Buying a Franchise in Saudi Arabia: How to Review the Disclosure Document

Before buying a franchise in Saudi Arabia, do not base your decision solely on the sales pitch. The disclosure document is a starting point for understanding your obligations and identifying what you need to verify independently. In franchising, transparency helps both parties build a lasting relationship. This guide explains how to turn the document into a practical checklist before signing the agreement or making any franchise-related payment.

1. Record the date of receipt before final negotiations begin

Franchising in Saudi Arabia is governed by the Commercial Franchise Law, issued under Royal Decree No. M/22 dated 9/2/1441 AH (in the Hijri calendar), and its Implementing Regulations. The law requires the franchisor to provide the franchisee with a disclosure document at least fourteen days before the franchise agreement is signed or any franchise-related payment is made, whichever comes first.

Crucially, this period applies to payments as well as signing. Do not assume that a payment described as a ‘reservation fee’ or ‘good-faith deposit’ automatically falls outside this rule. Ask for an explanation of its purpose and refund terms, and consult a specialist about its nature before transferring the money.

Keep the message delivering the document and a record of its date, and request a clear, dated copy with all its annexes. If you receive an incomplete file, or material information changes during negotiations, record this and ask your adviser to assess the implications for disclosure compliance and the appropriate signing date. Do not treat the end of the review period as proof that your checks are complete: it is a statutory minimum, not a recommendation to stop there.

2. Check who is granting the franchise and what has actually been tested

Start with the franchisor’s legal identity, not the name on the shopfront. Match the party named in the disclosure document against the draft agreement, and request evidence that it owns the trade mark or has the right to license its use. If you are dealing with a master franchisee granting a sub-franchise, check the scope and duration of its authority and how these relate to the rights it will grant you.

The law provides that a franchise opportunity may not be offered or granted until the franchise business has been operated under the business model for at least one year by at least two persons or at two different outlets. One of those persons may be the franchisor or a member of its group. This is an eligibility requirement for offering and granting a franchise, not a guarantee of profitability.

Turn this rule into verification questions:

• Which outlets have used the business model, and when did they start operating?
• Is the model being offered to you comparable in terms of premises size, services and operating methods?
• What changes have been made since the initial trial?
• Have any outlets closed or changed ownership, and why?

Request documents or written explanations supporting the answers. Explain any material differences to your accountant: the success of a large shop is not, on its own, enough to assess a smaller format with a different cost structure.

3. Turn fees and forecasts into a table you can test

Create a table covering all your financial obligations in the disclosure document and its annexes, then add anything that appears in the draft contract. For each item, include the amount or calculation method, payment due date, recipient, whether it can be changed, and refund terms. Also record how value added tax (VAT) is treated, rather than assuming it is included in the quoted price.

Look beyond the initial franchise fee. Check for ongoing fees, marketing charges, IT systems, training, renewal fees and required fit-out and equipment. Ask about purchases from approved suppliers: are there minimum order quantities? Who bears transport costs and the risk of damage or spoilage? Could mandatory operational updates lead to additional expenditure?

Distinguish between documented financial information and marketing estimates. If you are given sales or profit forecasts, ask what they are based on, which period they cover and how many outlets are included. Ask whether the figures are averages or the results of a selected outlet, and whether they account for rent, management pay, franchise fees and marketing charges.

Then work with an accountant to test scenarios involving lower sales or a delayed opening. The aim is not to arrive at an optimistic return figure, but to understand how much cash you will need and whether you can meet your obligations if revenue falls short of expectations.

4. Check the disclosure against the contract and operational reality

Place the disclosure document and contract side by side, and create a checklist headed ‘Disclosed and confirmed in the contract’. Focus on support, training, supply arrangements, fees, renewal and termination. If the sales pitch promises opening support, ask how long it will last, what it includes and who pays for it. Then make sure the agreed arrangements are reflected in clear contractual wording.

Where possible, speak to current and former franchisees to check how things work in practice. Ask about the responsiveness of support, reliability of supply and unexpected expenses. Do not treat one person’s experience as a definitive verdict; use it to generate further questions for the franchisor, while respecting confidential information.

The Implementing Regulations also require the franchisor to register the agreement and disclosure document with the Ministry of Commerce within ninety days of signing the agreement. Ask for evidence of registration afterwards, but do not confuse it with pre-signing disclosure or treat it as a certificate of commercial viability or a business guarantee.

5. Resolve outstanding questions before committing

Compile your findings in a short log covering each question, the supporting document, the franchisor’s answer and any contractual amendment needed. Categorise issues as clear, negotiable or currently preventing a decision. Do not leave a significant financial discrepancy unresolved on the strength of a verbal promise.

If you discover misleading information or a material omission, keep the correspondence and consult a lawyer about your rights, options and statutory deadlines. The legal consequences depend on the facts and the requirements of the law; not every discrepancy automatically entitles you to a refund.

The practical takeaway: do not sign simply because you have received the document and the review period has expired. Sign when you understand the obligations, have verified the basis of the figures, have resolved inconsistencies in writing and are comfortable with the risks.