Economics Essay Sample on Forming a Business through Agency and Acquiring Foreign Investment

Forming a Business through Agency and Acquiring Foreign Investment


The law of agency is an area of law that mostly appears in business law. It is a law that regulates businesses that involve third parties. The parties who play the most important role in the law of agency are the principle, who is the owner of the good or service that is the subject matter of the contract, the agent who is the middle man and who facilitates the entering into the contract and the third party who is a purchaser and enables the exchange to take place. The agent takes the position of the principle for as long as the contract is in existence. He or she may even have possession of the good that is to be exchanged; property does not transfer to him or her though. The law of agency therefore deals with contractual, quasi contractual and non- contractual fiduciary relationships. Agency, therefore, leads to the creation of legal relations and as such is partly dependent on the law of contract. Agency is a situation that arises when one person, the agent, directly or indirectly, through actions for example authorizes another party, the agent to act on his or her behalf. Any representation made by the agent, therefore, in the course of dispelling of his business is binding to the principal. The agent wholly takes over the duties and the responsibilities of the principal in regards to the specific duty that is supposed to be performed. He or she negotiates and makes important decisions that would help bring the principal and the interested third party into a contractual position. Basically then, the law of agency is a law that is supplementary to the law of contract in that the two laws work hand in hand in the case where an agency relationship has been created. The law of agency is the law that sees to it that the relationship between the agents and the principals are governed and that the relationship between the principal and third parties and the agents and third parties are also governed.

As stated earlier, the law of agency comes into play where there is a principal agent relationship. In this situation, one person, the principal asks another, the agent to act on his or her behalf in entering a contract. Agents, therefore, contract in the place of the principal and any bargain that they get into is binding to the principal as long as it was entered into in good faith. There are different types of agents classified differently. When the basic principles of the law of agency are used to classify agents, there arise three different types of agents. There are the universal agents who are agents who hold the broadest authority in the law of agency. They are agents who have been given the power to represent the principal in almost every aspect of his life especially in dealing with legal issues. Such agents may hold the power of attorney, (POA) also known as a letter of attorney and as such is responsible for all the decisions made by the principal. It is a written contract that gives a party the authority to act on behalf of the principal in matters that touches on his or her private affairs, businesses and even in legal matters. So long as there is no fraud, coercion, misrepresentation or other crimes involved in the decision making process of the person holding the power of attorney, the decisions made are considered  as if they were made by the principal himself.

There also are agents who are known as general agents and are agents who are contracted to perform specific functions over a specified period of time. There principal- agent relationship in this case does not confer lots of power to the agent and as such the activities that he or she can do and that will be considered binding to the principal. The general principal is in most cases contracted to work over a continuous period of time. Special agents are another category of agents, these are agents who are contracted to do a specific single transaction, and at times, specified transactions over a specified period of time. The amount of time that the contract of agency lasts is therefore important in determining the classification of the agent.

The authority given to the agent can also be used in the classification of agents. Authority is important in the law of agency because it is the determining factor on whether the actions done by an agent will be binding or not. All an agent has to do to escape liability and to ensure that the contract that he or she gets into is binding to the principal is to act within the scope of the authority that the principal gives him or her. The authority given to an agent by the principal can also be classified into three. The first kind of authority is known as actual authority. This is authority can be gotten expressly or impliedly. For there to be actual authority, there has to be a representation in that the principal must have said words, or acted in a way to make the agent know that he or she had been given the authority to act as an agent. There has to be consensual agreement between the two, the principal and the agent and this agreement may be implied or expressly stated.  As was stated in the case of Ireland v Livingstone, [1872] LR 5 HL 395 express actual authority simply means that the agent has been told directly to act as an agent on the behalf of the principal. Implied authority on the other hand is an authority that the agent gains when it becomes important for him or her to carry out express authority. This means that once a person has express authority, it can be said that he or she has implied authority, whether stated or not, to do activities that he or she needs to do so as to dispel of the express authority. This was as decided in the case of Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549. Apparent authority is another form of authority that can be gotten in a principal, agent relationship. This is an authority that is also known as ostensible authority and comes into play when the principal, through words or action, leads the person purporting to act as an agent to believe that he or she has been contracted to act as an agent. This is taken from a reasonable man’s perspective in that a court of law would want to establish if the actions of the ‘principal’ would lead a reasonable by- stander to believe that he or she had been contracted to act as an agent. If a person, therefore, acts in a way that induces another to believe that the person in so acting intended to create an agency relationship with him or her, the person acting as such is estopped from later on denying the existence of an agency (Munday 2008). The principle of estoppel can therefore be used in this type of principal- agent relationship. The principal is, however, only estopped from denying the existence of an agency relationship if the third party has relied on the representation made by the ‘agent’ to change his or her legal position. The doctrine of apparent authority is discussed by judge Slade in the case of Rama Corporation Ltd v Proved Tin and General Investments Ltd (Klass, 2010).

