Article 5 of the Saudi Franchise Law
المادة 5 من نظام الامتياز التجاري · الفصل الثالث: شروط منح الامتياز
A franchise opportunity may not be offered or granted until the business model has been operated for at least one year by two persons or at two points of sale, with an additional condition for sub-franchises.
Official text (Arabic)
This article has not been amended since the law was issued.
1- لا يجوز عرض فرصة الامتياز أو منح الامتياز إلا بعد ممارسة أعمال الامتياز وفقاً لنموذج عمل الامتياز مدة لا تقل عن سنة واحدة من قبل شخصين أو في منفذي بيع مختلفين على الأقل، ويجوز أن يكون أحد هذين الشخصين مانح الامتياز أو أي شخص ضمن مجموعته.
2- إذا كان مانح الامتياز لا يمارس أعمال الامتياز في المملكة بنفسه، فلا يجوز لصاحب الامتياز -الذي يملك حق منح امتياز فرعي- عرض فرصة الامتياز أو منح الامتياز إلا بعد ممارسته -أو غيره من أصحاب الامتياز- لأعمال الامتياز في المملكة مدة لا تقل عن سنة واحدة، وللوزير تعديل المدد المنصوص عليها في هذه المادة.
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 5 explained in plain English
This article sets a prior experience condition before any franchise is marketed, so that investors are not sold a business model that has not been tested.
Paragraph one: A franchise opportunity may not be offered and a franchise may not be granted until the franchise business has been carried out according to the franchise business model:
- for a period of not less than one year;
- by at least two persons or at two different points of sale;
- and one of the two persons may be the franchisor himself or any person within his "group" as meant in Article 1 (one controlled by the franchisor, or who controls him, or who, with him, is subject to the control of a third person).
Paragraph two: This concerns the sub-franchise. If the franchisor does not carry out the franchise business in the Kingdom himself, a franchisee who holds the right to grant a sub-franchise may not offer the opportunity or grant the franchise until he or other franchisees have carried out the franchise business inside the Kingdom for a period of not less than one year.
The article gives the Minister the power to amend these periods, so any ministerial decision on this should be checked.
This condition does not apply to arrangements that Article 4 excludes from the description of a franchise. After this condition is met, the registration requirements in Article 6 follow, under which the franchise agreement and the disclosure document are registered with the Ministry. Anyone planning to turn a business into a franchise is best advised to consult a lawyer who specializes in commercial cases.
Practical example
Sarah opened a successful bakery in Riyadh six months ago and has received offers to buy a franchise of it. Under this article she may not yet offer the franchise, since the business model must be operated for at least one year by two persons or at two points of sale, so she decided to open a second branch and operate both for a year before offering the franchise.
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 5 of the Saudi Franchise Law
Can I sell a franchise of my business after opening one branch?
A franchise opportunity may not be offered or granted until the franchise business has been carried out according to the business model for at least one year by at least two persons or at two different points of sale.
Can one of the two branches be owned by me?
Yes. One of the two persons may be the franchisor himself or any person within his group.
What is the condition for granting a sub-franchise of a foreign brand that does not operate in Saudi Arabia?
If the franchisor does not carry out the franchise business in the Kingdom himself, the franchisee who holds the sub-franchise right may grant it only after he or other franchisees have carried out the business in the Kingdom for at least one year.
Can the one-year period be changed?
Yes. The article allows the Minister to amend the periods set out in it.
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.