Our firm provides the legal services and consulting related to the commercial franchise where it has become one of the most common means in the field of foreign investment in the Kingdom of Saudi Arabia because it is characterized by flexibility compared with the commercial agencies. The Kingdom of Saudi Arabia has issued the Franchise Law by the Royal Decree No. M/22 dated 29.09.1441H corresponding to 08.10.2019G which sets the procedures needed for granting, licensing and registering the commercial franchise according to the rules in force in a manner that guarantees the rights of the franchisor and the franchisee.

The commercial agent usually knows the local market well and he may help to facilitate the conclusion of some deals. So any foreign company has to better choose its commercial agent where the cancellation of the commercial agencies or change of commercial agents is so complicated. The term “commercial agent” includes a variety of duties and responsibilities where some commercial agents sell goods, some provide services, some purchase goods directly from the manufacturing companies and re-sell them, and some sell goods for the manufacturing companies against commissions. These are the forms of commercial agencies covered by the Commercial Agency Law in Saudi Arabia. A foreign company should first choose its commercial agent that may be an individual or a company. The Saudi Commercial Agency Law permits the Saudis whether individuals or companies to exercise the activities of commercial agents. The foreign investor may exercise the activities of the commercial agents according to certain conditions to be met. The commercial agent should be licensed first to exercise the activities of the commercial agency, then the commercial principal agrees with the commercial agent through a commercial agency agreement. The Ministry of Commerce and Investment is the competent authority to approve the commercial agency agreement where it has a current model for the commercial agency and distribution agreement. However, the foreign companies usually wish to add some provisions or propose substitutes therefor. The foreign companies can insert any provisions, but the Ministry of Commerce and Investment probably prefers to approve a draft of commercial agency agreement similar to that prepared thereby so that the cancellation of commercial agency or change of the commercial agent should fair as to the prior commercial agent. In some cases, the non-renewal of the commercial agency is deemed a cancellation thereto. The arbitrary cancellation of a commercial agency may expose the commercial principal to pay compensations and makes it difficult for him to get the Governmental approval to conclude a new commercial agency agreement or to appoint a substitute commercial agent. Therefore, particular attention should be given to the clauses related to the cancellation of commercial agency in any agreement in the concern. In all cases, the commercial agency agreement should contain provisions fair to all the parties thereof in the cancellation field.

(There is no need for contractual joint ventures to take the form of a company).

Usually, the joint ventures are related to quite large contracts and obligations where they receive a favorable tax treatment or some incentives from the Saudi Government in the end.

Also, the joint ventures in most cases do not take the form of a company unless the procedures of registration and publications require so, because they are usually a gathering of several persons or companies to realize a certain purpose.

If the foreign investor is a natural person or a company partner to a joint venture, it should obtain a licence from the Saudi General Investment Authority or a temporary commercial register from the Ministry of Commerce and Investment if this foreign investor is a party to a consortium submitting a bid to perform a public works contract.

In practice, a joint venture is deemed a general partnership.

The joint ventures taking the form of company:

Alternatively, the foreign investor may choose a separate legal entity (a limited liability company). Most foreign investors prefer to establish limited liability companies to commence any investments in the Kingdom of Saudi Arabia.

The joint venture in this way (the mixed company) differs from the company’s branch office where the mixed company is entitled to do any type of the permitted transactions.

On establishing a limited liability company, it is necessary for its partners to include Saudi citizens. Even the presence of Saudi partners is not a legal obligation that must be met and not violated, the Saudi Government prefers the companies including Saudi partners.

If the Saudi partners own a considerable percentage in the mixed company, it shall receive tax cuts and other investment incentives.

Joint Ventures in Contracting:

• Joint ventures in which the names of partners are mentioned in the contract and guarantee.
• Agreements prior to a bid to a joint venture.
• Agreements prior to a bid in which a partner is not financially qualified but it owns 51% of the project.
• Agreements prior to a bid in which the other partner to the joint venture is a dormant partner only.
• Joint venture agreement to provide the financial support and to manage the joint venture.
• Agreement guaranteeing the obligation of the main partner to a joint venture to submit its share therein.
• Partnership agreement to the joint venture execution.