 Since the law of agency is based upon existing contractual relationships, there has to be liability of one person to the other.  In most cases, the agent is not liable to the third arty entering the contract. This position is even more stressed on when the agent has actual or apparent authority. He or she cannot be held liable for representations made to third parties so long as they are intra vires the agency contract. For this position to stand, however, the identity of the principal has to have been prior disclosed so that the third party knows who he or she is contracting with? The agent and the principal can both be held liable if the identity of the principal is not disclosed or is partly disclosed. An agent who acts without authority, is however, exclusively accountable. Apparent authority can raise liability on the part of the agent to the principal. This occurs when the principal suffers loss as a result of the contract entered into by the agent and the third party with apparent authority. The agent is accountable for any loss suffered by the principal. The principal, on the other hand, is liable to the agent if the agency, gotten into with apparent authority leads to loss on the agent.

There are various circumstances under which a principal, agent relationship can be terminated. The most common and most known reason is when the subject matter of the contract, i.e. the duty that was supposed to be performed by the agent, has been completely dispelled of and the agent paid for his or her services. In this case, the work that is to be performed by the agent is done and the agency relationship comes to an end. There are other ways in which the agency relationship can come to an end, among these ways are, when the contract becomes frustrated by the unavailability of the subject matter. When the subject matter of the contract becomes unavailable, such that it is no longer the property of the principal or that it is not in a condition that would allow a transfer or a transaction, the agency relationship is a said to have been frustrated and thus comes to an end. The agency relationship can also come to an end when the agent withdraws. Though a principal is under normal circumstances prevented from revoking a contract, the agent can revoke a contract. The principal has the right in such a case to sue the agent for breach of contract especially in cases where he or she had relied on the contract and changed his position and as such revocation would disadvantage him or her. The death of either the agent or the principal also frustrates the contract thereby terminating it. Other factors that can lead to the cessation of a contract include insanity and bankruptcy of either the agent or principal. Termination of the contract can, however, not is allowed after the contract has been partly performed.


In the United States of America, there are numerous laws that have been put in place to administer the law of agency. Agency is basically governed by the most rudimentary of laws that is the law of contract. Secondly, it is governed by the business laws in the country because agency relationships are based on business transactions. The law of agency is also governed by the particular area in which the agent deals with. For example, an agent dealing with real estate is not only going to be governed by agency and contract laws in the U.S.A but also by real estate laws in the country. The laws on agency may differ considerably from one state to another, the federal laws of agency; however affect agency relationships entered into to enable the performance of international duties.

Trade is one of the most important activities to the economy of any country, the most important form of trade being international trade. As such, there are numerous attempts by different countries to ensure that trade is well governed and that the laws governing national and international trade are to the advantage of the specific country while still appearing favorable to other countries. International trade is in a majority of the cases dependent on agency relationships. It has therefore been important in the United States of America to ensure that agency laws are properly constructed to protect agents, third parties and principals in the country and out of the country. This is important in ensuring that there are good trade and business relations between the U.S.A and other countries. The United States of America has over time been able to come up with laws that properly govern the laws of agency.

