Defining Franchise Activities in a Saudi Franchise Agreement: A Practical Guide

Your existing business may include a shop, online orders, corporate services and seasonal products, but franchising it does not automatically mean granting rights to all these activities. Before preparing your first agreement in Saudi Arabia, you need to define exactly what the franchisee will operate and what falls outside the agreement. This clarity lays the foundations for a more stable relationship within the franchise network and prevents conflicting expectations about what ‘operating the business’ means.

Why is naming the business activity not enough?

Franchising in Saudi Arabia is governed by the Commercial Franchise Law, issued by Royal Decree No. M/22 dated 9 Safar 1441 AH, and its Implementing Regulations. The agreement must include the franchise activities and their description, alongside its term, the procedure for amending it and its geographical scope. It must be written in Arabic and signed by both parties. If drafted in another language, a certified Arabic translation is required.

A phrase such as ‘operating a café under the brand’ may identify the activity in broad terms, but it leaves important questions unanswered. Does it include selling packaged coffee? Does it allow off-site catering? Who handles corporate orders received through the franchisor’s website?

In practice, write the description so that someone who was not involved in setting up the business can understand its boundaries. The aim is not to cram every daily procedure into the contract, but to define the franchised activity and its core components without relying on the founder’s knowledge or the sales team’s verbal explanations.

Turn your business activities into a clear list of rights

Start by taking stock of what your business actually does, rather than what you plan to add in future. List your sales, service, delivery and special-order activities, then classify each as included in the franchise, excluded from it or subject to separate approval. This list is a suggested internal planning tool, not a mandatory statutory template.

For each included activity, record four points to help your lawyer and operations team draft the description:

• What is provided? Identify the relevant product or service category. Avoid open-ended phrases such as ‘and all related activities’ unless their meaning has been clearly defined.
• How is it provided? At the outlet, by pre-order, through delivery or at the customer’s premises.
• Who is it provided to? Individuals, businesses or both, within the agreed limits.
• Who carries it out? The franchisee, the franchisor or another party under a clearly defined arrangement.

For example, a bakery business might grant retail sales rights for a specific outlet while the franchisor retains centralised production and major supply contracts. This division should appear in the description of the activities, rather than coming to light after the franchisee has fitted out premises they do not need or committed to an order they are not entitled to fulfil.

Distinguish sales channels from the right to use the brand

Displaying the brand on an online shop or social media account does not, on its own, answer the question: who has the right to accept and fulfil an order? Review each sales channel separately and define the franchisee’s role before agreeing to operate it.

If orders come through a platform managed by the franchisor, clarify whether the franchisee fulfils the order or sells directly to the customer, and specify the associated responsibilities. If the franchisee is allowed to establish an independent channel, set out any approval requirements and management arrangements. These are contractual choices requiring legal review, not rights that arise automatically from using the brand.

Test the description against three realistic scenarios: an off-site catering order, a large corporate order and the online sale of a packaged product. Does the agreement make clear who can accept each order? If the team needs to consult the founder every time, the description still needs refining. The aim here is to define the type of activity and its channel, not to set geographical boundaries or calculate fees.

Align the description with your documents and earlier promises

Check the description of the activities against your franchise prospectus, disclosure document, franchise agreement and its schedules. Do not promote an opportunity covering multiple services and then use an agreement describing a narrower business without a clear explanation. Likewise, do not let photographs of large branches suggest that all their equipment and services form part of the franchise package if they belong to a different operating format.

Unless otherwise agreed in writing, Article 8 of the Law places obligations on the franchisor that include specifying the rights granted, detailing the business model and providing the franchisee with operating manuals. The contractual description should therefore reflect the activities your team can actually support the franchisee in operating.

When supplying the disclosure document, bear in mind the requirement under Article 7: it must be provided at least 14 days before the agreement is signed or any payment relating to the franchise is made, whichever occurs first. Do not leave decisions about which activities are included until the signing meeting. Make them clear during the review process, before any commitment is made.

Approve the description before signing your first agreement

Ask your operations lead to confirm that the listed activities can be delivered, your finance lead to check them against the cost assumptions, and your legal adviser to review the rights, exclusions and wording. Keep a single approved version, and do not allow proposals using a different description to circulate without review.

Finally, ask the prospective franchisee to explain, in their own words, what they will be entitled to operate and what the franchise will not cover. This conversation does not replace the contract, but it can reveal misunderstandings early. The practical takeaway: before signing, prepare a single list of included, excluded and conditional activities, then make sure it is clearly reflected in the agreement and related documents.