Franchising is becoming an increasingly popular form of doing business in Saudi Arabia. It offers greater flexibility than commercial agency agreement but does not require the resources of a branch office or joint venture. Because the franchise law is relatively new, a foreign company should proceed cautiously before establishing, changing or terminating a franchisee.
To establish a franchise, the foreign franchisor must select a franchisee and register the franchise. The franchisor must be the original franchisor and may not be a third-country sub-franchise. The parties may negotiate their own franchise agreement. The government provides a model franchise agreement, but the parties are not required to follow the government’s model. After the parties have signed the agreement, the Ministry of Commerce must approve it. Saudi commercial agency law applies to the franchise agreement.
Because commercial agency law applies to franchises, many of the same concerns may arise regarding the potential wrongful termination of franchisee. in order to avoid later difficulties, a foreign corporation should consult an attorney familiar with Saudi franchise law before entering into a franchise agreement or terminating a franchisee.