Once there is an agency relationship for international business transactions, the laws of agency comes into play. The law of agency in international business transactions requires the authority to be express authority. The agent is accorded with the direct right to act instead of the principal. Both the agent and the principal in this case can be a person, people or a company. The agent, thereafter, looks for the third party to whom the contract is to be entered into with. After finding the third party, the agent is required to let the party know that he or she is just an agent and that he or she is entering into the contract on behalf of the principal. It is a mandatory rule that the agent should disclose to both the third party and the principal who they are dealing with in that the principal should know who the agent is and the agent should know who the principal is. This ensures that the people getting into the contract know each other and approve of each other. The agent then goes ahead to enter into the contract ensuring that all the requirements of a contract are fulfilled. Once the performance of the duties of the agent has started, the principal is bound to the contract and cannot revoke it. The agent, however, must in all cases ensure that the duties that he or she is doing are in line with the authority bestowed upon him or her by the principal. This was discussed in Armstrong v Jackson.  The duties of the agent to the principal include duties to perform his agency as agreed in the agency contract. Failure to perform agency will lead to breach of contract.  As held in the ruling in Turpin v Bilton, the agent is required to follow the lawful instructions that are given him or her by the principal.

International agency relationships as governed by the federal laws in the U.S.A are at times bound to arise in the case of illegal activities such as the sale of illegal drugs. In such cases, the agent may not be aware that the agency is to assist in an illegality at the time of entering into the contract. As soon as the agent realizes that the subject matter of the contract is illegal, he or she is required to revoke the contract. This was as decided in the case of Cohen v Kitell, and in the case of Thomas Chesire and Company v Vaughan Bros and Company. In these cases, it was determined that a principal agency contract entered into to enable an illegal activity to occur is null and void. In the performance of his or her duties, the agent is required by law to observe and to exercise due diligence and care. The agent cannot be careless in any of his dealings. He or she should keep in mind that the property or the subject matter of the contract being dealt in does not belong to him or her. This was decided by Judge Phillips in the Superhulls Cover Case. The agent, as can be seen in the decision in this case, owes the principal and the agent a duty of care and failure to exercise due diligence and care can lead to the agent being held liable for any loss suffered as a result of his or her actions. The federal agency laws have been useful in governing trade and other business transactions in the country.

The law of agency in Illinois

The law of agency in Illinois to be specific is governed by the state laws. Though here may be a few differences between such laws and the federal laws on agency, a majority of the particulars of the laws are similar. The laws of agency in Illinois can therefore be said to be following the international laws on agency. The law of agency in Illinois governs a number of areas, among them, the area of real estate. Under the Real Estate Act, the real estate agent will owe you specific statutory responsibilities that are the same to the fiduciary agency duties. The Real Estate Act lists down the duties of Agents as,

• Execute duties given in accordance with the terms and conditions of the agency contract

• Promote the best interests of principal hence the need to ensure due diligence is observed. This can be done in various ways for example, ensure that he or she gets into a transaction that best represents the interests of the principal. The agent is also required to ensure that the principal is made aware of each and every step the transaction and also by ensuring that the principal gets maximum profits from the transaction.

• The agent is also required to account for all the money or property received from the transaction especially if the principal is affected by the receipt of the money of property.

• The agent is also charged with the duty of obeying all the instructions given by the principal so long as such instructions are legal.

• The agent is required to exercise reasonable skill, due diligence and care in performing the duties that he or she has been charged with.

• The agent is supposed to be trustworthy in that he or she is required to keep all the confidential information of the principal as such, confidential.

• Most importantly, the agent is required to comply with the Act, to keep in mind the laws of contract and to observe the laws of agency in Illinois.

• The agent is required to outsource for as many buyers as possible so that the transaction may gain the most benefit.

The agent is forced to abide by the disclosure provisions in the Act. In accordance with the Act, the agent is required to disclose all information concerning the contract he or she enters into to the principal. The agent can enter into a contract with the third party orally, but such a contract would have more effect in case there are legal issues arising because of it if it were written down.

Basically, the laws of agency in Illinois are borrowed from the federal laws of agency, laws which are similar to a number of agency laws all over the world (Klass 2010). Agency laws are more favorable when they resemble as closely as possible from one state to another and from one nation to another. This is mainly because the laws of agency are not only concerned with agency in a particular state or country but also in international trade and transactions. With laws that largely resemble, the agents have an easier time understanding the law especially in international transactions and as such they do not run a risk of getting into transactions that are against the law.

Doing Business on Agency in Saudi Arabia

Saudi Arabia is considered to be one of the most significant economies in the universe. It is an area that, though mostly a desert, boasts of excellent economic performance and as such has one of the most stable economies. Saudi Arabia is also one of the areas in the world where a majority of investors target when thinking of foreign investments. Since these investors do not have a clear idea of what the law of agency in Saudi Arabia and what the business laws stipulate, they may find it a bit difficult to invest in the country; it is in this regard that agents in Saudi Arabia become extremely important.

