What Do You Know About Commercial Agencies in the Kingdom of Saudi Arabia?

Commercial Agencies in the Kingdom of Saudi Arabia

Commercial agencies are of great importance in the commercial and economic sphere within the Kingdom, particularly in light of Vision 2030, as they serve as a means to attract major foreign manufacturing companies of various goods to market and display their products in the Kingdom with confidence.

We therefore ask: What is meant by a commercial agency and a commercial agent? What are the legal requirements for an agency or distribution agreement? What are the conditions for registering a commercial agent or distributor in the register of agents or distributors? When is the registration certificate issued and endorsed in the commercial register? What are the most important rights of the agent? And what are the cases for striking off an agency or distribution registration?

To answer these questions, we set out the following:

First: The Meaning of Commercial Agency and Commercial Agent, and the Legal Requirements for an Agency or Distribution Agreement

(A) The Agency and the Commercial Agent

An agency, whether civil or commercial, is a contract by which a principal appoints another person — called the agent — to act on his behalf in a permissible and lawful transaction (1).

A commercial agent is a person who carries out his activity professionally and independently, treating agency work as his profession and source of livelihood, with the principal bearing the risks of this activity. This is in contrast to the commercial distributor, who owns the goods he receives from the producer (principal) or the agent, and resells or leases them for his own account, thereby bearing the risks of his own commercial activity (2).

The Saudi regulator confirmed this definition under the Commercial Agencies Regulation and its amendments, stating: “Any person who contracts with the producer or his representative in the producer’s country to carry out commercial activities, whether as an agent or distributor in any form of agency or distribution, in return for a profit, commission, or facilities of any nature” (3).

(B) Legal Requirements for a Commercial Agency or Distribution Agreement

In addition to the general conditions that must be met in all contracts — such as legal capacity, free and defect-free consent, and a lawful subject matter and purpose — the following must also be satisfied:

1. The commercial agency or distribution agreement must be in writing and concluded with the principal party in its home country, or with its authorized representative in that country.
2. The agreement must contain a comprehensive explanation of the rights and obligations of both parties (the principal and the agent) toward each other, as well as their obligations toward the consumer, particularly with regard to the provision of maintenance and spare parts (4).
3. The natural or legal person must hold Saudi nationality. Saudi companies must have entirely Saudi capital, and the members of their boards of directors, managers, and those authorized to sign on their behalf must be Saudi nationals (5).
4. Reference should be made to the model contracts for commercial agencies or distribution agreements issued by the Ministry of Commerce, which include the essential elements of the contract, such as the parties, its subject matter, its temporal and geographic scope, the manner of renewal and termination, and the obligations of both parties toward each other and toward the consumer, especially regarding maintenance and spare parts (6).
5. The commercial agency or distribution agreement must also include the following information:
   • The capacity and nationality of each party.
   • The subject matter of the agency, its territory, and what it covers in terms of activities, services, and goods.
   • The duration of the agency and the manner of its renewal.
   • The manner of termination or expiry of the agency.
6. Additional information or conditions may be added, provided they do not conflict with the regulations in force within the Kingdom (7).

Second: Conditions for Registering a Commercial Agent or Distributor in the Register of Agents or Distributors

No person may act as a commercial agent or distributor without being registered in the register designated for this purpose at the Ministry of Commerce. The following conditions must be met:

1. Registration applications must be submitted within three months from the commencement of the agency or distribution agreement.
2. Non-Saudi persons, or those whose registration documents are inconsistent with the Commercial Agencies Regulation and its implementing rules, may not be registered (8).
3. Registration applications in the commercial agencies register are accepted provided they are supported by the following:
   • Two copies of the agency or distribution agreement, one of which is an original duly authenticated by the relevant authorities.
   • A certified Arabic translation of the agreement and any other documents drafted in a foreign language.
   • A copy of the commercial registration form permitting agency or distribution activities.
   • A certificate from the Chamber of Commerce confirming payment of the due membership fee.
   • A declaration from the applicant — whether a natural person or a company — affirming that its capital is entirely Saudi, and that those authorized to sign or manage on its behalf are Saudi nationals (9).

