Franchise Law  
 
Royal Decree No. M/22  
October 8, 2019  
 
 
 
 
 
 
 
 
 
Translation of Saudi Laws  
 
  
 
 Franchise Law  
 
 
   
  
 
 
2 NOTE:  
The translation of Saudi laws takes the following into consideration:  
• Words used in the singular form include the plural and vice versa.  
• Words used in the masculine form include the feminine.  
• Words used in the present tense include the present as well as the future.  
• The word “person” or “persons” and their related pronoun s (he, his, him, they, their, 
them) refer to a natural and legal person.  
 
   Franchise Law  
 
 
   
  
 
 
3 Franchise Law  
Chapter 1: General Provisions  
Article 1  
In this Law, the following terms shall have the meanings assigned thereto, unless the context 
requires otherwise:  
1. Law:  Franchise Law.  
2. Regulations:  Implementing Regulations of this Law.  
3. Ministry:  Ministry of Commerce.  
4. Minister:  Minister of Commerce.  
5. Franchise:  A right granted by a franchisor to a franchisee to run a franchise business on his 
own account under the trademark or under the brand name of the franchisor or the person 
licensed to use the same; this shall include transferring technical expertise and sp ecifying the 
manner of operation. Such right may be granted for a financial or non -financial consideration, 
excluding the amounts the franchisee pays to the franchisor in return for goods or services.  
6. Franchisor:  A natural or legal person who grants a fra nchise under a franchise agreement; 
this shall include the master franchisee with respect to his relationship with the sub -franchisee.  
7. Franchisee:  A natural or legal person who is granted a franchise under a franchise agreement; 
this shall include the sub -franchisee with respect to his relationship with the master franchisee.  
8. Franchise Agreement:  An agreement between a franchisor and a franchisee, under which a 
franchise is granted.  
9. Franchise Business Model:  The manner of operating a franchise business as d etermined by 
the franchisor and by which the franchisee shall be bound, including the display of the business 
trademark.  
10. Control : The capacity to directly or indirectly influence another person’s acts or decisions 
through:  
a) owning more than 50% of the capi tal of a company or establishment;  
b) owning more than 50% of the voting rights of shareholders or partners, as the case may be; 
and 
c) having the right to appoint or elect the majority of the members of the board of directors or 
the board of managers, as the ca se may be, or the executive board members of a company 
or establishment, or the right to manage the same.  
11. Franchisor's Associates:  A person who controls or is controlled by a franchisor, or a third 
party that controls both, directly or indirectly.  
12. Disclosu re Document:  A document disclosing the key rights and duties of the franchise and 
the substantial risks relating thereto.   Franchise Law  
 
 
   
  
 
 
4 Article 2  
This Law aims to:  
1. promote franchise activities in the Kingdom through setting a legal framework which regulates 
the relation ship between the franchisor and the franchisee and which emphasizes the principle 
of freedom to contract and the principle of transparency;  
2. provide the necessary protection for the franchisor and the franchisee, particularly upon expiry 
of the franchise ag reement;  
3. ensure the disclosure of rights, duties, and risks relating to the franchise to assist a prospective 
franchisee in making informed investment decisions; and  
4. improve the quality of goods and services provided in the Kingdom and ensure their 
sustainability.  
Chapter 2: Scope of Application  
Article 3  
This Law shall apply to any franchise agreement executed in the Kingdom.  
Article 4  
For the purpose of applying this Law, the following agreements and arrangements shall not be 
deemed a franchise a greement:  
1. A concession granted or issued pursuant to a Royal Decree.  
2. An agreement or contract subject to the Law of Commercial Agencies applicable in the 
Kingdom.  
3. An agreement or contract limited to the sale of goods or provision of services carrying certa in 
trademarks, or to the use of a trademark or any copyrighted material of any good or service.  
4. An arrangement whereby the franchisor fully owns the franchisee, whether directly or indirectly.  
5. Any other agreements or arrangements specified by the Regulatio ns. 
Chapter 3: Franchise Granting Conditions  
Article 5  
1. A franchise shall not be offered nor granted until the franchised business, as per the franchise 
business model,  has been practiced for a period not less than one year in at least two different 
points of sale or by at least two persons, one of whom may be the franchisor or any of his 
associates.   Franchise Law  
 
 
   
  
 