The basic legislative framework regarding commercial agencies, distributorships and franchises in Saudi Arabia is governed by the Commercial Agency Regulation, Royal Decree No. 11 of 20th Safar 1382 Hejra conforming to 22nd July 1962 Gregorian, and the Rules for the Implementation of the Commercial Agency Regulations of 1981. The use of these laws to agencies comes from the Ministerial Order No. 1012 of 1992 of the Minister of Commerce.

Article 6 of the Implementing Rules states that no entity can act as an agent without being registered in the commercial agents’ register of the Ministry of Commerce and Industry, and requires agency agreements to be registered with the Ministry of Commerce and Industry within three months from the agreement coming into effect, the ostensible reason being consumer protection, namely that after-sales service and the provision of spare parts is guaranteed.

The Service Agency Regulation of 1978 required that foreigners interested in doing business in Saudi Arabia but are not yet licensed to do business in the country cannot enter into contractual relationships for the government but that Regulation was repealed by Royal Decree No. M/22 of 16th Jumada Awal 1422 Hejra corresponding to 6th August 2001 Gregorian.

 The registration of agency contracts was at the beginning taken to be of utmost importance, it was, however, seen not to be so important where only private sector transactions were anticipated this was due to the fact that there are no Saudi Arabian laws which provide that a foreign party dealing in foreign goods and services to a Saudi Arabian private sector entity must have an agent or distributor in Saudi Arabia.

The laws governing agreements of agency in Saudi Arabia include,

Original Saudi Arabian 1962 Commercial Regulations, Royal Decree No. 11 that was enacted in 2013 and was amended by the 2014 degree number  M/32. These laws state that;

In Article 1, only companies and other entities that belong to Saudi Arabia, i.e. that are citizen entities can be allowed to function as a profit-making mediator in the country. The country in which the company that wishes to act as an agent in Saudi Arabia resides must be The Kingdom of Saudi Arabia. The members of the Board of directors of the company in question must also be Saudi Arabian nationals.

Article (2) Profit-making agents whose organizations were still working and in operation of the date in which this rule was adopted and issued and who find their operations jeopardized as a result of the operations of the first Article of the laws will be allowed to get the business into liquidation. Such a business person is given a specific period in which he or she is supposed to ensure that the liquidation occurs. The business, once liquidated shall be changed to the Saudi Arabian agencies, and this period is for a minimum of two years. The minister of commerce in Saudi Arabia is supposed to state the exact period that these businesses are given.

Article (3) the operation of a person as a business agent is prohibited unless the person is rightfully registered in the Commercial Agents Register. This is a register that is kept and updated by the Ministry of Commerce. It is therefore upon this Ministry to give a decision as to the rules and regulations to be followed in registrations. The person to be registered has to supply relevant information to the registry, which information includes the name of the person, the type of goods and services that he or she is planning to deal in, the name of the company which he or she is planning to work for, the date that he or she is appointed as an agent and how long the contract of agency is supposed to last.

Article (4) Lack of adhering to the rules of agency is a crime in Saudi Arabia. It is a crime for a business agent not to follow the regulations set by the laws of agency in the country. The business agents who violate these laws are fined between five thousand to fifty thousand Riyals. If the violation is done by a foreign agent or a foreign company, the agent or the company, is in addition to the fine required to liquidate the company.

Article (5) for an agent to be registered in the country, he or she has to be a registration fee of five hundred Riyals, it does not matter whether the agent is a person or is a company, the rules as to the registration fee apply without prejudice. The registration fee is paid once and is non- refundable and also non- renewable.

 Article (7) If a contract of agency goes ahead to specify the rights and duties of parties involved in the contract, the same contract shall be taken to regulate the relationship among the parties especially is the relationship is between a Saudi Arabian Citizen and a foreigner.

Article (8) the agent, who in accordance with the laws of agency in Saudi Arabia has to be a citizen of Saudi Arabia, is entitled to get from the contractor who in the case of international agency contracts is a foreigner, an agreed amount of money. This money is not supposed to be more than five per cent of the value of the contract between the two.


