Article 16 of the Saudi Franchise Law
المادة 16 من نظام الامتياز التجاري · الفصل التاسع: إنهاء اتفاقية الامتياز أو انقضاؤها
Unless otherwise agreed, the franchise agreement ends on an individual franchisee's death, loss of capacity, health impediment or insolvency liquidation, and on a company's liquidation or dissolution, but not on its conversion or merger.
Official text (Arabic)
This article has not been amended since the law was issued.
1- ما لم تنص اتفاقية الامتياز على غير ذلك، إذا كان صاحب الامتياز شخصاً ذا صفة طبيعية، فتنقضي اتفاقية الامتياز بافتتاح أي من إجراءات التصفية له بموجب نظام الإفلاس أو بوفاته أو بفقده الأهلية أو بنشوء مانع صحي يحول دون قدرته على ممارسة أعمال الامتياز. ويجوز أن تتضمن الاتفاقية حكماً يقضي بانتقالها في حالات الوفاة أو فقدان الأهلية أو نشوء المانع الصحي إلى واحد -أو أكثر- من ورثة صاحب الامتياز أو إلى شخص آخر.
2- ما لم تنص اتفاقية الامتياز على غير ذلك، إذا كان صاحب الامتياز شخصاً ذا صفة اعتبارية، فتنقضي اتفاقية الامتياز بصدور قرار بتصفيته اختياريًّا أو بافتتاح أي من إجراءات التصفية له بموجب نظام الإفلاس أو بانقضائه. ولا يرتب تحوله أو اندماجه في شخص ذي صفة اعتبارية آخر، انقضاء الاتفاقية.
This is the official Arabic wording, the only legally binding version. We do not translate the law itself; the explanation below is ours. Official source: Bureau of Experts at the Council of Ministers
Article 16 explained in plain English
This article sets out the grounds on which the franchise agreement ends automatically because of something that happens to the franchisee, and it distinguishes between an individual and a company. All its provisions apply unless the agreement provides otherwise.
1- If the franchisee is a natural person (an individual): The agreement ends on any of the following:
- the opening of any liquidation proceedings against him under the Bankruptcy Law;
- his death;
- his loss of capacity;
- the arising of a health impediment that prevents him from carrying out the franchise business.
The agreement may include a provision for it to pass, in cases of death, loss of capacity or health impediment, to one or more of the franchisee's heirs or to another person.
2- If the franchisee is a legal person (a company): The agreement ends on a decision for its voluntary liquidation, the opening of any liquidation proceedings against it under the Bankruptcy Law, or its dissolution. But the company's conversion or merger into another legal person does not end the agreement.
This article differs from Article 17, which gives the franchisee the right to terminate the agreement by written notice where the franchisor materially breaches the disclosure or registration obligations. It is preceded by Article 15 on renewal. To arrange in advance for the franchise to pass to heirs, it is advisable to review the agreement with a lawyer who specializes in commercial cases.
Practical example
Ibrahim, who owned a restaurant franchise in Buraidah, died. Unless the agreement provides otherwise, the agreement ends on his death. But if the agreement included a provision for it to pass to his heirs on death, the franchise could pass to his son or other heirs according to that provision.
Translated from our Arabic explanation with machine assistance. For guidance only; it does not replace advice from a lawyer on your situation.
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Frequently asked questions about Article 16 of the Saudi Franchise Law
Does a franchise contract end on its owner's death?
Yes. Unless the agreement provides otherwise, the agreement ends on the death of the franchisee if he is a natural person.
Can the franchise pass to the heirs?
Yes. The agreement may include a provision for it to pass, in cases of death, loss of capacity or health impediment, to one or more heirs or to another person.
Does the franchise end if the company merges with another company?
No. A legal person's conversion or merger into another legal person does not end the agreement.
When does a company's franchise end?
Unless the agreement provides otherwise, it ends on a decision for its voluntary liquidation, the opening of liquidation proceedings against it under the Bankruptcy Law, or its dissolution.
More articles on Terminating the Franchise Agreement
- Article 17
The franchisee may terminate the agreement by written notice, without compensating the franchisor, if the franchisor materially breaches the disclosure or registration obligations, within the set period.
في حال وقوع إخلال جوهري من مانح الامتياز بالتزامات الإفصاح أو القيد المحددة في النظام واللائحة، يحق لصاحب الامتياز قبل انقضاء سنة من تاريخ علمه بالإخلال أو قبل
- Article 18
The franchisor may not terminate the agreement before its term ends without the franchisee's written consent unless there is a lawful ground, and the article lists the lawful grounds.
لا يجوز لمانح الامتياز إنهاء اتفاقية الامتياز قبل انتهاء مدتها دون موافقة مكتوبة من صاحب الامتياز؛ إلا إذا كان للإنهاء سبب مشروع. ويكون سبب الإنهاء مشروعاً في أ
- Article 22
The agreement to use any trademark or trade name connected with the franchise ends when the franchise is assigned, terminated, ends or is not renewed.
يترتب على التنازل عن اتفاقية الامتياز وأعمال الامتياز أو إنهائها أو انقضائها أو عدم تجديدها؛ انقضاء اتفاقية استخدام أي علامة تجارية أو اسم تجاري مرتبط بأعمال ال
The texts are reproduced from the official website of the Bureau of Experts at the Council of Ministers for reference; where they differ, the officially published Arabic text prevails. This content is not legal advice.