Buying a Franchise in Saudi Arabia: Is the Offer a Franchise or a Brand Licence?

You may receive an offer described as an ‘operating partnership’ or a ‘brand licence’, yet it includes fees, an operations manual and a requirement to follow a standardised way of running the business. The reverse can also happen: an offer is marketed as a franchise but amounts to little more than selling products bearing a well-known brand. Before entering Saudi Arabia’s franchise market, understand the nature of the relationship you are buying into. Its legal classification affects the regulatory obligations and what you can require from the other party before entering into a contract.

What makes a relationship a franchise?

Saudi Arabia’s Commercial Franchise Law, issued in 1441 AH (2019), and its Implementing Regulations govern the relationship between franchisors and franchisees in the Kingdom. The law applies to any franchise agreement carried out within Saudi Arabia, subject to its specified exceptions. A foreign brand or a differently titled draft agreement is therefore not enough to rule out its application.

The law defines franchising as one person granting another the right to conduct business on their own account, linked to a trademark or trade name that the franchisor owns or is licensed to use. The relationship includes providing technical expertise and know-how, and specifying how the franchise business is to operate, in return for financial or non-financial consideration.

For an initial assessment, bring together the answers to these questions on a single sheet:

• Will you run the business on your own account and bear its commercial risks and rewards?
• Is the business linked to a trademark or trade name that the other party is entitled to use?
• Will you receive know-how and expertise that go beyond simply being supplied with products?
• Does the other party specify how the business must operate and be managed?
• What do you provide in return for this relationship, whether financial or non-financial?

This is not an automatic test that produces a legal conclusion, but it helps identify questions worth referring to a specialist. The absence of a charge labelled a ‘franchise fee’ does not settle the nature of the relationship. The law also refers to non-financial consideration, while excluding payments for goods or services from the consideration meant in its definition of a franchise.

When is an offer a licence or distribution arrangement rather than a franchise?

Article 4 of the Commercial Franchise Law excludes agreements and contracts governed by Saudi Arabia’s Commercial Agencies Law. It also excludes agreements limited to buying and selling goods, providing services bearing a particular trademark, or using a trademark or other intellectual property rights in relation to a product or service.

The important word here is ‘limited’. Permission to use a logo does not, on its own, mean you are buying a complete franchise business model. Conversely, where a licensed brand forms part of a relationship involving the transfer of know-how and prescribed operating methods, the whole relationship needs to be examined rather than relying on the licence label.

For example, an offer that allows you to buy and resell products without transferring a business management model differs from one that requires a particular service method, provides technical know-how and specifies how to operate under the brand. These examples are illustrative, not definitive legal assessments of any contract. Classification requires a review of the actual obligations and associated documents.

If the offer turns out not to be a franchise, that does not necessarily make it a poor opportunity or an unregulated relationship. It does mean, however, that you should not automatically assume you have the rights provided under the Commercial Franchise Law. Ask for clarification of which laws apply to the particular contract, such as the Commercial Agencies Law where applicable and relevant trademark provisions.

Review the full set of documents before making any payment

Request the draft contract, a description of the services, financial schedules and any separate agreements covering use of the brand, training or operations. Also request the contents page of the operations manual, or a sufficiently detailed description of its contents if technical details are confidential. The aim is not to obtain trade secrets at an early stage, but to understand what the other party is actually committing to provide.

Create a table with three columns: the promise made in the offer, the document that supports it, and your corresponding obligation. If you are told you are buying a ‘ready-made business system’, identify where the transfer of know-how is set out and how it will be delivered. If fees are spread across several contracts, ask for an explanation of each contract’s purpose and how it relates to the other documents.

Where the relationship is a franchise, Article 7 requires the franchisor to provide you with a disclosure document at least fourteen days before you enter into the agreement or pay any consideration relating to the franchise, whichever comes first. Do not assume that calling a payment an ‘opportunity reservation fee’ automatically places it outside this rule. Have its purpose and terms reviewed before transferring it.

The law also requires the franchise agreement to be written in Arabic and signed by both parties, or accompanied by a certified Arabic translation if drafted in another language. These are legal requirements, not optional benefits of the offer.

Establish the legal classification before comparing prices

If the franchisor describes the offer as a licence only, but the documents include a mandatory operating model, a transfer of know-how and consideration for the relationship, request a written explanation. Submit the complete set of documents to a lawyer familiar with franchising, rather than seeking an opinion based on the first page alone.

Ask the lawyer to identify the nature of the relationship, the extent to which the law applies and the requirements that must be met before payment. You can also use the advisory and guidance services available through Saudi Arabia’s Franchise Centre to understand the assessment process. An opportunity’s appearance on a platform should not, however, be treated as a substitute for reviewing it.

The practical takeaway: Do not compare the price of a ‘brand licence’ with that of a ‘franchise’ before establishing what each provides. Gather the documents, examine the operating requirements, know-how and consideration, then settle the legal classification and applicable requirements before signing or paying.