The Governmental construction, supply and service contracts are governed by the Saudi Government Tenders and Procurement Law issued by the Royal Decree No. M/58 in 1427H corresponding to 2006G and its amendments issued by the Royal Decree No. M/128 dated 13.11.1440H and its Executive Regulations issued by the Decree of Ministry of Finance No. 1242 dated 21.03.1441H. This law includes the regulation of contracting among the companies, establishments and Governmental entities through tenders, auctions, framework agreements, award of contracts , general conditions of contracts, down payments, penalties for delay in execution and models of contracts.

Al-Nami Law Firm professionally performs the following:

Preparation of tender documents including the bidding forms, bid bond, general conditions, letter of award, performance bonds, the payment of amounts due for subcontractors and workers, lump-sum contracts, turnkey contracts (design & build), engineering contracts, claims of construction contracts and all claims arising out of the management contracts and their disputes in terms of the legal actions or legal services.

Al-Nami Law Firm has extensive expertise in the construction litigations:

• Lawsuits filed by contractors against the project owner.
• Lawsuits filed by the project owner against the contractor.
• Lawsuits filed by contractors against the sub-contractors.
• Lawsuits filed by sub-contractors against the main contractor.

Saudi Regulations of Mergers and Acquisitions:

Such regulations apply to any case in which an offer to purchase the shares or to perform a reverse takeover of a company listed in the Saudi Stock Exchange is made.

The regulations guarantee that the practices of the offeror company and the offeree company observe the interests of the shareholders and they have been provided with sufficient data and advice enabling them to take the right decisions.

After the offeror company makes the necessary announcements, it should submit to the Saudi Capital Authority the timetable related to the acquisition including the approval of the shareholders to the acquisition, and submit, publish and deliver the final offer to the board of directors of the offeree company, the earliest date to conclude the deal and the last date for accepting the offer after which the acceptance becomes unconditioned.

The offer document should include the following:

1 – A statement that one of the certified independent financial advisors was consulted by the Capital Market Authority in case there are some doubts on the acquisition offer.

2 – The date on which the document was published, and the name and address of offeror company or any person authorized by thereby.

3 – Details of securities subject to offer including whether they shall be transferred with dividends or not.

4 – Total offer amount.

5 – Closing price of securities to be purchased, and securities offered on the first day of the six months directly prior to the publication date of offer document and the last day before the start of offer period and the last date known before the publication of offer document.

Price offers related to the securities listed in the market shall be taken from the official list. But if none of the securities is listed, any information or data on the selling or purchasing deals and the number of securities traded during the last six months shall be mentioned with the source thereof or any negative statement.

6 – In case, there is an offer for securities exchange, the details of any dividends, interest, capital and refund thereof, and a statement proving the acceptance on the capital position and income by the offeror company’s partners shall pointed out.

7 – In case of exchange of securities offer, the effect of offer full acceptance on the assets of the offeror company and its profits and activities which may be enormous on the sound evaluation of the offer shall be pointed out.

The offer document should be submitted to the Capital Market Authority to be approved before being published. The time set for approval by the Authority is thirty (30) days from the receipt date of information and documents.

The Capital Market Authority has full right at its discretion to agree to the offer or not if it concludes that it is in the interest of partners, and it does not violate the Capital Market Law and its Executive Regulations.

In regard to the takeover of companies, our firm performs the following:

1 – Letters of intent.

2 – Non-disclosure agreements.

A legal due diligence investigation:

The legal due diligence investigation is essential to determine whether it is right to proceed with deal and takeover or not, and at which price after knowing the issues and problems surrounding the company to be purchased. This usually helps the full understanding of the concerned company, plant, establishment or others. It is remarkable that legal due diligence investigation is full of surprises and it takes a long time where the local companies and establishments are neither accustomed thereto nor how to conduct it.