Third: Issuance of the Registration Certificate in the Register of Commercial Agents or Distributors and Endorsement in the Commercial Register

(A) How the Registration Certificate Is Issued

After verifying that the registration requirements have been met from both a formal and substantive standpoint, approval of the registration is granted by the Deputy Minister or his designee. The documents are then referred for entry in the register of commercial agents and distributors upon payment of the prescribed registration fees.

(B) Endorsement in the Commercial Register

The commercial agent or distributor must apply to the Central Commercial Register Office within one month from the date of issuance of the registration certificate, in order to complete the endorsement in the commercial register. This may be done electronically or through the register, as determined by the Minister of Commerce (10).

Fourth: Rights of the Commercial Agent

It is notable that the obligations of the principal constitute rights established by law in favor of the commercial agent. These rights include:

1. The agent’s right to the agreed remuneration or commission and reimbursement of expenses: The principal must pay the wages or commission due to the agent in accordance with their agreement. The agent has a right of lien until he receives his entitlements. The remuneration may be a percentage of the transaction value, calculated on the basis of the selling price to customers, unless otherwise agreed (11).
2. The agent’s right to require the principal to supply the goods and services covered by the commercial agency or contract agency agreement, so that the agent may distribute them to the public, and that this is done on the terms and specifications agreed upon with the agent.
3. The agent’s right to bind the principal, as the original contracting party, to all obligations arising from the contracts concluded by the commercial agent — such as the obligation to provide spare parts, warranties, and product guarantees for a specified period (12).

Fifth: Cases for Striking Off the Commercial Agency Registration and Termination of the Agreement

An agency agreement generally comes to an end upon completion of the entrusted task, the expiry of the specified term, the death of either the principal or the agent, or the loss of legal capacity by either party (13).

If the principal dismisses the commercial agent at an inappropriate time or without acceptable justification, the principal shall be required to compensate the agent for any resulting harm (14).

The commercial agency or distribution registration shall be struck off in the following cases:

1. Expiry of the commercial agency or distribution agreement without renewal or extension.
2. The commercial agent or distributor losing any of the essential conditions stipulated in the Commercial Agencies Regulation and its amendments.
3. The trader — whether an individual or a company — ceasing commercial activity.

The strike-off is effected by drawing two red crossed lines through all entries on the registration page, with a note of the deletion in the section designated for that purpose (15).

There is no doubt that these cases and grounds constitute among the most important voluntary and legal grounds for the termination of a commercial agency (16).

What is the fundamental difference between a commercial agent and a commercial distributor in terms of ownership of goods and assumption of risks?

The fundamental difference between a commercial agent and a commercial distributor, in terms of ownership of goods and assumption of risks, is as follows:

• The Commercial Agent: Carries out his activity professionally and independently; however, it is the principal who bears the risks of this activity.
• The Commercial Distributor: Is the owner of the goods he receives from the producer or the agent, resells or leases them for his own account, and accordingly bears the risks of his own commercial activity.

In general terms, the Saudi regulator defined both the agent and the distributor as any person who contracts with the producer (or his representative in the producer’s country) to carry out commercial activities in return for a profit, commission, or facilities.

What is the importance of commercial agencies in light of Vision 2030?

Commercial agencies are of great importance in both the commercial and economic spheres within the Kingdom of Saudi Arabia, and this importance is especially prominent in the context of Vision 2030.

The strategic value of commercial agencies lies in their ability to attract major foreign manufacturing companies across various types of goods and services. These agencies provide a regulated environment that enables such companies to market and display their products within the Kingdom with confidence.

What conditions must Saudi companies meet in order to act as a commercial agent?

In order for Saudi companies to act as a commercial agent, they must fulfill a set of substantive conditions relating to their ownership and management, in addition to procedural registration requirements, as specified in the relevant sources:

1. Ownership and Management Conditions

• Saudi Nationality: The Company must hold Saudi nationality.
• Capital: The company’s capital must be entirely Saudi.
• Management and Signatory Authority: All board members, managers, and those authorized to sign on behalf of the company must be Saudi nationals.

