Article 4 of the Saudi Franchise Law

After Article 3 provided that the Law applies to any franchise agreement carried out inside the Kingdom, this article takes agreements and arrangements that are not franchise agreements outside its scope for the purposes of applying it. They are:

1. Franchises granted or issued by royal decrees.
2. Agreements or contracts subject to the Commercial Agencies Law in the Kingdom.
3. Agreements or contracts limited to buying and selling goods, or to providing services bearing a particular trademark, or to using a trademark or any other intellectual property rights in respect of any good or service. The word "limited" is important: a contract that is confined to that is not a franchise.
4. Arrangements in which the franchisee is wholly owned by the franchisor, directly or indirectly.
5. Any other agreements or arrangements the Implementing Regulations specify, the article not stating their details.

To understand the difference, refer to the definition of franchise in Article 1: it is not limited to use of the trademark, but includes carrying out business for the franchisee's own account, with technical expertise and know-how provided and the way of operating set, in return for consideration.

The importance of this classification is that an excluded agreement is not subject to the provisions of this Law, including the conditions for granting a franchise in Article 5, which prevent a franchise opportunity from being offered before the business model has been operated for at least one year by two persons or at two different points of sale. Because the distinction can be fine in composite contracts, it is advisable to consult a lawyer who specializes in commercial cases before characterizing a contract.