The legal due diligence investigation covers several matters such as the powers of the company or establishment, ownership of assets, commitment to the regulatory measures of laws, regulations and instructions, rights and obligations arising out of contracts, and actions and claims filed against the company or establishment to be taken over. Such matters play an important role in determining the deal value.

There are other matters to be treated by the legal due diligence investigation such as:

1 – Trademarks and other intellectual property rights owned to the any other company in the same group of companies to be taken over.

2 – Insufficient documents showing the owners of property, buildings and other assets.

3 – Property and lands owned by other companies.

4 – Insufficient documents of loans and guarantees.

5 – The buildings may be constructed without licences or other approvals. These matters can be handled while others are so complicated. Whatever the situation may be, the investor wishes to know the real status before it pumps any funds into the project.

Labour relations between the employees and the employers in the Kingdom of Saudi Arabia are governed by the Labour and Workmen Law issued by the Royal Decree No. M/46 for Year 2005G, and the Ministry of Labour supervises its enforcement. In addition, there are several Royal Orders, Decrees of Council of Ministers, circulars and instructions that are issued from time to time by the competent authorities to be applied and enforced. Labour and Workmen Law applies to all the employment agreements in which the workmen are committed to work with the employers for wages.

Clauses and Provisions of Employment Agreement:

The employer is entitled to consider the first three months of the employment agreement as a probation period, and this should be expressly specified in the employment agreement, otherwise the right to apply it is denied. The employment agreement includes the agreed wage, transportation allowances, annual leave, official holidays, medical insurance, cases of employment agreement termination, end of service reward and cases of compensation for unfair dismissal.

Policy of Saudization and Foreign Workers:

The foreign investor who starts a business in the Kingdom of Saudi Arabia should bear in mind that the Saudization policy adopted by the state obligates him to employ a number of Saudis in his establishment.

The minimum rate of employment depends on the type of company and the sector in which it operates. Usually, the rate of 30% of work force should be Saudi except for the activities of contracting, cleanliness and operation where the rate is within 10%. Also, it is necessary for the foreign worker to obtain a work permit.

Subject to the mutual health insurance scheme, the employers are obliged to submit health insurance coverage to a worker or employee and his family. In usual, such mutual health insurance is borne by the worker or employee.

The Social Insurance Law provides for the right of a worker who reach the age of 60 years or more to an elderly man’s pension. This pension is limited to the Saudi workers and employees who pay their social insurance contributions during their service period.

Social Security & Health Insurance:

The Social Insurance Law obligates the employers who employ one local or foreign worker or more to pay on their behalf a monthly contribution to the General Organization for Social Insurance.

Such contributions are cut as percentages from the salary of worker or employee. The salary from which contributions are cut is the basic salary plus the housing allowance such that it does not exceed forty 45 thousand Saudi riyals per month.

The percentage required for the foreign workers is 2% of the monthly salary to be paid by the employers without cuts form salaries for the coverage of work injuries.

As to the Saudi workers, the employer shall pay 11% of the monthly salary for a worker; 2% out of which for coverage of work injuries and the rest is 9% for the Public Pension Agency.

To the General Organization for Social Insurance, the salary includes the basic salary plus the housing allowance.

Preparation of: Labour Regulation and Approval thereof:

Introduction

Due to the great development the Kingdom of Saudi Arabia is witnessing in the business sector, industries and trading where this development necessitates the presence of sufficient, specialized and professional laborers from the Saudis and residents to participate into upgrading all the business sectors and investments, expansion of labour relations and diversity of specialties, the Saudi legislator has been keen to issue the laws, regulations and instructions related to labour and workmen to maintain the interests of employers and the rights of laborers. The issuance of labour regulation to every business sector of establishments and companies with all their specialties aims to control the policies of such sectors and their labour relations and raising the labour productivity levels in a manner that points out the rights and obligations of each party in the labour relations and the functioning of facilities. Such regulations should be documented and approved by the Ministry of Labour and Environment. Accordingly, after reviewing the Labour Law issued by the Royal Decree No. M/51 dated 23.08.1426H, amended by the Royal Decree No. M/24 dated 12.05.1434H and amended by the Royal Decree No. M/46 dated 05.06.1436H, after reviewing Article (12) of Labour Law which decides that the Ministry should set control mechanisms for approving the regulations of labour and after reviewing Article (4) of the Executive Regulations of Labour Law and their annexes issued by the Ministerial Decree No. 70273 dated 11.04.1440H, the Saudi legislator has issued a standardized labour regulation. Our firm has become one of the firms accredited with Qiwa Platform due to our extensive expertise in this field where we have drawn several labour regulations and get them approved by the Ministry of Labour and business offices for a large group of companies.