The laws in the U.S.A on agency are more relaxed as compared to the laws of Saudi Arabia. The United States is therefore bound to benefit more from this position.

The advantages that the U.S.A gains from the fact that it does not have extremely strict laws on agency are that there are more investors willing to invest in the country.

The U.S.A also being an economically stable country, does not suffer from as much economic uncertainties as compared to Saudi Arabia. It is therefore able to rely on the existing laws, both federal and state to ensure that its agency sector is well governed.

In Saudi Arabia, the fact that the laws on agency are extremely strict leads to poor investments. The laws tend to discourage would be investors. The laws are, however, needed to be as strict as they are because Saudi Arabia is still a growing economy and as such it is more important for the country to protect its citizens economically before looking into encouraging foreign investment.

The agencies governed by the law of agency in Saudi Arabia include, but are not limited to;

1.           Foreign Companies’ Commercial Agencies Registration:

2.           Companies’ Service Agencies:

3.           Foreign Companies Branches:

In the U.S.A, on the other hand, agencies include:

1.           Transport Security Administration

2.           Real estate agencies

3.           Talent agencies


Distributorship is the participation of a person in the supply channel. It involves wholesalers who distribute goods and services to retailers and at times to the final consumers. Distributors acquire the goods and services that they deal in directly from the manufacturer. The distributorship laws in the U.S.A are dependent on the particular area in which the distribution takes place and the examples are;

ABA – Unilateral Conduct Committee

The Unilateral Conduct Committee’s it aims at being a comprehensive source of information on the application of competition law to dominant firms, and to offer diverse perspectives and foster informed debate over the laws and policies governing unilateral anticompetitive conduct worldwide.

Beer Distribution – The three-Tier System of distribution

The Three-tier System gives checks and balances in the distribution of alcohol the system consists of three levels: • Manufacturer • Distributor • Retailer

The Robinson–Patman Act of 1936 also known as the Anti-Price Discrimination Act, is a United States federal law that forbids anticompetitive practices by manufacturers, these practices include price discrimination.

The organizations that are related to and that are most interest in distributorship and in distributorship laws include, for example, the American Machine Tool Distributors’ Association (AMTDA), an organization that was founded in 1925 and is a trade association that focuses on the advancing of sales and marketing of machine tools in the United States through the distribution channel.

Federal Trade Commission is another organization that is interested in distributorship. The FTC looks at problems that touch the economic life of American citizen. It is the only federal agency with both consumer protection and competition jurisdiction in broad sectors of the economy. The FTC follows vital and operative law implementation.

Fluid Power Distributors Association is another such organization. It is the specialized system for fluid power, mechanization and motion technology providers devoted to meaningfully enhancing member and channel presentation by providing crucial networking, education and success strategies.

Technology transfer

 Technology transfer is also commonly called the transfer of technology, TOT. It is the practice in which there are fluctuating abilities and facilities among governments or universities and other organizations to certify that scientific and technological progresses are available to a broader range of operators who can then additionally progress the technology into new products or even services. Horizontal transfer is the change of technologies from one geographical area to another. At present transfer of technology (TOT) is primarily horizontal.

In Saudi Arabia, IP laws have been regularly revised and updated to ensure that an effective legal framework is in place both to encourage innovation and creativity and to enforce IP rights. This has created a fertile seedbed for creativity and innovation and attracted higher levels of investment in these areas.


This is occurs when a person exercises his or her right to use a business model of a particular firm, especially a successful one. The model is used for branding and this is done for a specific period of time (Sherman 2011). The person franchising is known as a franchiser and he or sees the franchise as a substitute to construction of “chain stores” to dispense goods and services that evades the investments and obligation of a chain. The franchisor’s achievement depends on the triumph of the franchisees. The franchisee is said to have a better enticement than a direct employee due to the fact that he or she has a direct stake in the business.

Franchising has been a common component of business both in the United States and in Saudi Arabia. It is the best way of ensuring that there is success in businesses and that a business’s name stays relevant (Sherman 2011). The laws on franchising in both jurisdictions are well established to ensure that franchising is well governed.


Contract manufacturing is the production of goods and services by a firm but under the label and the brand of another. It is also known as private level manufacturing and enables the provision of services to a number of customers including competing firms. The customer designs and formulas used by the contract manufacturers are their own and do not belong to the firm whose label and brand are used.

