Franchise Agreement in UAE: Understanding the Legal Framework

The United Arab Emirates (UAE) is a popular destination for international franchisors looking to expand their businesses. With a booming economy and a favorable business climate, UAE offers many opportunities for franchisors to grow and reach new markets. However, before entering into a franchise agreement in UAE, it is essential to understand the legal framework governing franchising in the country.

What is a Franchise Agreement?

A franchise agreement is a legally binding contract between a franchisor and a franchisee. It outlines the terms and conditions of the franchise relationship, including the rights and obligations of both parties.

Franchising is a business model in which a franchisor grants a franchisee the right to use its trademark, business systems, and proprietary technology to sell products or services in a particular territory. In return, the franchisee pays a fee and ongoing royalties to the franchisor.

Legal Framework for Franchising in UAE

Franchising in UAE is regulated by Federal Law No. 18 of 1981 on Commercial Agencies (the “Commercial Agency Law”) and Federal Law No. 2 of 2015 on Commercial Companies (the “Commercial Companies Law”).

The Commercial Agency Law governs the relationship between the franchisor and the franchisee in UAE. It requires that all commercial agency agreements, including franchise agreements, be registered with the Ministry of Economy. The registration process involves submitting the agreement and supporting documents, paying a fee, and obtaining approval.

The Commercial Agency Law contains provisions that protect the interests of the franchisee, including the right to exclusivity and compensation for termination. It also requires that the franchisor provide training and support to the franchisee and maintain quality control standards.

The Commercial Companies Law governs the formation and operation of companies in UAE. It requires that all foreign companies seeking to establish a presence in UAE do so through a local entity, either by forming a joint venture with a UAE national or by establishing a branch or representative office.

Franchise agreements typically take the form of a commercial agency agreement or a license agreement. When entering into a commercial agency agreement, the franchisor must appoint a local agent to act as its representative in UAE. The local agent is responsible for registering the agreement with the Ministry of Economy and ensuring compliance with the Commercial Agency Law.

Conclusion

Franchising in UAE offers many opportunities for international franchisors to expand their businesses. However, it is essential to understand the legal framework governing franchising in the country and to comply with the Commercial Agency Law and Commercial Companies Law. By working with experienced legal counsel and complying with the applicable regulations, franchisors can build successful partnerships with franchisees and grow their businesses in UAE.