Objectives of Labour Regulations:

• Creation of safe and active business environment through the approval of labour regulations and contents of clauses thereof, doing the best to raise the awareness level and improvement of the business environment.
• Facilitation of measures to approve the labour regulations through the computerization of measures of regulations approval that leads to their speedy and easy approval and identification in a typical form or not.
• Minimization of labour disputes that may arise between the worker and his establishment through permitting the approval of labour regulations that aim to maintain the rights and duties of both parties of labour relation.
• Activation of role of private sector (law offices) through contribution to the preparation of labour regulations and their being reviewed with the employers, then they are filed to Ministry of Human Resources and Social Development in a manner that realizes the desired quality of work.

In view of the requirements of the public interest, the following is decided:

First: Agreement to the participation of the Saudi entities specialized in the field of legal profession (offices & firms) which meet the conditions in reviewing and approving the labour regulations for non-standardized form of the private sector establishments before the Ministry approves them.

Second: conditions to be met by the entities specialized in the field of law practice to share the Ministry in reviewing and approving the labour regulations for non-standardized form of the private sector establishments are as follows:

• The entity specialized in the field of legal profession should obtain a valid licence of law practice certified the Ministry of Justice.
• The owner of the entity should be experienced in Labour Law, either of those who have already worked in the legal departments in the public sector or private sector for a period not less five years, or of those experienced in preparing and discussing the labour regulations for private sector establishments or pleading before the labour judiciary.
• The number of Saudis working with the owner of the entity should not be less than two persons having a legal or Sharia qualifications.
• Opening an account for the entity through the electronic services at the Ministry.
• The owner of the entity should comply with the control mechanisms approved by the Ministry for preparing the labour regulations for the non-standardized form.
• The Ministry Undersecretary for Inspection and Development of Labour Environment may exclude the second and third conditions for non-major regions only.

Third: The Ministry Undersecretary for Inspection and Development of Labour Environment forms a committee of three members under his presidency to approve the participation of entities specialized in field of legal profession to review and certify labour regulations for non-standardized form to whoever meets the conditions.

Fourth: The entity specialized in the field of legal profession shall apply to participate in the review and certification of labor regulations for non-standardized form through the electronic gate of the Ministry.

Fifth: The obligations to be met by the owner of entity to participate in the review and certification of labour regulations to private sector establishments for non-standardized form:

• To receive the applications of private sector establishments wishing to prepare labour regulations for non-standardized form, and to review and certify them in a manner that agrees with the Labour Law, its Executive Regulations and decrees issued in execution thereof. Then, they are forwarded to the Ministry through the electronic gate to get the approval of the regulation.
• To prepare the labour regulations for private sector establishments according to the controls issued by the Ministry.
• To take into account the legal aspects in a way that contributes to maintaining the rights of workers and employers and minimizing the rise of labour disputes.
• To enter contracts with his clients and to get an authorization letter permitting him to prepare, review and certify the regulations as requested by the Ministry.
• The regulations submitted by him should be printed in Arabic on his letterhead or on the letterheads of the entity and accompanied by his seal and signature.
• To forward the regulation to the Ministry after being reviewed with the establishment and certified within a period not exceeding thirty days from doing the above, unless it is due to reasons attributable to the establishment.
• To keep the labour secrets disclosed to him and not to disclose them in all cases even after termination of contractual relations.
• To execute the instructions of the Ministry in regard to the new amendments or instructions.

