Commerce Ministry Flags Six Key Franchise Law Violations

Businesses operating under franchise agreements in Saudi Arabia have been reminded of new compliance measures, with the Ministry of Commerce highlighting six key violations of the Franchise Law that traders should avoid to steer clear of penalties.

The listed violations focus on registration and disclosure obligations. Companies must register the signed franchise agreement and the disclosure document with the Ministry of Commerce within 90 days of signing. Any amendment to the agreement — including a change of party or duration — must also be registered within 90 days of execution, while cancellation of a franchise registration must be requested within 90 days of the agreement's expiry, termination, or a court ruling invalidating it.

Disclosure timing is another focus area. The franchisor must provide the prospective franchisee with the disclosure document at least 14 days before the agreement is signed or before any payment is made, whichever comes first. Both the franchise agreement and the disclosure document must be in Arabic and filed electronically with the Ministry. Franchisors are also required to file the disclosure document periodically, typically each year within six months of the end of the franchisor's fiscal year.

Two further violations relate to market experience: offering or granting a franchise — or a sub-franchise — before operating the franchise business in the Kingdom for at least one year and having at least two franchisees, or otherwise operating in a way that contravenes the Franchise Law and its Implementing Regulations.

Penalties and reporting

Non-compliance can lead to an administrative fine of up to SAR 500,000. The law treats failures in registration or disclosure as a material breach, giving the franchisee the right to terminate the agreement without liability, claim repurchase of assets, and seek compensation. The Ministry's online "Franchise System Violations" reporting service is free of charge, with a stated completion time of seven working days. The measures aim to protect franchisees and strengthen transparency in a fast-growing sector.

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