setting up corporates (5): The legal regulation of commercial agencies!

For more than six decades, the Kingdom of Saudi Arabia has been keen on paying attention to the private sector to become the mainstay of economic activity, through policies, incentives, and regulatory initiatives aimed at increasing the effectiveness of the private sector in the national economy.

Perhaps one of the essential activities of the private sector that aims to ensure the entry of goods and services into the Kingdom is the activity of the commercial agency, through which Saudi institutions and companies play a substantial role in moving the wheel of production, activating the quality of products and raising the standard of living of citizens, and then contributing to raising the rates of economic performance by activating the trade and investment movements, providing the Saudi society’s needs of services, consumer goods, spare parts, maintenance centers, and importing and bringing the society’s needs of modern equipment into production processes.

What is the Commercial Agency!

The commercial agency is the contract of a person with the producer or whoever acts on his behalf in his country to carry out commercial business, whether he is an agent or distributor in any form of agency or distribution, in return for profit, commission, or facilities of any nature. This includes shipping, air or land transport agencies, and any other agencies shall be issued by a decision from the Minister of Commerce.

There are many types of recognized commercial agency contracts, the most important of which are the following:

–         Franchise: a contract in which one party (the franchisor) grants to the other party (the franchisee) the right to use one or more intellectual or industrial property rights or technical know-how to produce a good or distribute its products or services under the franchisor’s trademark according to For his instructions and under his supervision, in return for a fee.

–         Commercial agent: In this contract, one of the parties (the agent) is entrusted to sell a commodity or service on behalf of producers, merchants, and distributors in return for a certain amount or a certain percentage of profits.

–         Distribution: In this contract, one of the parties (the distributor) deals with the other party (the producer) for the purpose of selling the goods for the account of the (distributor) own.

–         Services contract: It is an agreement whereby the contractor undertakes to perform work for a certain agreed price, such as contracts of transport of all kinds, ground handling for airports, and other services.

–         Internal distribution: This contract is between two Saudi merchants, whereby the first party undertakes the process of selling the products manufactured by the second party.

How to be a commercial agent!

According to the applicable Saudi Commercial Agencies Law, the commercial agent must be a Saudi national, whether he is a natural or legal person, and the capital of the company that conducts its business as a commercial agent must be entirely Saudi, also the members of its board of directors, managers and those who have the right to sign must be Saudis.

After this condition is met, everyone who wishes to practice the business of a commercial agency in Saudi Arabia must also submit an application for registration in the registry prepared for this purpose, so that the entry includes the data of the merchant or company, the type of goods entrusted to it, the company or establishment entrusted with it, and the date and duration of the agency.

Two copies of the commercial agency or distribution contract certified by the competent authorities, and translated into Arabic if the contract is written in a foreign language, must be attached to his application, provided that this contract must include a comprehensive statement of the rights and obligations of its parties towards each other and towards the consumer.

After verifying that the registration requirements, including conditions, documents, and data, have been fulfilled, the agent’s entry in the Commercial Agents Registry is approved, and the agent has the right to practice agency activity in the goods that have been registered.

Thus, the conditions for registration of commercial agents are:

1- Existence of a commercial register corresponding to the agency’s activity.

2- The agent companies or establishments must be entirely Saudi with 100% Saudi capital.

3- If both parties to the contract are Saudis, the contract shall be ratified by the Chamber of Commerce and Industry in the Kingdom for both parties.

4- If the client is a foreigner, the original contract shall be certified by The Ministry of Foreign Affairs in the country of the client, the Chamber of Commerce in the country of the client “if any”, The Saudi embassy in the country of the client, the Saudi Ministry of Foreign Affairs, and the Saudi Chamber of Commerce and Industry.

A new law is on the horizon!

With the aim of addressing the challenges faced by the activity of commercial agencies and distribution in the Kingdom, and for the purpose of developing an effective legal framework that regulates the relationship between the parties to commercial agency contracts and takes into account their rights, and lays the foundations for this relationship based on the principle of transparency, and the consolidation of the principle of freedom of contract. In addition to reducing disputes arising from the application of these contracts, facilitating their settlement procedures, promoting fair competition, ensuring the continued access of goods and services to the Kingdom, taking care of consumers’ rights, and encouraging foreign investments.

A new law is expected to be issued soon to clarify the main rights and duties of the parties to distribution contracts and commercial agencies, address cases of expiry and termination of such contracts, define provisions related to the commission, and facilitate procedures for settling disputes arising from those contracts.

This law is called the “Distribution and Commercial Agencies Agreements law”, and it is expected to contribute to promoting fair competition and ensuring the continued access of goods and services to the Kingdom, in addition to the growth of investment opportunities in distribution and commercial agencies agreements and encouraging the entry of foreign investments in the light of improving and regulating the relationship between clients with Agents and distributors, in addition to facilitating procedures for settling disputes arising from the application of distribution and commercial agencies agreements and limiting them. The system will also contribute to improving the level and quality of services provided to the consumer by agents and distributors at all stages of commercial dealings.

The draft of the new law was distinguished by some new provisions, the most important of which can be stated as follows:

–         Cancellation of the requirement of Saudi nationality for the commercial agent or distributor provided that a license is obtained from the Ministry of Investment in accordance with the Foreign Investment Law. (Article 4 of the draft law).

–         Excluding franchise contracts from being subject to this system. (Article 3)

–         A detailed clarification of the rights and obligations of the parties to the agreement, whether towards each other or towards the consumer, in addition to a clarification of the rights and obligations of the new agent or distributor towards the old agent or distributor and towards the client. (Articles 8 to 14)

–         Regulation of the provisions for determining the commission and the term granted for its payment, and the competent authority to determine it in the event of not agreeing to specify it in the contract. (Articles 22 to 24)

–         Regulation of direct or indirect competition provisions, and provisions of exclusive commercial agency agreements. (Articles 25 to 28)

–         Establishing a body to conciliate in disputes arising from commercial agency contracts, to which the parties can agree to resort. (Article 30)

–         Allowing the parties to resort to means of amicable settlement of disputes, such as arbitration, conciliation, and mediation. (Article 29)


This was a quick overview of the legal regulation of commercial agencies in the Kingdom of Saudi Arabia, provided by ALF Law Firm as part of a series of articles on establishing companies, which it publishes on its website periodically to provide its current and future clients the information on the most important and latest developments in the Saudi legal system.