Contract manufacturing is an idea that has been adopted in a number of countries. In the United States of America it has been completely adopted due to the level of technology and the level of economic growth in the country. In Saudi Arabia on the other hand, it is an important factor that is necessary if the levels of business growth is to be extended.  It is of great importance in the country when it comes to manufacturing and production of electric equipment. Subcontracting manufacturing and the production of electronic paraphernalia to the Far East has developed into an impulse action on the part of many original equipment manufacturers that have their base of operation in the U.S.A. These Original Equipment Manufacturers are at times bemused by the region’s low labor rates. The fact that the laws on contract manufacturing are well drafted and made in Saudi Arabia has led to further increase in the economic development of the country.

Definition of ‘Foreign Direct Investment – FDI’

Foreign direct investment is a venture that is gotten into by a company into another company (Munday 2008). The company making the investment is based in a different country as the company in which the investment is made. The foreign direct investment differs from indirect investment such as a collection of flows, where foreign organizations invest in impartialities recorded the stock exchange of a country. For a company to make direct investment into another company, the company has to have a considerable amount of influence in the company in which it wants to make an investment. This kind of investment is therefore best for open economies because such economies have experienced workforces and good growth prospects. This make them are more attractive to larger quantities of foreign direct investment as compared to closed economies and highly regulated economies.

There are various ways through which an investing company may make its investment. The first and most common way of investing is through setting up a subsidiary or associate company in the foreign country, by obtaining shares of a foreign company, or through a merger or combined venture. For a direct foreign investment, the investing company can hold at least as 10% of the shares and stock of the investee company. All that is required for a basic foreign direct investment is for the investing company to take up majority shares in the investee company. The difference between direct foreign investment and portfolio foreign investment then comes in because portfolio foreign investment is a passive form of investment in which the investing company invests in the securities of another company.

There are different types of incentive that are put in place to enable foreign direct investment. Some of these incentives include, low corporate tax and individual income tax rates, tax holidays, other types of tax concessions, preferential tariffs, special economic zones, free land or land subsidies, relocation & expatriation and infrastructure subsidies among many others.

Process to establish foreign investment in the United States of America

The United States of America is known to be the largest foreign direct investor. It has invested in a number of countries in the worlds making it a leader in this type of investments. The United States is also the largest beneficiary from such kinds of investments. This can be attributed to the fact that it has a stable economy. As such, a number of foreign companies feel comfortable investing in companies in the country. This facts lead to the need for the protection of national interests. Achieving the balance between the protection of national interests and encouraging foreign investments is an act that has proven to be quite difficult given that there is incessant conflict between these two areas. In the United States, foreign direct investment is primarily governed by the Committee on Foreign Investment, a committee that was established in 1975 (Bradgate, White, Llewellyn, 2012).

The process to establish foreign investment in Saudi Arabia and legal system governing in Saudi the legal protection of the direct foreign investment in Saudi Arabia

Foreign direct investment in Saudi Arabia is governed by a number of laws. Among these are,

Article 2: Without bias to the provisions of the laws and agreements, the authority created under the act will have the authority to give a licence so as to enable foreign capital investment. This is to be done despite the kind of investment activity in question whether or not it is a permanent one. The authority is vested with the powers to act upon and to ensure that it processes the application for investment in a time frame of a maximum of thirty days failure to which the license will be issued to the trader without prejudice.

An application that is rejected by the authority has to be sent back to the applicant with valid reasons as to why it cannot be accepted. The application has the right if he or she wishes to appeal to have his application re-examined.

Article 3: The Board has the power to give a list of deeds disqualified from overseas investment.

Article 4: Taking into consideration the provisions that have been laid down by Article 2, the foreign stakeholder can get many different licenses to facilitate his or her doings in different activities, and the regulation that are laid down are expected to state the requirement that are needed to facilitate this.

Article 6: The Company that is licensed under the law of agency in the Kingdom of Saudi Arabia has the right to enjoy all the profits, motivations and securities given to a national company. This is to be directed taking into considerations the laws of the country. Article 7: A Foreign shareholder can in some circumstances decide to transfer the shares that he has and that are gotten from the business transactions in equity, the liquidation excesses, or from profits made by the company, or to get rid of it in any other legal way. The foreign investor can also choose to transfer the money needed for the settlement of an obligation that arises as a result of a contract that is related to the project.