2. Registration and Enrollment Conditions

• Registration: Commercial agency activities may only be carried out after registration in the designated register at the Ministry of Commerce.
• Time Limit: The registration application must be submitted within three months from the commencement of the agency agreement.

3. Supporting Documents and Requirements

• Commercial Register: A copy of the commercial registration form permitting the company to carry out agency or distribution activities.
• Agency Agreement: The original agency agreement (or a certified copy), together with a certified Arabic translation if in a foreign language, which must have been concluded with the principal in its home country.
• Nationality Declaration: An official declaration from the company confirming that its capital is entirely Saudi and that those responsible for management and signing authority are Saudi nationals.
• Chamber of Commerce: A certificate from the Chamber of Commerce confirming payment of the due membership fee.

Summary

This document addresses the legal and regulatory framework governing commercial agencies in the Kingdom of Saudi Arabia, highlighting their vital role in attracting foreign investment in line with Vision 2030. It distinguishes between the commercial agent and the distributor, emphasizing the requirement that the agent be a Saudi national with a fully national corporate structure. It also reviews the strict conditions for documenting and registering agreements with the Ministry of Commerce, with a focus on agents’ financial rights and their obligations to consumers regarding maintenance and spare parts. The discussion concludes by explaining the mechanisms for striking off registrations and the cases in which the contractual relationship between the principal and the agent comes to an end under applicable regulations. The material thus serves as a comprehensive guide ensuring the protection of all parties to the commercial process and regulating their activities within the Saudi market.

Sources

1. Article 480 of the Civil Transactions Law, issued by Royal Decree No. (M/191) dated 29/11/1444 AH.
2. Dr. Emad Abd al-Mun’im Abd al-Rahman, “Civil Liability of the Commercial Agent toward the Consumer — A Special Study of the Liability of the Contract Agent toward the Consumer,” Doctoral Dissertation, Faculty of Law, Cairo University, 2017, p. 31.
3. Article One of the Implementing Regulations of the Commercial Agencies Regulation, issued by Ministerial Decision No. (1897) dated 24/5/1401 AH.
4. Article Ten of the same Implementing Regulations.
5. Article One of the Commercial Agencies Regulation, issued by Royal Decree No. (11) dated 20/2/1382 AH (as amended), and Article Two of the Implementing Regulations of this Regulation.
6. Article Four, added to the Commercial Agencies Regulation by Royal Decree No. (M/32) dated 10/8/1400 AH.
7. Article 11 of the Implementing Regulations of the Commercial Agencies Regulation.
8. Article Seven of the same Implementing Regulations.
9. Article 9 of the Implementing Regulations.
10. Article 13 of the Implementing Regulations of the Commercial Agencies Regulation, and Article Eight of the new Commercial Register Law, issued by Royal Decree No. (M/83) dated 19/3/1446 AH, which replaced the Commercial Register Law issued by Royal Decree No. (M/1) dated 21/2/1416 AH.
11. Dr. Adnan Ahmad Wali al-Azzawi, “The Legal System of Commercial Agencies under UAE Law,” 1st edition, 2012, Centre for Jurisprudential, Legislative and Judicial Research and Studies, Department of Justice, Emirate of Abu Dhabi, p. 41. Also see Article 498 of the Saudi Civil Transactions Law, issued by Royal Decree No. (M/191) dated 29/11/1444 AH.
12. Dr. Adnan Ahmad Wali al-Azzawi, op. cit., p. 41.
13. Article 502 of the Civil Transactions Law.
14. Article 504 of the Civil Transactions Law.
15. Article 16 of the Implementing Regulations of the Commercial Agencies Regulation.
16. For further detail, see Dr. Abd al-Razzaq Bounbedir, “Voluntary and Legal Grounds for the Termination of Commercial Agency under English and French Law,” Doctoral Dissertation, Faculty of Law, Cairo University, 1989, p. 84 et seq.