October 21, 2020 - KSA is making efforts to shape the business environment for the first time. The government's actions led to a sharp growth of franchising. Franchising allows small entrepreneurs to use the name of large and well-known brands and sell goods or provide services under their brand name.
This commercial arrangement also allows international companies to access the local market and enables local businessmen to invest by bringing international services and goods to the Kingdom.
Franchising in Saudi Arabia was legalized in the late 1970s and flourished in the early 1990s. Now there is a large number of international franchises operating in the Kingdom.
All big cities in Saudi Arabia have many well-known and international companies - from fashion boutiques to fast food chains.
Many entrepreneurs prefer franchises because of the lowest risk and good returns for both sides. Firstly, the franchisee benefits from the management experience of the franchisor because of these commercial transactions. Secondly, he benefits from the ready-made scheme of the business – it is only important to implement it!
Another reason of the popularity of franchise agreements is the ease with which banks can get financing thanks to the company's history and its proven business model.
Today we will take a quick look at the bankruptcy litigation procedure required in the franchise opening document.
The litigation clause is the most important element of a franchise agreement. It contains all details related to current litigation or future proceedings against the franchisor or his franchisee. It also applies to any violation of the contract, the mechanism of termination of the contract, its renewal, fraud, violations of the monopoly law within the Kingdom. The clause also covers the details of any litigation or arbitration proceedings against the franchisor in the past five years. The litigation document includes bankruptcy regulation procedures. The franchisor is also required to provide reports that show whether he has taken certain actions over the past 10 years, such as initiating any preventive settlement procedure or financial reorganization in accordance with the Kingdom's bankruptcy laws. If the franchisor entered into a bank agreement on lending to his franchise, used refinancing, or negotiated with creditors to transfer payments, he must also provide this information to the appropriate authorities.
Mutual understanding and consensus are the keys to the success of both sides in such transactions. The franchise law defines the legal framework in which a company must operate. Both sides of the contract have certain obligations to ensure the smooth running of the business. The law obliges the franchisor to inform the franchisee of any changes or amendments that he makes to the privacy document at the earliest opportunity.
One of the most important aspects, which also requires careful assessment when concluding such commercial transactions, is the financial position of the franchisor. The franchisor must be clear about his financial position as he sets the stage for the franchisee's future business projections.
It is also important to consider the possibility of income inequality between different franchisees due to their different location.
View all franchises in Saudi Arabia
Author: Vasil Gazizulin,
Founder of the international portal Topfranchise.соm