Sixth: Controls to be observed on preparing the labour regulations for non-standardized form by the owner of the establishment:

• To confirm the non-existence of a certified labour regulation for the establishment.
• In case there is a labour regulation for the establishment already approved and the establishment wishes to amend or cancel it, a letter stating the number of the previous approval is obtained.
• The regulation should comply with the standardized form and it may include additional terms and conditions consistent with the provisions of Labour Law, its Executive Regulations and decrees issued in execution thereof.
• To take into account in the regulation, its division and tabulation and numbering its articles according to the standardized form.
• To take into account in the regulation, clarity of handwriting and the numbering of pages where it does not have blurring or erasing.
• The regulation shall not include – under any name – the legitimate termination other than the cases exclusively mentioned in Articles (74) and (80) of Labour Law.
• To comply with the disciplinary penalties exclusively mentioned in Article (66) of Labour Law.
• To comply with disciplinary rules specified in Labour Law on inflicting the penalty.
• To take into account in the table of offences and penalties the gradation of punishment, and the penalty should be consistent with the kind and gravity of offence committed by the worker.
• To attach a form in which he mentions the amendments added to the regulation.

Seventh: The Ministry is entitled to withdraw the accreditation from its owner in the following cases:

• If the Ministry sees the lack of proper legal drafting of the regulations issued the owner of entity in a way violating the provisions of Labour Law, its Executive Regulations or decrees issued in execution thereof.
• If he violates the control mechanisms for approving the regulations issued by the Ministry.
• If he violates the laws related to the legal profession or in case the licence of law practice is withdrawn by the Ministry of Justice.
• If the Ministry finds a complaint against the owner of the entity due to his failure or getting poor ratings by the establishments.
• The Ministry has the right to exclude the licence holder without justification.

Eighth: The licence holder shall not deserve any compensation for withdrawing the licence.

Ninth: The Deputy Minister shall take the necessary actions to notify, publish and execute this decree.

The Foreign Investment Law was issued by the Decree of Council of Ministers No. 01 dated 05.01.1421H which includes the organization of foreign investment in the Kingdom in terms of the conditions, procedures, privileges, guarantees, the competence of the High Economic Council to issue a list of activities excluded from the foreign investment, the foreign project’s enjoyment of the national project’s privileges and incentives, foreign investor’s rights, immunities and obligations, General Investment Authority’s duties and powers, penalties of law violation and determination of the authority to decide on the penalties and to appeal against them, the judgments of dispute settlement and tax treatment. The General Investment Authority shall issue the Executive Regulations of the law.

The General Investment Authority:

The General Investment Authority announces the investment opportunities in the Kingdom of Saudi Arabia. It is also in charge of granting the foreign investment licences in cooperation with the Ministry of Commerce and Investment. It seeks to create more advanced investment environment in the Kingdom of Saudi Arabia. The Commercial Anti-Concealment Law was issued by the Royal Decree dated 01.01.1442H corresponding to 20.08.2020G which prevents doing investment activities without obtaining the necessary licences and punishing the Saudi person who provides facilities to a foreigner to do any investment activities without obtaining the licences needed according to the Foreign Investment Law and other relevant laws.

Requirements for grant of licences to the foreign investment:

1 – Investment activity to be licensed shall not be within the list of activities excluded from the foreign investment.

2 – The technical specifications of the product and the technique of its production shall conform to the Saudi, Gulf or international specifications.

3 – The licence applicant should not have received final judgments or decisions due to fundamental violations to the provisions of this law.

4 – The licence applicant should not have received previous judgments including judgments in financial or commercial violations inside or outside the Kingdom.

5 – The licence applicant shall be bound by the conditions, controls, declarations and representations attached to the investment licence application form.

6 – The grant of licence shall realize the investment objectives and the purposes of the Authority. These requirements shall apply to the licence renewal application.

