Corporate

Features of Saudi Arabia Company Regulations:

The Saudi Commercial law of companies has been issued by Royal Decree in 1966 minstrel decision No185 and the commercial law of companies amendments been added by Royal Decree in 2016 with minstrel order No 30 . It covers a wide range of aspects relating to incorporation, regulation, merger, liquidation and dissolution of different types of bodies corporate, which are :

1.General partnership (Arabic: Sharikat al-tadamun,), which are partnerships as the terms is understood in Common Law jurisdictions, with all partners being fully liable for the partnership’s debt’s.

2.Simple commandment partnerships, or limited partnerships (Arabic: Sharikat al tawsiya, al basita, which consists of at least one general name partner who is responsible to the extent of his entire fortune for the partnership’s debts, and at least one limited and unnamed partner who is responsible for the partnerships debts to the extent of his interest in the partnership’s capital.

3.Joint ventures (Arabic: sharikat al mahasa, which have no legal personality and which may be formed without this being publicized.

4.Joint stock companies (Arabic: sharikat al musahama, which are the equivalent of the common law public limited company.

  1. Limited liability companies (Arabic: al-sharikadhatraqs al mal al qabilliltageer,) which are companies which provide in their articles of association or bylaws that their capital may be increased by additional payments made by the shareholders or by the admission of new shareholders, or that their  capital may be reduced by withdrawal of shareholders’ shares from the capital.

6.Cooperative companies (Arabic: al sharikataawuniyya), which are joint stock companies or limited liability company which are incorporated by Royal Decree, which are usually government owned entities such as Saudi Aramco.  In addition, the Companies Regulation prohibits foreign companies from issuing securities, unless prior approval has been obtained from the Ministry of Commerce & Investment.

The companies’ regulation provides that the capital of a company can consist of shares contributed in cash or shares contributed in kind and prohibits the personal creditor of a shareholder form collecting his debt from the shareholder’s share in the capital of a company.  The companies’ regulation also contemplates the conversion of one type of body corporate into another.  Two unusual features of the companies’ regulation are that it allows articles of association to prescribe the profits of each shareholder different from such shareholder’s ownership of the capital of the company, and it requires that each company should have a minimum of two shareholders.  In addition to following the procedures contained in the companies’ regulation, foreign shareholders have to obtain the appropriate licenses from the relevant government bodies and comply with other restrictions, both of which are not contained in the companies’ regulations.

The most common entity is the limited liability company, which, as the name suggests, limits liability of the shareholders.

a limited liability company requires at least one shareholder but not more than fifty shareholders.  This is the most common type of body corporate for foreign investment in Saudi Arabia.  Limited liability companies are specifically prohibited from engaging in insurance and banking activities.

Apart from the flexibility of profits not being distributed in proportion to share ownership, shares in limited liability companies give equal voting rights to all shareholders.  In addition, share holders have right of first refusal if another shareholder wishes to sell his shares to third parties. For limited liability companies, share certificates are not issued as share ownership as ownership is evidenced by the articles of association of the company and any changes in the company nationality or increase in the financial obligations of the shareholders requires unanimous approval of the share holders.

The company’s balance sheet, profit and loss account, report showing the activities and financial situation of the company and recommendations regarding the distribution of profits has to be prepared for each fiscal year and has to be audited by auditors licensed in Saudi Arabia.  After completion of the above, an annual meeting of shareholders is required.

A limited liability company can be managed by a General Manager or a Board of Managers (Board of Directors). In addition, if the limited liability company has more than twenty shareholders then a supervisory board consisting of at least three shareholders has to formed to supervise the general manager or board of managers.

The companies’ regulation also makes the managers (general manager or board of managers) jointly liable for damages or injuries suffered by the shareholders, by the company, or by third parties due to the failure to observe any of the provisions of the companies’ regulation, the company’s articles of association or faults in the performance of their duties.  The shareholders can give written proxies only to other shareholders for representation at share holders meetings. The shareholders are also jointly labile, without any limitations to the third parties for the incorrect valuation of shares in kind; provided that such action is commenced within three years from publication of the summary of the company’s articles of association in the official gazette.

Finally, the companies’ regulation provides that, if a limited liability company incurs losses in excess of or equal to half of its capital, the managers have to notify the shareholders, and the shareholders must meet to determine whether to dissolve the company or to maintain the company.  Whatever the decision, such decision must be published in the official gazette.  if the shareholders decide to continue the existence of the company then the shareholders must inject further capital. If the shareholders fail to inject further capital and the company continues to do business, then the shareholders shall have joint personal liability for the company’s debt.

NLF undertakes:

Draft, review, comment in Arabic or English and ensure compliance with applicable regulations, agreements relating to the following:

1.Shareholders agreement for establishment of a limited liability company (LLC) general partnership (GP) and limited liability partnership(LLP)

2.Articles of association & Bylaws of LLC, GP, LPP and joint stock companies  (JSC) in accordance with the prescribed models of the Ministry of Commerce & investment (MOCI) and any amendments thereof and LLC operating agreements, in addition to agreements changing one structure of a legal entity into the other e.g (sole proprietorship to LLC) and LLC membership interest Buy-Sell Agreements

3.Corporate filing requirements: Subject to government approvals (Sagia, MOCI), obtaining licenses from concerned authorities (when required) and fulfillment of registration, notarization and publication requirements including powers of attorney.

4.Shareholder & Director Resolutions and Minutes of meeting and their publications.