Royal Decree No. M/22 dated 9/2/1441 AH
With the help of Almighty God
We, Salman bin Abdulaziz Al Saud
King of the Kingdom of Saudi Arabia
Based on Article (Seventy) of the Basic Law of Governance, issued by Royal Order No. (A/90) dated 27/8/1412 AH.
Based on Article (Twenty) of the Council of Ministers Law, issued by Royal Order No. (A/13) dated 3/3/1414 AH.
Based on Article (Eighteen) of the Shura Council Law, issued by Royal Order No. (A/91) dated 27/8/1412 AH.
After reviewing the Shura Council decisions No. (121/32) dated 20/7/1440 AH and No. (193/50) dated 23/10/1440 AH.
After reviewing the Council of Ministers decision No. (122) dated 9/2/1441 AH.
We decree the following:
First: Approval of the Franchise Law, in the attached form.
Second: The provisions of Article (Five), Article (Six), Article (Seven), paragraph (2) of Article (Eight), paragraph (2) of Article (Nine), Article (Eleven), Article (Seventeen), and Article (Nineteen) of the Law shall not apply to franchise contracts concluded before its effective date.
Third: By a decision of the Council of Ministers, it may be decided that some of the requirements stipulated in the Law shall not apply to certain categories of franchisors and franchisees, based on criteria proposed by the Minister of Commerce and Investment, taking into account the sector’s condition, type of activity, and size of practitioners.
Fourth: His Highness the Deputy Prime Minister, the Ministers, and the heads of the concerned independent authorities - each within their jurisdiction - shall implement this Decree.
Salman bin Abdulaziz Al Saud
Council of Ministers Decision No. 122 dated 9/2/1441 AH
The Council of Ministers
After reviewing the correspondence received from the Royal Court No. 63330 dated 6/11/1440 AH, including the letter of His Excellency the Minister of Commerce and Investment No. (41073) dated 11/8/1438 AH, regarding the draft Franchise Law.
After reviewing the referenced draft law.
After reviewing the minutes: No. (1678) dated 26/12/1439 AH, No. (1645) dated 15/9/1440 AH, No. (24) dated 5/1/1441 AH, and memorandum No. (437) dated 5/3/1440 AH, prepared by the Bureau of Experts at the Council of Ministers.
After reviewing the recommendations prepared by the Council of Economic and Development Affairs No. (9-4/40/D) dated 24/1/1440 AH, No. (7-48/40/D) dated 17/9/1440 AH, and No. (1-2/41/D) dated 13/1/1441 AH.
After considering the Shura Council decisions: No. (121/32) dated 20/7/1440 AH and No. (193/50) dated 23/10/1440 AH.
After reviewing the recommendation of the General Panel of the Council of Ministers No. (810) dated 7/2/1441 AH.
It is decided as follows:
First: Approval of the Franchise Law, in the attached form.
Second: The provisions of Article (Five), Article (Six), Article (Seven), paragraph (2) of Article (Eight), paragraph (2) of Article (Nine), Article (Eleven), Article (Seventeen), and Article (Nineteen) of the Law shall not apply to franchise contracts concluded before its effective date.
Third: By a decision of the Council of Ministers, it may be decided that some of the requirements stipulated in the Law shall not apply to certain categories of franchisors and franchisees, based on criteria proposed by the Minister of Commerce and Investment, taking into account the sector’s condition, type of activity, and size of practitioners.
A draft Royal Decree has been prepared accordingly, its text is attached hereto.
Fourth: A Franchise Center shall be established within the Small and Medium Enterprises General Authority, which shall, in agreement with the Ministry of Commerce and Investment and in coordination and cooperation with relevant authorities, undertake the following powers and tasks:
A- Setting the necessary conditions for practicing mediation and reconciliation activities in franchising.
B- Preparing programs and organizing events necessary to raise awareness of franchising activities, their relationships, and opportunities.
C- Preparing awareness and educational brochures and documents related to franchising.
D- Preparing studies and research, and collecting information and statistics related to franchising.
