Recent amendments have been made to the franchise law in the Kingdom of Saudi Arabia, which affects what a franchisor must include in the franchise disclosure document it provides to a prospective franchisee in the Kingdom.
The amendment removes the requirement to disclose information related to the franchisor’s financial status. Previously, the franchise law required the franchisor submit the following statements: (a) its financial status at the end of its last fiscal year, accompanied with a statement signed by the franchisor indicating its ability to pay its debts as due; and (b) financial statements for the last two fiscal years.
This update to the franchise law will help simplify the Franchisor’s regulatory requirements. We asked Khalid Y. Almahfouz, Director of Franchise Development at Monsha'at (The General Authority for Small and Medium Enterprises in Saudi Arabia) for his thoughts on the change: "Since the release of the franchise law and regulations in the Kingdom almost three years ago, the Franchise Center actively kept monitoring all the challenges related to governing the relationship between franchisors and franchisees. Today, the exclusion of Article 13 from the [Franchise Disclosure Document] mandates will surely solve one of the most enduring challenges we have noticed, and it goes with the centre's continues efforts to make Saudi a regional and international franchising hub within the next few years."
Melissa Murray, Co-Head of the International Franchise Group and Head of the Middle East IP Department for Bird & Bird, advised "This is a very welcome update to the Kingdom of Saudi Arabia’s franchise law. Many of our clients are large international brands and so their financial audited statements are quite large and can be difficult for some franchisees to comprehend. Saudi Arabia is already an attractive destination for international franchisors and by removing this requirement, this shows Saudi Arabia is listening to the feedback provided on some of the challenges with the previous position. It is important to note this change does not compromise the protection of franchisee’s rights given the disclosure document still provides access to relevant information to allow the franchisee to make informed decisions regarding investing in a franchised business."
For more information regarding the Kingdom of Saudi Arabia’s franchise law – see here: