Saudi Arabia brings new Company Law into force
Saudi Arabia’s new Company Law, effective from January 19, 2023, modernises regulations for various entity types, introduces the flexible Simple Joint Stock Company (SJSC), and eases requirements for JSCs and LLCs to align with Vision 2030. Existing companies have a two-year grace period for compliance.
Saudi Arabia’s new Company Law entered into force on 19 January 2023 with the issue of implementing regulations by the Ministry of Commerce (MoC). The new law, approved in June 2022, replaces the previous Company Law of 2015 and the Professional Companies Law of 2019, which are repealed.
The new Company Law governs all forms of entities in the Saudi market, whether commercial, non-profit, family operated entities, and/or professional, under a single comprehensive law. The following corporate forms, are permitted:
- General partnership company
- Limited partnership company
- Joint stock company (JSC)
- Simplified joint stock company (SJSC)
- Limited liability company (LLC).
The New Law has introduced a new flexible corporate form – the Simple Joint Stock Company (SJSC) – which is designed to meet the growing demand from investors for start-up and venture capital vehicles.
It has no minimum capital requirements and can be established by one or more persons, can be managed by one or more managers, or board of directors, and can issue several classes of shares.
Article 11 of the new Law expressly allows the inclusion of binding joint venture agreements and family charters in the company’s articles of association (which must not conflict with existing laws and articles of association) as a basis for the governance and management of the company, and the distribution of profits.
The new Law relaxes a number of requirements for JSCs. It allows the establishment of one-person JSCs, eliminates the requirement to hold an establishment meeting, and sets the minimum capital requirement to a general amount of SAR500,000.
It further removes restrictions on the maximum number of board members and the remuneration of directors and allows the issuance of different classes of shares with different rights and obligations, including ordinary, preferred, and redeemable shares.
The new Law relaxes a number of requirements for LLCs. The restrictions on financing are removed, with LLCs allowed to raise capital through the issuance of sukuks, debt instruments, or financing instruments.
The maximum number of shareholders condition is lifted and the restriction on single-shareholder LLCs owning another single-shareholder LLC is removed.
The new Law also removes the requirement for the compulsory dissolution of LLCs.
It clarifies that if an LLC loses more than half of its capital, the manager has 60 days to call a shareholders’ meeting after becoming aware of the situation to decide whether to take relevant measures to continue the business or to liquidate the company.
The new Law stipulates the requirements for the submission of documents and articles of association for the incorporation of a company.
New companies are required to submit a statement from shareholders stating that the company complies with the requirements of the new Law and a report prepared by an accredited valuer showing its fair value if there is any capital contribution in kind.
The articles of association can include ‘drag-along and tag-along’ rights enabling shareholders representing 90% or more of the company’s equity to require other shareholders to transfer all shares of the company jointly to a bona fide third party on the same terms and at the same price, and that minority shareholders require majority shareholders to guarantee the same terms and price for selling their shares together.
In general, the new Law will apply for entities incorporated or formed on or after 19 January 2023.
For existing entities, a grace period of two years has been granted to implement any required changes to comply with the new Law.
“Companies law in the Kingdom has not been amended or updated since 2015, and, with the accelerated development of the corporate and business environment over recent years, the new Companies Law introduces a number of developments critical to ensure alignment with the Kingdom’s Vision 2030,” said Nazar Musa, General Manager of Sovereign Saudi Arabia.
The application process for setting up a business in Saudi Arabia can be complicated, especially for foreigners who are not proficient in Arabic and need support communicating with the authorising agency.
Missing or insufficient documentation can result in delays or a rejected application. Having an expert on your side can help you avoid these challenges and streamline the application process.
Sovereign PRO Partner Group have connections with key government agencies in Saudi Arabia and can guide you through the process of business incorporation and liaise with all parties involved on your behalf.
We will make sure that you and your business remain fully compliant with all regulations and laws in the Kingdom.
If you need assistance with business setup in Saudi Arabia or any other company setup, restructuring, local partner or PRO support matter in Abu Dhabi, Dubai, the wider UAE, Oman, Qatar or Saudi Arabia, then please do get in touch with us on +966 535 377 578 for Riyadh or +971 (0)4 456 1761 for Dubai or email ksa@propartnergroup.com and we would be delighted to assist.