Article 8: A firm that does not have citizenship in the Kingdom of Saudi Arabia can if it chooses to get the required real estate to facilitate proper operations by the firm. The real estate property to be acquired may include, housing and for the building of business premises.

Article 9: The foreign stakeholder in any firm and any of his or her employees who are not citizens of Saudi Arabia will be supported by the certified firm.

Article 10: The authority shall offer all concerned stakeholders with the essential information, explanations and figures and in the same manner and spirit, allow them the access of all facilities and measures to allow for and to enable completion of all the contacts connected to investment.

Article 11: The foreign shareholders investments cannot in any circumstances be seized. It does not matter whether such seizure is to be done wholly or partially so long as it is done without a court order requiring and allowing the same.

Article 14: All foreign investments certified under the laws stated down in Saudi Arabia will be treated in harmony with the appropriate duty requirements, taking into considerations any changes made to such laws.

Article 15: The foreign investor has the duty to obey with all laws, rules and orders that are stated down in the Kingdom of Saudi Arabia, such investors are also under the strict obligations to ensure that they follow the rules, regulations and laws that are set down by international agreements that are allowed to be used for governance in the country.

 Article 16: The application of the law of agency in the Kingdom of Saudi Arabia will not bias the attained rights of the foreign investments that are present legally before the law was adopted. This is important to ensure that the law is not retrogressive and that innocent activities done by people that ensured that got into an agency agreement and that are now illegal or inapplicable due to the adoption of the new laws are not affected.

The legal protection of the direct foreign investment in bilateral trade treaties

A bilateral investment treaty (BIT) is a treaty founding the terms and conditions for private investment by nationals and companies of one state in another state. Bilateral trade treaties are in most cases established through trade agreements. BITs are distinguished from other trade treaties by the fact that they tolerate alternative dispute resolution mechanism. In such situations, the stakeholder whose rights have been violated could have recourse to international arbitration, often under the auspices of the ICSID (International Center for the Settlement of Investment Disputes), rather than suing the host State in its own courts.

World Trade Organizations

The World Trade Organization (WTO) is an international body that controls international trade. The WTO officially commenced on 1 January 1995 under the Marrakech Agreement that was appended signatures by 123 countries. The signing of this Agreement was done on the fifteenth of April 1994. It was an agreement that was put in place to replace the normal agreement that had provisions as to tariff and Trade; this was known as the General Agreement on Tariffs and Trade, GATT. It is an organization that specializes in trade and trade rules. It does this to  ensure that there are guidelines laid down for the member countries for better, more efficient negotiations as to trade agreements and better dispute resolution methods. The guidelines provide a common platform for various countries with different trade policies to participate freely in the international trade.


Membership to the WTO is open to any country would like to join provided certain conditions are met the basic condition being that a country willing to join must be in control of its trade policies.  To become a member of the WTO, one follows the rules and regulations that are set, these rules and regulations are peculiar to particular countries, the terms of the agreement that is to be signed to be a member of the WTO also differs from one country to the other depending on the economic state of the country (World Trade Organization, 2008). To become a member, the process of registration will take most countries up to five years. The registration process is then followed by negotiations that involve several parties based of terms and conditions of bilateral trade applying to all members. The other factor that can play an important role in deciding how fast a country becomes a member of WTO or even a country becomes a member of the body at all is the political situation in the country (World Trade Organization, 2008). Political stability is an important factor that determines the economic growth of a country and creates a conducive environment for free trade with other countries hence an important aspect when joining WTO. While political stability and high rates of economic growth results in a faster process, the reverse is also true.


Bradgate, R., White, F., & Llewelyn, M. (2012). Commercial law 2012. Oxford: Oxford University Press.

Klass, G. (2010). Contract law in the USA. Austin [Tex.: Wolters Kluwer Law & Business

Munday, R. J. C. (2008). Agency: Law and principles. Oxford: Oxford University Press.

Sherman, A. J. (2011). Franchising & licensing: Two powerful ways to grow your business in any economy. New York: American Management Association.

World Trade Organization, & World Trade Organization. (2008). Understanding the WTO. Geneva: World Trade Organization.