Types of investments in the Kingdom of Saudi Arabia:

There are a many forms of investments in Saudi Arabia, namely:

• Investment in real estate: through sale and purchase of housing or commercial units or lands whose growth is expected to increase in future.
• Investment through banking deposits: where the investor deposits an agreed amount and he shall use it only after the end of the prescribed period and he gets a monthly amount through such deposit
• Investment in securities and purchase of stocks: where the investor purchases some bonds or he invests in a financial fund from one of the companies listed in the Saudi Stock Exchange.
• Life Sciences.
• Industrial Projects.

Activities excluded from investment in Saudi Arabia for the residents:

The Kingdom of Saudi Arabia has decided to exclude some fields and activities from the foreign investment, namely:

• Some activities in the industrial sector which are oil and gas exploration and production except for the services related to mining.
• Some activities in the service sector, namely: catering services for the military sectors, security and investigation services, national employment services, real estate investment in Makah and Medina and tourist guidance services related to the Hajj and Umrah trips.
• Commercial agent profession.
• Services rendered by female nurses and midwives, services of paramedical workers and services of physical therapy.
• Services of live aquatic wealth fishing.
• Working in poison centers, quarantines and blood banks.

Some services subject to the Printing and Publication Law except for the following services:

• Printing services.
• Calligraphy and drawing services.
• Photography services.
• Radio and TV studio services.
• Foreign media offices and their reporters services
• Propaganda and advertising services.
• Public relations services.
• Publication services.
• Press services.
• Services of computer software production, lease or sale.
• Media studies and consulting services.
• Copying and duplication services.
• Cinema film and video tape distribution services.

We, through our accumulated expertise in the real estate field, have contributed to a number of projects of real estate development, investment and infrastructure in the Kingdom of Saudi Arabia, Gulf Cooperation Council States and Middle East Region. Our services include providing assistance on all the stages of the real estate project and employing our specialized knowledge in the fields of financing of the real estate projects, taxes and Islamic financing techniques.

Real Estate Issues:

The real estate field constitutes a significant percentage in the economic practices in the Kingdom of Saudi Arabia in general. So its issues receive great attention from the state as well as the individuals or financing companies and banks where a lot of cases of commercial paper collections are related to housing loans. This is due to the disputes related to evacuation or compensation with the courts. Through our extensive expertise in the field of litigation, in particular, the real estate evacuation actions, we have extensive expertise in this field for banks and financing companies.

The real estate actions are classified as per the claim type:

1 – Actions of fixing the defects which the owner or seller has paid its value to the lessee, and claiming the former owner of the property to pay the amount of such repairs (compensation claims).

In case of compensation claim, the court shall assess the fees and assign an expert from the Office of Experts against charges. In this case, the former owner may move to cancel the contract.

2 – Actions of fixing the defects in which judgments have been rendered against the owner to cancel the contract between the owner and the lessee and to obligate him to pay.

The legal orientation and the owner’s motions must be determined, either to cancel the contract with the former owner of property through the judgment instrument issued by the court whose content is to cancel the contract between the owner and the client of financing lease and to obligate the bank to pay the amount of lease, or to claim the former owner of property to repair the defects.

3 – Evacuation Actions:

In regard to the evacuation requests of the clients, an action is filed with the General Court or the Banking Disputes Committee as per the type of property, action merits, filing of statement of claims and attendance of sessions until the issuance of judgment instrument. Then, the judgment instrument is deposited at the court of execution until the evacuation instrument is executed.

We have been keen to obtain the licences of notaries so that we could render such integrated services to our clients to facilitate their transactions in the real estate sector. We also render the notarial services as follows:

1 – Issuance of proxies inside and outside the Kingdom.

2 – Notarization of companies’ contracts and annexes thereof.

3 – Division of movables.

4 – Representations and declarations of financial amounts, delivery and assignment thereof.

5 – Sale of property and electronic transfer of ownership.

6 – Property Mortgage correction.

7 – Electronic transfer of ownership and mortgage.

8 – Mortgage and redemption.