Franchise Purchasing in the UAE: Legal Ramifications and Support Resources

The United Arab Emirates (UAE) has emerged as a thriving hub for franchise opportunities, attracting individuals seeking to venture into the world of business ownership. However, potential franchisees must be aware of the legal implications and available resources before embarking on this journey. This article explores the legal ramifications of purchasing franchises in the UAE and highlights the resources and support systems in place to assist individuals throughout the process.

I. Understanding the Legal Framework:

Purchasing a franchise in the UAE involves navigating a complex legal framework that ensures the protection of both franchisors and franchisees. The primary legislation governing franchising in the UAE is Federal Law No. 18 of 1981 on the Organization of Commercial Agencies (Commercial Agencies Law). This law provides a comprehensive framework for franchise agreements, covering areas such as registration, termination, and dispute resolution. In the past, many franchisees in the UAE opted to register themselves as commercial agents so long as they fulfill statutory criteria. The registry is organized and managed federally by the Ministry of Economy. 

II. Compliance with Franchise Regulations :

Franchisees must comply with specific regulations set forth by the UAE authorities to ensure a smooth and legally compliant operation. One crucial requirement is the registration of the franchise agreement with the UAE Ministry of Economy. This registration protects the rights of both parties and enhances the enforceability of the agreement in case of disputes. Additionally, franchisees must adhere to the UAE’s commercial, labor, and intellectual property laws.

Incorporation process and Requirements: 

There are seemingly no franchise registration requirements in the UAE. However, if a franchisee intends to register as a commercial agent, they must submit an application for registration in the commercial agent registry. This application should be accompanied by a written and notarized contract, which must be translated into Arabic, and legalized through the UAE diplomatic channel if it was executed outside of the UAE. The application should also include supporting documents, such as the names, nationalities, and addresses of the agent and principal, details of the assets, commodities, and services relevant to the trade agency, the agent’s area of activity, and the start and end dates of the agency.

Additionally, trademark licenses that fall within the scope of the franchise can be recorded at the UAE trademark office. Many franchise agreements include provisions for brand use authorization, and parties often choose to complete the necessary formalities. This process serves to demonstrate trademark usage and grants parties certain rights. However, it is not obligatory to explicitly reference franchise rights or record in the agreement.

III. Legal Protection and Dispute Resolution :

The UAE provides legal protection mechanisms to safeguard the interests of franchisees. Franchisees can seek recourse through the UAE courts or alternative dispute resolution methods such as arbitration and mediation. The UAE has established specialized commercial courts and arbitration centers that are well-equipped to handle franchise-related disputes efficiently and effectively.

IV. Support and Resources for Franchisees :

Recognizing the significance of franchising for the UAE’s economy, various institutions and organizations offer resources and support to individuals interested in purchasing franchises. The UAE Ministry of Economy, through its Franchise Department, provides guidance, information, and assistance to potential franchisees. They offer resources such as online platforms, workshops, and advisory services to help franchisees make informed decisions.

Furthermore, franchise associations, such as the UAE Franchise Association (UAEFA), play a vital role in supporting franchisees. These associations facilitate networking opportunities, knowledge sharing, and access to industry events. They also advocate for the interests of franchisees and provide valuable guidance on best practices and compliance with franchising regulations.

Foreign investment laws and restrictions on Non – Nationals: 

Previously, it was mandatory for nationals to hold at least 51% of the shares in onshore companies in the UAE. However, with the implementation of Federal Decree – Law No. 26 of 2020, this requirement was eliminated from Article 10, allowing for 100% foreign ownership in a dozen commercial activities, albeit with certain limitations.

These limitations exclude certain activities from 100% foreign ownership, including but not limited to commercial agency activities, as well as strategic sectors such as banking, insurance, telecommunications, and others.

Nevertheless, according to the amended Commercial Agencies Law under Law No. 11 of 2020, which applies to franchise relationships if the franchise agreement is registered with the Ministry of Economy and if the agreement grants exclusivity over the entire UAE or specific Emirates, commercial agency activities can only be conducted by one of the following:

  1. A UAE national
  2. A UAE public joint-stock company with at least 51% ownership by UAE nationals
  3. A UAE private entity owned by a public joint-stock company that meets the aforementioned requirements
  4. A UAE private entity that is 100% owned by UAE nationals

For companies incorporated in free zones, they can still enjoy 100% foreign ownership in accordance with the applicable regulations and requirements.

Purchasing a franchise in the UAE offers immense opportunities for aspiring entrepreneurs, but it also comes with legal responsibilities and considerations. Understanding the legal ramifications and utilizing available resources is crucial for a successful franchise venture. By familiarizing themselves with the legal framework, complying with regulations, and seeking support from relevant institutions, individuals can navigate the complexities of franchise purchasing in the UAE with confidence. Engaging legal counsel and leveraging the support systems available will ensure a smooth and legally sound journey towards franchise ownership in this dynamic business landscape.

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