E- Raising awareness among franchising practitioners of the laws, regulations, and decisions related to their practice.
F- Working to identify obstacles facing franchising activities to discuss them with the competent government authorities and propose appropriate solutions.
G- Working to settle disputes arising between franchisees and franchisors amicably, in coordination with other specialized centers.
H- Any other task assigned to it by the Board of Directors of the Small and Medium Enterprises General Authority.
Fifth: The aforementioned center in paragraph (Fourth) of this decision shall collect fees for the services it provides.
Prime Minister
Franchise Law and its Executive Regulation
Chapter 1: General Provisions
Article 1
In this Law, the following terms shall have the meanings assigned thereto, unless the context requires otherwise:
1. Law: Franchise Law.
2. Regulations: Implementing Regulations of this Law.
3. Ministry: Ministry of Commerce.
4. Minister: Minister of Commerce.
5. Franchise: A right granted by a franchisor to a franchisee to run a franchise business on his own account under the trademark or under the brand name of the franchisor or the person licensed to use the same; this shall include transferring technical expertise and specifying the manner of operation. Such right may be granted for a financial or non-financial consideration, excluding the amounts the franchisee pays to the franchisor in return for goods or services.
6. Franchisor: A natural or legal person who grants a franchise under a franchise agreement; this shall include the master franchisee with respect to his relationship with the sub-franchisee.
7. Franchisee: A natural or legal person who is granted a franchise under a franchise agreement; this shall include the sub-franchisee with respect to his relationship with the master franchisee.
8. Franchise Agreement: An agreement between a franchisor and a franchisee, under which a franchise is granted.
9. Franchise Business Model: The manner of operating a franchise business as determined by the franchisor and by which the franchisee shall be bound, including the display of the business trademark.
10. Control: The capacity to directly or indirectly influence another person’s acts or decisions through:
a) owning more than 50% of the capital of a company or establishment;
b) owning more than 50% of the voting rights of shareholders or partners, as the case may be; and
c) having the right to appoint or elect the majority of the members of the board of directors or the board of managers, as the case may be, or the executive board members of a company or establishment, or the right to manage the same.
11. Franchisor's Associates: A person who controls or is controlled by a franchisor, or a third party that controls both, directly or indirectly.
12. Disclosure Document: A document disclosing the key rights and duties of the franchise and the substantial risks relating thereto.
Article 2
This Law aims to:
1. promote franchise activities in the Kingdom through setting a legal framework which regulates the relationship between the franchisor and the franchisee and which emphasizes the principle of freedom to contract and the principle of transparency;
2. provide the necessary protection for the franchisor and the franchisee, particularly upon expiry of the franchise agreement;
3. ensure the disclosure of rights, duties, and risks relating to the franchise to assist a prospective franchisee in making informed investment decisions; and
4. improve the quality of goods and services provided in the Kingdom and ensure their sustainability.
Chapter 2: Scope of Application of the Law
Article 3
This Law shall apply to any franchise agreement executed in the Kingdom.
Article 4
For the purpose of applying this Law, the following agreements and arrangements shall not be deemed a franchise agreement:
1. A concession granted or issued pursuant to a Royal Decree.
2. An agreement or contract subject to the Law of Commercial Agencies applicable in the Kingdom.
3. An agreement or contract limited to the sale of goods or provision of services carrying certain trademarks, or to the use of a trademark or any copyrighted material of any good or service.
4. An arrangement whereby the franchisor fully owns the franchisee, whether directly or indirectly.
5. Any other agreements or arrangements specified by the Regulations.
Chapter 3: Conditions for Granting the Concession
Article 5
1. A franchise shall not be offered nor granted until the franchised business, as per the franchise business model, has been practiced for a period not less than one year in at least two different points of sale or by at least two persons, one of whom may be the franchisor or any of his associates.
2. If a franchisor does not practice in the Kingdom the franchised business on his own account, the master franchisee, who has the right to sub-franchise, may not sub-franchise or offer the same until he or any other franchisee practices the franchised business in the Kingdom for a period not less than one year.
The Minister may amend the periods stipulated in this Article.