 
5 2.  If a franchisor does not practice in the Kingdom the franchised busine ss on his own account, 
the master franchisee, who has the right to sub -franchise, may not sub -franchise or offer the 
same until he or any other franchisee practices the franchised business in the Kingdom for a 
period not less than one year.  
The Minister m ay amend the periods stipulated in this Article.  
Chapter 4: Registry and Disclosure  
Article 6  
Franchise agreements and disclosure documents shall be registered with the Ministry. The 
Regulations shall specify the registration procedures and the required do cuments and 
information.  
Article 7  
1.  The franchisor shall provide the franchisee with a copy of the disclosure document, as 
prescribed by the Regulations, at least 14 days prior to concluding the franchise agreement or 
from the date of any payment made by t he franchisee in relation to the franchise, whichever 
occurs first.  
2.  A disclosure document must be:  
a) drafted in Arabic; if drafted in another language, a certified Arabic translation must be 
provided; and  
b) clear and precise.  
3. If the franchisor submits to a prospective franchisee any information relating to the previous or 
projected financial performance of a franchised business owned by him or by any of his 
associates, the franchisor shall include such information in the disclosure document, ensuring 
that th e information meets the requirements and provisions prescribed by the Regulations.  
Chapter 5: Obligations of the Franchisor and Franchisee  
Article 8  
Unless otherwise agreed in writing with the franchisee, the franchisor shall:  
1. determine the rights grante d to the franchisee with respect to the franchise;  
2. specify the franchise business model in detail, including the criteria and instructions the 
franchisee must follow in order to operate and manage the franchised business, as well as  Franchise Law  
 
 
   
  
 
 
6 provide the franchisee  with operation manuals;  
3. train the franchisee’s personnel;  
4. provide technical and marketing expertise and any other expertise required by the nature of 
the granted franchise;  
5. provide the franchisee, whether directly or through a third party, with the franchise goods or 
services during the validity of the franchise agreement, except for goods and services the 
franchisee is permitted to purchase from a third party;  
6. maintain the confidentiality of the accounting and financial information and data relating  to the 
franchisee's business;  
7. provide the franchisee, upon request, with details on amounts paid or to be paid with respect 
to operating the franchised business; and  
8. refrain from establishing any establishment that engages in a business activity similar t o that 
of the franchisee within the geographical area defined in the franchise agreement, or granting 
a third party the right to do the same, during the validity of the franchise agreement.  
Article 9  
Unless otherwise agreed in writing with the franchisor, the franchisee shall:  
1. obtain the franchisor’s approval prior to any change in the goods, services, or manner of 
operating the franchised business;  
2. provide the franchisor with the franchised business data necessary for developing the franchise 
business mode l, including financial and accounting data;  
3. enable the franchisor or his representatives to inspect the facilities used for operating the 
franchised business, provided that such inspection does not result in disruption or harm to the 
business; and  
4. obtain t he franchisor’s approval prior to changing the place of operating the franchised 
business.  
Article 10  
The franchisor and franchisee shall, in good faith, fulfill their obligations under the franchise 
agreement.  
Chapter 6: Franchise Agreement  
Article 11  
1. A franchise agreement shall be drafted in Arabic and signed by the parties; if drafted in another 
language, a certified Arabic translation shall be provided.  
2. In addition to the provisions agreed upon by the parties, a franchise agreement shall include  Franchise Law  
 
 
   
  
 
 
7 the fo llowing:  
a) The franchised business and its description, as well as the franchise agreement’s term, 
manner of amendment, and geographical scope.  
b) Any amounts to be paid by the franchisee to the franchisor, including the initial franchise 
fee, the expenses for the franchisee’s personnel training, if any, and the technical support, 
as well as the method for calculating payments made by the franchisee to the franchisor or 
any of the franchisor’s associates in return for goods or services.  
c) The parties’ obligations relating to the training of the franchisee’s personnel by the 
franchisor.  
d) The franchisor's obligation to provide the franchisee with the technical and marketing 
expertise, and any other expertise required by the nature of the granted franchise.  
e) The franchi see's obligation to comply with the instructions and marketing and display 
methods, and to preserve the identity of the franchise.  
f) The franchisor's obligations relating to the provision of goods or services to the franchisee, 
as well as the franchisee’s ob ligations relating to the receipt of such goods or services from 
the franchisor, directly or through a third party, in accordance with the franchisor’s 
instructions.  
g) The franchisee’s right to use any trademark or any other intellectual property right relat ing 
to the franchised business, as well as the liabilities of the parties in case of infringement of 
intellectual property rights and damages arising therefrom.  
h) Manner of resolving any dispute arising from the franchise agreement.  
i) The franchisee’s right to  sub-franchise, if any, and the relevant provisions.  
j) The consequences of any change in the ownership of the franchisee, the franchisor, or the 
person controlling either party.  
k) Any other provision provided for by the Regulations.  
Article 12  
The provisions relating to the advertising and marketing of a franchise shall be determined by the 
Regulations.  
Chapter 7: Assignment of the Franchise Agreement  
Article 13  
Unless otherwise provided for in the franchise agreement, the franchisor’s approval  must be 
obtained prior to changing the person controlling the franchisee or assigning the franchise 
agreement. If the franchisor grants his approval, he may not revoke it nor object to the change or 
assignment, except in the following cases:  
1. If the assign ee is unlikely to have sufficient funds for carrying out the obligations borne by the  Franchise Law  
 
