Choosing Your Franchisor Entity in the UAE

When turning an established UAE business into a franchise model, founders often focus on the brand, fees and expansion, leaving a fundamental question unresolved: which company will be the franchisor? The company operating the existing outlets, or a new one? This choice affects ownership of rights, revenue collection, support provision and responsibility for obligations. Resolving it early helps establish clear relationships across the franchise network, rather than leaving organisational gaps to be addressed after contracts have been signed.

Start by mapping your existing companies and rights

Before setting up a new company, draw up a simple overview of what the business currently owns and who manages it. The business licence may be held by one company, the trade mark by the founder, and employment contracts by another company. This arrangement is not necessarily an obstacle, but it needs to be organised before you promise a franchisee rights or services that the contracting entity is not authorised to provide.

Bring together the following in one file:

• The current business licence, the company’s memorandum of association and any amendments to either.
• Documents establishing ownership of the trade mark or a licence to use it.
• A record of who owns the operations manuals, training materials and systems.
• A list of the employees and assets that will be used to provide support.
• Confirmation of which company currently bears management and development costs.

Then ask: can the proposed company grant rights to use the trade mark and operational know-how, and deliver the agreed support throughout the contract term? If it relies on a sister company, common ownership alone is not enough. The relationship between the two companies needs documented arrangements that remain enforceable if management changes or a new investor comes on board.

Compare the existing company with a separate entity

Using the existing company may be administratively simpler, as it already has a team, accounts and operational experience. However, it brings the obligations of running outlets and granting franchises into the same entity. It may also make the cost of supporting franchisees harder to measure if expenses are mixed together.

A separate entity can make it easier to allocate a support budget and report franchise revenue and expenses separately. However, it adds incorporation, administration and compliance costs, and needs actual rights, along with staff or contractual arrangements that enable it to fulfil its obligations. Setting up a new company does not, by itself, transfer the trade mark, expertise or employees to it.

Compare the two options using four practical questions:

1. Who holds the rights to be granted, and how will they be made available to the franchisor entity?
2. Who will employ the support team and bear its costs?
3. Can the accounts show the cost of supporting each franchisee?
4. How would bringing in a partner or selling the operating business affect the continuity of franchise agreements?

Do not assume that separating companies provides absolute protection from liability. Guarantees, contract wording and the way the entities deal with one another may all affect the outcome. Have the proposed structure reviewed by legal and tax advisers before making transfers or issuing intercompany invoices.

Check the licensed activities and legal framework

The UAE has no comprehensive federal law dedicated to franchising, nor a general federal regime requiring a standard disclosure document or the registration of every franchise agreement as a franchise. The relationship is governed by general civil and commercial transaction rules, commercial companies law, trade mark legislation and other laws depending on the nature of the business. Federal Law No. 3 of 2022 Regulating Commercial Agencies may apply if the relationship meets its conditions; not every franchise relationship is automatically treated as a registered commercial agency.

For the franchisor entity, do not assume that a licence to operate a restaurant or shop necessarily covers all the activities it intends to provide to third parties. Give the licensing authority an accurate description of those activities: granting rights to use intellectual property, management support, training and any separate supply activities. Ask it to identify the appropriate licensed activities and required approvals, rather than looking for an assumed, standard ‘franchise licence’ category.

The UAE Government’s official portal explains that the nature of the activity affects the legal form and type of licence, and that initial approval does not authorise a business to start operating. In Dubai, Law No. 13 of 2011 Regulating the Conduct of Economic Activities, as amended, governs the licensing and conduct of economic activities.

A free zone company is subject to the rules of the relevant free zone authority. Do not assume that incorporating there permits every form of service provision or business activity outside the zone. Check the scope of the licence and the requirements for operating in the UAE mainland market, based on the activity and how it will be carried out.

Document how rights, services and money will flow

Once you have chosen a structure, translate it into clear arrangements. If the trade mark remains with the original company, document the franchisor entity’s right to use it and grant the necessary rights to franchisees, with a scope and duration that match the obligations it will undertake. If the original company’s team will provide training, specify the service, its cost and who is responsible for arranging an alternative if it cannot be delivered.

Prepare an internal table for each major obligation, identifying the party contracting with the franchisee, the entity delivering the service, the entity entitled to payment and the document governing the relationship between them. Invoicing and payment collection must align with the contracts and accounting and tax treatment, rather than whichever bank account is easiest to use.

Test the structure with a practical scenario: a new franchisee signs, pays the agreed fees and requests training and technical support. Can every step be traced without relying on verbal instructions from the founder? If not, complete the arrangements before offering contracts.

The practical takeaway: Choose the entity that holds the rights and can deliver on its promises, not the one that is easiest to name in the contract. Document its relationships with related companies, check its licensing, and only then start granting franchises.