The concept of a franchise arrangement is not recognised under a separate law in Kuwait. There is no legal definition or specific law governing franchising. There are no legal requirements or compliance procedures imposed on the franchisor prior to offering franchises in Kuwait. There are no disclosure requirements under Kuwaiti Law for franchisors. There is no specific government agency which regulates the offer and sale of a franchise.

All agreements, including franchise agreements, are governed by the Law of Commerce (“Commercial Code”) No. 68 of 1980 and the Civil Code NO. 67 of 1980. The Civil Code provides the general rules of law under the Kuwaiti legal system. The law enacting the Civil Code Law No. 67 for the year 1980 provides in Article (3) that the Civil Code provisions do not supersede the provisions of specific laws that regulate specific matters. The Commercial Code provides in Article (1) that the Commercial Code provisions shall apply to all commercial transactions undertaken by any person even if he is not a merchant. Article 96 of the Second Book of the Commercial code provides that "Except as provided for in this Book the rules provided or in the Civil Code shall apply to all commercial obligations and contracts.

As per the provisions of the Civil Code, fraud is one of the grounds on which the contract is voidable at the instance of the party who has been defrauded, in which case such party may either repudiate the contract or insist on the performance of the contract such that they would be placed in the position that they would have been in if the fraudulent representations were true.

A franchise may be fall under the Commercial Agency Laws in Kuwait. Commercial agencies in Kuwait are governed by Law No. (36) of (1964) on the Regulation of Commercial Agencies, and Articles (260-296) of the Kuwaiti Commercial Code. Pursuant to Article (1) of the Law No. (36) of (1964), non-Kuwaiti citizens may not act as commercial agents in Kuwait. Article (10) of the Law states that anyone who violates this rule are subject to be imprisoned for three months and/or to pay a fine. There must be a direct relationship between the Kuwaiti agent and the foreign principal. Article (2) of Law No. (36) stipulates that commercial agencies are not enforceable unless recorded in the Commercial Register.

There are three types of commercial agencies in Kuwait:

First Type The first type of commercial agency is a contracts agency as per Article (271) of the Kuwaiti Commercial Code. In this type of agency, the local agent undertakes to do the following by the contract: a) promoting the principal’s business on a continuous basis in the territory, b) entering into transactions in the name of the principal in return for a fee. The agency contract must be written. Items of contract must define: the territory covered, the agent’s fees, the agency term, the product or service that is the subject of the agency, and any relevant trademarks. If the agent should establish showrooms, workshops, or warehouse facilities, the contract must be valid for a period not less than five years.

Second Type The second type of commercial agency is a distributorship agency. Under this agency, the local agent may act as the distributor of the principal’s product in a defined territory and in return for a percentage of the profit as per Article (286) of the Kuwaiti Commercial Code. If the distributor is the only distributor in the whole country, distributorships are governed by the same general rules as contracts agencies.

Third Type As stated in Articles (287) to (296) of the Kuwaiti Commercial Code, the third type of commercial agencies is the commission agency. In this type of agency, the agent concludes contracts in his/its own name. The principal’s name may not be revealed without his consent.

The franchise relationship may fall under the Second Type of agency relationship. In this case, if the franchisee is granted exclusive rights in Kuwait and the franchisee is a Kuwaiti National, the franchise agreement may be registered as a commercial agency and the following protective procedures will apply:

Registration of Commercial agencies is required to be enforceable.
Kuwaiti law is the governing law in all public policy matters.
The principal may not terminate the agreement without proving violation of the contract by the agent. If contract violation is not proved, the principal should compensate the agent.
The principal may not decline to renew the agency agreement upon its expiration without paying the agent equitable compensation for the non-renewal, provided that the agent provides evidence that he is not at fault and that his activities successfully promoted the principal’s products.
The agent may file a suit against both the principal and the new agent appointed in Kuwait, if the principal colludes with another agent, and, for this reason, the agency contract is terminated.

To avoid being classified as a commercial agency, certain provisions will need to be included in the franchise agreements as well as other steps to ensure that registration is not made without the consent of the franchisor.