 
   
  
 
 
8 franchisee under the franchise agreement.  
2. If the assignee is unable to meet the franchisor’s reasonable requirements with respect to the 
assignment of the franchise agree ment and franchised business.  
3. If the assignee fails to meet the franchisor’s criteria for the selection of franchisees.  
4. If the assignee does not agree, in writing, to bear the franchisee’s obligations under the 
franchise agreement from the date of assignme nt thereof.  
5. If the franchisee does not pay the franchisor any due amounts.  
6. Any other case specified by the Regulations.  
Article 14  
Subject to Article 13 of this Law and the Regulations, if the franchisor fails to respond, in writing, 
to the franchisee’s request for the assignment of the franchise agreement and franchised 
business to a third party or for the change of the person controlling the franchisee, he shall be 
deemed to have approved such request.  
Chapter 8: Renewal or Extension of the  Franchise Agreement  
Article 15  
Unless otherwise provided for in the franchise agreement, a franchisee seeking to renew or 
extend the franchise agreement shall notify the franchisor in writing within a period not less than 
180 days prior to its expiration.  The franchise agreement may be renewed or extended for a term 
similar to the term originally agreed upon and under the same terms and conditions, except in the 
following cases:  
1. If the franchisor and franchisee agree on new terms and conditions.  
2. If any of the cases provided in Article 18 of this Law occurs.  
3. If the franchisee fails to pay amounts due under the franchise agreement.  
4. If, prior to the expiry of the agreement, the franchisor approves the franchisee's assignment of 
the franchise agreement and fran chised business to a third party who fulfills the franchisor’s 
criteria for granting the franchise.  
5. If the franchisor ceases to engage in franchising or in granting franchises in the Kingdom.  
6. If the franchisee does not conclude the franchise renewal or ex tension agreement prior to the 
60 days preceding the expiration of the franchise agreement despite the franchisor’s 
reasonable requirements.   Franchise Law  
 
 
   
  
 
 
9 Chapter 9: Termination or Expiry of the Franchise Agreement  
Article 16  
1. Unless otherwise provided for in the franchise agreement, if the franchisee is a natural person, 
the franchise agreement shall expire upon initiating any liquidation procedure under the 
Bankruptcy Law, or if the franchisee dies, becomes incompetent, or has a health condition 
impeding him from  operating the franchised business. The franchise agreement may provide 
for the transfer of the agreement to one or more of the franchisee's heirs or to a third party if 
the franchisee dies, becomes incompetent, or has a health condition.  
2. Unless otherwise provided for in the franchise agreement, if the franchisee is a legal person, 
the franchise agreement shall expire upon issuing a decision of voluntary liquidation of the 
franchisee, or by the initiation of any liquidation procedure under the Bankruptcy La w, or by the 
termination of the franchisee. A franchisee’s conversion or merger with another legal person 
shall not result in the expiry of the agreement.  
Article 17  
If the franchisor substantially breaches the disclosure or registry obligations stipulated  in this Law 
and its Regulations, the franchisee may, within one year from the date of knowledge of such 
breach or within three years from the occurrence thereof, whichever occurs earlier, terminate the 
franchise agreement by serving a written notice to th e franchisor without compensating said 
franchisor for such termination.  
Article 18  
The franchisor may not terminate the franchise agreement prior to its expiration without the 
franchisee’s written approval, except in the following cases:  
1. If the franchisee fails to fulfill his fundamental obligations under the franchise agreement and 
does not rectify the situation within a period not exceeding 14 days from the date of the 
franchisor’s written notice.  
2. If the franchisee is liquidated or dissolved, or if he ass igns the franchised business or its 
usufruct to his creditors, or disposes of the assets of the franchised business for the benefit of 
a third party.  
3. If the franchisee abandons or voluntarily discontinues to operate the franchised business for 
more than 90  consecutive days.  
4. If the franchisee repeatedly fails to abide by the terms and conditions of the franchise 
agreement or any other franchise -related agreement concluded with the franchisor or 
franchisor’s associates despite being notified in writing by the  franchisor to fulfill his obligations.  
5. If the franchisee's operation of the franchised business poses a threat to public health and 
safety.   Franchise Law  
 
 
   
  
 
