—defined as the subject of the franchise—on their own behalf, in connection with the trademark or trade name owned by or licensed to the franchisor, in accordance with a franchise agreement.

As previously mentioned, a franchise agreement consists of two parties:

• The Franchisor: A natural or legal person who grants the franchise based on a franchise agreement.
• The Franchisee: A natural or legal person who is granted the franchise under the franchise agreement.

It is also worth noting that franchise contracts differ from other foreign investment contracts in several ways:

• The powers granted under a franchise contract are more limited than those in agency or distribution contracts.
• A franchise agreement is considered a long-term contract.
• The franchisee is essentially replicating the brand identity, product, service, interior design, colors, layout, uniforms, and pricing structure.

Conditions for granting a franchise (Franchise Law):

• A franchise opportunity may not be offered or granted unless the franchised business has been operated for at least one year by two different persons or at two separate outlets. One of these may be the franchisor or someone within their group.
• If the franchisor does not operate the franchise business directly in the Kingdom, a sub-franchisee (who has the right to sub-franchise) may not offer or grant a franchise opportunity unless they or another franchisee has operated the franchise business within the Kingdom for at least one year.

Finally, it is important to emphasize that the involvement of legal experts familiar with franchise contracts and their proper drafting is just as essential as the contracting parties themselves. We are pleased to offer our services and welcome your inquiries.