The new Companies Law of Saudi Arabia, issued Tuesday 28 June 2022, is a comprehensive set of regulations aimed at modernising the country’s corporate legal framework and attracting foreign investment. The law replaces the previous Companies Law of 2015 and introduces several key changes and improvements to the legal framework for businesses in Saudi Arabia.
The new law, which is in line with the Kingdom’s vision 2030, introduces new changes, allows for greater flexibility, protects the interests of businesses, strengthens the private sector, and follows international best practices.
The new law regulates commercial companies, public benefit companies and professional companies. It allows investors to establish any of the following company types in Saudi Arabia:
- Limited Liability Company (LLC)
- Regional Headquarter (RHQ)
- Joint Stock Company (JSC)
- Branch of a foreign company
- Simplified Closed Joint Stock Companies (SJSC), which is a new type of corporate structures introduced in the Law
The new Companies Law in Saudi Arabia introduced a new type of company known as the Simplified Joint Stock Company (SJSC). The SJSC is designed to provide entrepreneurs and small and medium-sized enterprises (SMEs) with a flexible and simplified legal structure that allows for easier access to capital markets and reduces the administrative burden of setting up and operating a company. Some of the key features of the SJSC under the new Saudi Companies Law include:
- An entity with one or more shareholders.
- No minimum capital requirement.
- Administered and managed by a manager or more, board of directors or others.
- Possibility of issuing multiple types and classes of shares with different rights, obligations, and restrictions.
- It does not require the existence of general meetings; however, shareholders exercise these powers and have the right to determine who takes them.
- The company’s system determines the basis for the required number of participants for the general meeting to be valid and for issuing the decision.
- According to Article 142 of the New Law, the SJSC company may be managed by one or more presidents or managers or by a board of directors or any other form of management. The company’s articles of association shall specify the manner of appointing and removing whoever is tasked with managing the company as well as the powers, authorities, and work procedures thereof. If the company’s articles of association do not provide for any provisions in this regard, such provisions shall be determined by shareholders.
KEY LAW NOVELTIES
Important modifications and new clauses include:
- Additional provisions for LLCs that are as specific and in-depth as those that were previously specified for JSCs.
- Establishing and controlling professional non-profit organisations.
- Enabling the inclusion of a family charter in the Articles of Association to control relative employment, work policies, ownership, governance, and management in family-owned businesses.
- Establishing and regulating a new sort of business—a straightforward JSC.
- Removing limitations on company names and lock-in periods for shares.
- Enabling the issuance of tradable debt and financial instruments by LLCs.
- Overhauling the conversion and merger procedures and enabling the division of businesses into two or more separate legal entities.
- Releasing small businesses from the need to appoint an outside auditor.
- Allowing for the splitting of shares into ones with a lower nominal value or the combining of shares to produce ones with a greater nominal value.
- Plans that enable the issuance of shares that can be devoted to employees or options to purchase such shares after a certain period to help businesses attract top personnel.
- Allowing the partners’ and shareholders’ yearly and interim dividend distribution.
- Utilising technology tools to improve automation of the process for a variety of duties, such as establishment requests, attendance at general assembly sessions, and online voting.
- Introducing alternate dispute-resolution techniques.
- Liquidation procedures will be made simpler in accordance with KSA bankruptcy law.
- Enforcing the requirement for foreign entities to provide the beginning and end date of their financial year, while it provides the option to foreign entities which have a temporary license to carry out specific contracts to continue operating in the Kingdom after their project completion, and further gives the validity for the Saudi Arabia based branch manager to appoint an auditor to the company.
OTHER FEATURES OF THE NEW CORPORATE LAW
- Removal of certain restrictions at all stages (incorporation, operation, and closure), company names and stock exchanges.
- Provision of LLC entities to issue debt instruments and negotiable financial instruments.
- Amendment of the provisions on conversions and mergers between companies and the authorisation of division / division of a company into two or more entities:
- Split decisions issued by shareholders or the general meeting.
- Partners or shareholders of the company that is the subject of division are allocated shares in the company created from it in the ratio in which each of them owns the capital of the company that is the subject of division, unless they agree on redistributing the shares among themselves or with others.
- Exemption of small and micro enterprises from the auditor’s requirement if:
- Revenues do not exceed SAR 10 million.
- Assets do not exceed SAR 10 million.
- The number of employees does not exceed 49 employees.
- Splitting shares either into shares with a lower nominal value or merging shares to represent shares with a higher nominal value.
- Provision of issuing specialised shares to employees to attract and motivate competences, possibly with the option of purchasing shares after a certain period of employment.
- Allowing interim or annual dividend payments to partners or shareholders.
- Elaboration of regulations for the liquidation of the company and facilitation of its process in accordance with the bankruptcy system.
With these amendments, the new law aims to stimulate business growth, attract long-term foreign direct investment, facilitate market entry, as well as further ascertain a regulatory scheme for companies to maintain an effective business environment and commercial system in the Kingdom.
TAKEAWAY/CONCLUSION
There are various procedures and requirements that you need to prepare and take into consideration for your Saudi Arabia commercial registration. From selecting the right structure for your company, to drafting the correct documentation, to office registration, visa services, banking support, accounting, bookkeeping, payroll, and tax services, Creation Business Consultants will help you throughout the entire process. Our Corporate Structuring experts will leverage our experience to help simplify the process while simultaneously providing you with all the details needed to set up your company in Saudi Arabia and the GCC. Contact a member of our team for your free expert consultation on your Saudi Arabia entity, email [email protected]or call Saudi Arabia +966 54 511 2494
UAE +971 4 878 6240 today.