 
10 6. If the franchisee loses any of the licenses necessary for operating the franchised business.  
7. If the franchisee comm its a substantial violation of any of the laws in force in the Kingdom 
which undermines the reputation of the franchised business.  
8. If the franchisee commits a fraudulent act while operating the franchised business.  
9. If the franchisee infringes upon the fran chisor's intellectual property rights during the validity of 
the franchise agreement.  
10. Any other case the franchise agreement deems a valid reason for termination.  
Chapter 10: Compensation  
Article 19  
If the franchisor substantially breaches the disclosure or registry obligation stipulated in this Law 
and its Regulations, the franchisee may claim damages for such breach without terminating the 
franchise agreement.  
Article 20  
1. If the franchisee requests the termination of the franchise agreement in accordance with Article 
17 of this Law, or if the franchisor terminates the franchise agreement in violation of Article 18 
of this Law or refuses to renew or extend the franchise agreement for a reason not specified in 
Article 15 (2,3,4 and 5) of this Law,  the franchisor, whether by himself or through any of his 
associates, shall:  
a) repurchase the material assets used exclusively in the franchised business which, based on 
the franchisor’s directives, the franchisee has purchased from the franchisor or a third  party 
within 60 days from the date of the franchisee’s request. The repurchase price shall not be 
less than the price paid by the franchisee after deduction of any depreciation the amount of 
which is calculated in accordance with the acceptable accounting  standards and with the 
franchisee’s prior accounting practices; and  
b) compensate the franchisee for any damage he has incurred due to the establishment, 
acquisition, or operation of the franchised business in the Kingdom, or any other damage, 
except in the  case where the franchisor refuses to renew or extend the franchise agreement 
for a reason not specified in Article 15 (2,3,4 and 5) of this Law.  
2. Unless the franchise agreement provides otherwise, the franchisor may claim compensation if 
the franchisee ter minates the franchise agreement in violation of this Law and the franchisor 
incurs damage as a result thereof.  
Article 21  
1. Any claim for compensation filed as a result of the franchisor’s termination of the franchise 
agreement in violation of Article 18 of this Law shall not be heard upon the lapse of three years  Franchise Law  
 
 
   
  
 
 
11 from the termination date.  
2. Any claim for compensation filed as a result of the franchisor’s or franchisee's violation of their 
obligations as stipulated in this Law or the franchise agreement shall not be heard upon the 
lapse of one year from the date the non -violating party becomes aware of the violation or upon 
the lapse of three years from the date of the occurrence of the violation, whichever occurs 
earlier.  
3. Filing a claim under t his Law shall not preclude the franchisor or the franchisee from claiming 
any right under any other law.  
Chapter 11: Concluding Provisions  
Article 22  
The assignment, termination, expiration, or non -renewal of the franchise agreement and franchise 
business shall result in the termination of any agreement relating to the use of any trademark or 
brand name of the franchised business. The Regulations shall specify the necessary procedures.  
Article 23  
Any agreement by which the franchisee waives or relinquishes any of the rights he is entitled to 
under this Law shall be deemed null and void, unless such agreement is part of a final settlement 
with the franchisor or is authorized under this Law.  
Article 24  
1. A person who violates this Law or its Regulations shall be  punished by a fine not exceedi ng 
five-hundred thousand riyals . 
2. Pursuant to a decision by the Minister, a committee of three members, comprising at least one 
specialist in commercial law, shall be formed to review violations of this Law and its Regulations  
and to impose the penalty prescribed in paragraph 1 of this Article.  
3. The committee’s work rules and procedures, and the remunerations of its chairman, members, 
and secretariat shall be determined pursuant to a decision issued by the Minister.  
4. Without prejudice to the provisions of relevant laws, a person against whom a pen alty decision 
is issued may appeal such decision before the Board of Grievances.  
5. A penalty decision may include a provision to publish its summary at the expense of the violator 
in one or more local newspapers issued in the area of his place of residence or principal place 
of business. The decision may also include a provision to publish its summary on the Ministry’s 
website or through any other medium specified by the Ministry. In any case, publication shall 
be carried out after the penalty decision becom es unappealable upon the lapse of the statutory  Franchise Law  
 
 
   
  
 
 
12 period or is upheld by the Board of Grievances.  
6. Imposing the penalty prescribed in paragraph 1 of this Article shall not prejudice the right of 
recourse against the person causing damage as a result of viola ting this Law.  
Article 25  
Disputes arising from the franchise agreement or the application of this Law may be settled by 
alternative means, such as arbitration, mediation, and conciliation.  
Article 26  
The Minister shall, within 180 days from the date of pu blication of this Law, issue its Regulations. 
The Regulations shall be effective from the date this Law enters into force, and shall:  
1. authorize the Ministry to issue model forms for the franchise agreements and disclosure 
documents,  and specify the procedu res and requirements of any applications or documents 
submitted to the Ministry under this Law;   
2. determine the requirements of the disclosure documents submitted by the franchisors;  
3. determine the fees for entry and registry and any amendment thereto, and  for any other 
services rendered pursuant to this Law and its Regulations, as well as methods of collection;  
4. specify the information to be made available to franchisees; and 
5. identify the department or agency in charge of enforcing this Law, its Regulation s, and work 
procedures.  
Article 27  
The Law shall enter into force 180 days following its publication in the Official Gazette, and shall 
repeal any provisions conflicting therewith.