Allocating Licensing Responsibilities Before Granting a Franchise in Saudi Arabia

Your existing business may have all the necessary licences, but that does not mean a franchisee can rely on them to open their own branch. When expanding in Saudi Arabia’s franchise market, you need to distinguish the right to use your brand and business model from the requirements for carrying out the business activity. A practical step before granting a franchise is to prepare a licensing matrix setting out what is required, who is responsible and what evidence confirms completion—without turning the franchisor’s support into a guarantee of regulatory approval.

1. Separate the franchise agreement from the licence to operate

The Commercial Franchise Law and its Implementing Regulations govern franchise relationships in Saudi Arabia. The law applies to any franchise agreement performed within the Kingdom. It defines franchising as a franchisee conducting business on their own account in association with a trademark or trade name, with know-how transferred and operating methods specified, in return for consideration, as set out in the statutory definition.

This relationship does not make the franchise agreement a substitute for the licences required to operate. Nor does registering the agreement and disclosure document with the Ministry of Commerce constitute permission to open the premises. The franchisor must register both documents within 90 days of signing the agreement, while the business activity remains subject to its own government requirements and approvals.

The commercial licence issuance service on the Balady platform makes clear that requirements and approvals vary by activity. Do not therefore treat your original branch’s licensing file as a definitive checklist for every branch. Use it as a starting point, then verify the actual requirements for the activity, location and operating entity.

Start with a specific question: which individual or entity will carry out the business activity? Then review the documents and licences that must be held in their name, rather than assuming that ownership of the brand covers other operators.

2. Create a licensing matrix linked to the business model

Before preparing your contractual offer, identify the activities the franchisee will actually carry out. The customer experience may include additional services not apparent from a brief marketing description. The aim is not to collect as many licences as possible, but to match each activity to the requirements of the relevant authorities.

Create an internal table with the following fields for each requirement:

• Requirement and relevant authority: commercial registration, municipal licence, safety requirements and any other approvals required for the activity.
• Responsibility for completion: who submits the application, responds to queries and pays the agreed costs?
• Franchisor inputs: plans, fit-out specifications or a description of the activity, depending on what the application requires.
• Evidence of completion: the issued licence or required approval, not merely an application receipt.
• Timing and follow-up: when must the requirement be met, and how will validity and renewal be monitored where applicable?

The Balady service lists documents including a lease, title deed or investment contract, a copy of the building permit, and safety documentation as applicable. Whether a cleaning contract is requested may depend on the activity and contractual arrangements. These examples can help you build the matrix; they are not a universal checklist for every business.

Add the date each requirement was last checked and its source to the table. A copy retained since your first branch opened may no longer reflect current procedures and should not be presented to the franchisee as a definitive reference.

3. Turn the matrix into clear contractual obligations

A clause stating that ‘the franchisee must obtain all licences’ is not enough on its own to manage an opening. An application may depend on a document held by the franchisor or a change to a design approved by its team. Specify in the agreement or a schedule who provides each input, the agreed response times and how requests for additional information or documents will be handled.

Also define the limits of support: will the franchisor provide guidance only, review the application file or liaise with an adviser? Do not describe an internal review as government approval or promise that a licence will be obtained within a fixed period beyond your control.

It is also important to address the consequences of delays in the contract. What happens to the opening date, training and stock preparation if licensing is delayed? Who bears the cost of rework caused by an incomplete document or an unsuitable specification? Ask a legal professional to draft these provisions in line with the law and the circumstances of the business.

If these arrangements involve fees or material obligations, ensure they are presented consistently in the pre-contractual documents and the agreement. Remember that Article 7 requires the franchisor to provide the disclosure document at least 14 days before the agreement is signed or any payment relating to the franchise is made, whichever comes first. Do not leave clarification of major obligations until the fit-out stage.

4. Introduce compliance checks before and after opening

Adopt an internal procedure that distinguishes completion of the branch’s fit-out from its regulatory readiness. Collect copies of the required documents, check that their details match the entity, location and activity, confirm that they are valid, and record who reviewed them and when.

For example, if a branch’s fit-out is complete but its licence application is still being processed, neither the contractor’s confirmation nor a scheduled opening date is evidence of permission to operate. Make internal authorisation to use the business model at opening conditional on verification of the necessary requirements, while making clear that this authorisation does not replace approvals from the relevant authorities.

After opening, maintain a record of deadlines and changes that require a review of requirements, such as adding an activity or amending the entity’s details. Agree on a process for notifying the franchisor of any suspension of operations or official notice affecting the business.

Practical takeaway: Before granting your first franchise, prepare a licensing matrix, a schedule of responsibilities and an opening checklist. These tools help each party understand what they must complete and prevent the franchisor’s approval from being confused with the legal right to operate.