Franchise Agreement template

First: The correct statutory sequence

Many problems arise because the parties start with the contract. The order the law assumes is:

#	Step	Timing	Responsible party
1	Actually operate the franchise business model before offering it	For at least one year, through at least two different persons or outlets	Franchisor
2	Prepare the disclosure document and deliver it to the franchisee	At least 14 days before signing the agreement or paying any consideration — whichever comes first	Franchisor
3	Review the document and negotiate	During the fourteen-day period	Franchisee
4	Sign the franchise agreement	After the period has elapsed	Both parties
5	Register the agreement and disclosure document with the Ministry of Commerce	Within 90 days of the date of signing	Franchisor

Important note for the franchisee: If you are asked to pay any amount before you have had the disclosure document for fourteen days, that in itself is a sign of non-compliance with the law. Ask for the document in writing, and record the date you received it.

Second: What must the disclosure document contain?

The disclosure document is not just an introductory paper; it is a tool that enables the franchisee to assess the opportunity before committing. Among the most important things it should include:

• The legal status of the trademark: the trademark registration number, date of registration, period of validity, and the registering authority and place — and whether it is registered in the Kingdom at all.
• Description of the franchise business: the products or services covered, and the operating model.
• All fees and costs: the franchise fee, trademark usage fees, training and fit-out costs, and any recurring amounts.
• The franchisor's experience and operating record, proving that the one-year and two-outlet requirement has been met.
• Any financial or operational obligations that will fall on the franchisee after signing.

Ask for the complete document. Gaps in it are not a mere formality — they deprive you of the ability to assess what you are paying for.

Third: Common mistakes in franchise agreements

• Linking the percentage to profits instead of revenue. Many templates in circulation provide for a “percentage of profits”. Profit is a figure affected by expenses and how they are calculated; it is more precise to link the percentage to net sales or revenue, with a clear definition of the term in the contract.
• Overlooking value added tax. Franchise fees and revenue percentages are taxable supplies if the franchisor is VAT-registered; the contract must state whether the amounts are inclusive or exclusive of VAT.
• Automatic renewal without review. Automatic renewal for similar periods may bind the franchisee for additional years on terms that are no longer suitable; it is better to tie renewal to a review of the terms and a clear notice period.
• Referring disputes to arbitration without understanding the implications. Arbitration is a legitimate option, but it differs from the courts in cost and procedure; it should be chosen deliberately, not copied.
• Not regulating what happens after termination: the fate of the trademark, inventory, data and customer list, and the duration of any non-compete obligation.

Fourth: Franchise agreement template (guidance structure)

This structure is to be used after completing the steps above, not instead of them. On (day) ________, corresponding to / / AH, in the city of ________, an agreement was made between:

1. First Party (Franchisor): ________ Company, Commercial Registration No. ________ dated / / AH, represented by Mr/Ms ________ in their capacity as ________.
2. Second Party (Franchisee): ________ Company, Commercial Registration No. ________ dated / / AH, represented by Mr/Ms ________ in their capacity as ________.

Article One: Preamble and disclosure document The preamble forms an integral part of this agreement. The Second Party acknowledges that it received the disclosure document on / / AH, that is, at least fourteen days before signing this agreement and before paying any consideration, and that it has reviewed it and understood its contents. Article Two: Subject of the agreement The First Party grants the Second Party the right to use trademark No. (________), the trade name and the business model to provide the following products or services: ................................ Article Three: Territory The agreement applies in the following area: ________. Whether the right is (exclusive / non-exclusive): ________. Article Four: Term and renewal The term is ________ years from the date of signing. It shall be renewed with the written consent of both parties, after notice given ________ months before expiry and a review of the terms. Article Five: Franchisor's obligations

• To deliver the disclosure document on time, and to register this agreement and the disclosure document with the Ministry of Commerce within ninety days of signing.
• To provide the agreed technical and administrative support and training.
• To ensure that the trademark registration remains valid throughout the term of the agreement.

Article Six: Franchisee's obligations

• To comply with the approved operating and quality standards.
• To protect the reputation of the trademark.
• Not to assign the agreement or sub-license without written consent.

Article Seven: Financial consideration

• Franchise fee: ________ Saudi riyals, payable ________.
• A periodic percentage of (____%) of net sales — meaning: ................................ (define the term precisely).
• Value added tax: the amounts above are (inclusive / exclusive) of VAT.
• Payment dates and reporting and audit mechanism: ................................

Article Eight: Confidentiality The parties shall not disclose confidential information, and these obligations shall continue after the agreement ends for a period of ________. Article Nine: Termination and its effects

• Grounds for termination for each party, with written notice and a cure period of ________ days.
• Effect of termination: immediate cessation of use of the trademark, the fate of inventory and equipment, customer data, and any non-compete obligation with its duration and scope.

Article Ten: Dispute resolution Disputes shall be settled amicably; failing that, they shall be referred to (the competent Commercial Court / arbitration under the ________ Arbitration Centre) — choose the option with awareness of its implications. Article Eleven: General provisions

• This agreement is governed by the provisions of the Franchise Law and its Implementing Regulations, and where they are silent, by the Civil Transactions Law.
• Any amendment requires the written consent of both parties.
• Executed in two copies, each party holding one copy.

Signatures: Franchisor: Name: ________________ Signature: ________ Date: / / AH Franchisee: Name: ________________ Signature: ________ Date: / / AH

For the official registration requirements and procedures, see: Franchise Registration Service — Ministry of Commerce. Check the time limits and requirements with the Ministry before relying on them, as they may be updated.