The Disproportionate Power Between the Parties in a Franchise Agreement

The study of franchise businesses in both the United States and Saudi Arabia entails an analysis of fairness and equity for all parties involved. This paper specifically highlights the relationship between the franchisor of the business to be franchised and the franchisee, who invests for the benefit of opening a similar company, maintains uniformity with the original concept, enjoys brand recognition, and attracts customers who are familiar with the enterprise. In addition, this article explores the various laws in place that seek to prevent fraud on the part of the franchisor, along with rules and regulations, practical suggestions, and other instructional assistance for the novice franchisee. This paper also draws a comparison with commercial contracts that serves to illustrate the nature of the franchise system as a basically unbalanced legal agreement, which allows the franchisor to remain as the principal, with powers wielded over the franchisee or agent in most aspects of the business relationship. A commercial contract, however, represents an equitable agreement throughout its contract clauses, both in termination terms or scope of work, and is-in comparison with franchises—a standard of fairness and freedom for both parties.