THE BENEFITS & RISKS OF PARTNERSHIP STRUCTURES IN SAUDI ARABIA

This article has been researched and written by the Business Development Team at Creation Business Consultants. AI has not been used in generating this article.

Like many other countries, partnership structures in Saudi Arabia give companies a method to work together and divide duties, expenses, and profits. Various types of partnerships are recognised in Saudi Arabia, where they are subject to certain restrictions. Insights into the Saudi Arabian economy, culture, and regulatory environment can be gained by collaborating with local partners.

Local knowledge can be a critical factor in the success of certain enterprises. However, without a comprehensive partnership agreement, partnerships can become vulnerable to conflicts and disputes, which can potentially disrupt business operations. When considering the advantages and disadvantages, partnerships distribute financial responsibility among partners, which can be beneficial for businesses requiring substantial capital investments. Moreover, partnerships offer flexibility in terms of management and decision-making, granting partners greater control and the ability to tailor the relationship to their needs.

HOW TO SET UP A PARTNERSHIP-STRUCTURED ENTITY IN SAUDI ARABIA?

Establishing a partnership-structured entity in Saudi Arabia entails several procedures and legal criteria such as:

1. Securing the initial investor license from the Ministry of Investment in Saudi Arabia (MISA).
2. Name reservation by the Commercial Companies Law.
3. Drafting the partnership agreement and company Bylaws.
4. Commercial registration issuance from the Ministry of Commerce and Industry (MOCI).
5. Third-party regulatory approvals – if applicable.
6. Registration with the Chamber of Commerce, Zakat, Tax and Customs Authority (ZATCA) etc.
7. Company bank account opening.
8. On-going compliance and reporting.

TYPES OF PARTNERSHIP STRUCTURES IN SAUDI ARABIA

A company incorporated by the provisions of this Law shall take one of the following forms:

1. General Partnership.
2. Limited Partnership.
3. Limited Liability Partnership.
4. Joint Venture.
5. Partnership Limited by Shares.
6. Professional Partnership.

LAWS IMPLIED FOR PARTNERSHIP STRUCTURES IN SAUDI ARABIA

A partnership company is a legal entity incorporated by the provisions of this Law under Articles Of Incorporation or Articles Of Association under which two or more persons undertake to participate in a for-profit enterprise by contributing property or work, or both, to share any profit realized or loss incurred from such enterprise. Such a company incorporated by the provisions of this Law shall have Saudi nationality, and its headquarters shall be in the Kingdom.

Article 35 of the Commercial Companies Law refers to a general partnership, a company incorporated by two or more natural or legal persons who are jointly and personally liable for the company’s debts and liabilities. A partner in such a company shall acquire the capacity of a merchant.

Article 51 of the Commercial Companies Law refers to a Limited Partnership. It is a company that comprises two groups of partners, one group shall include at least one partner of a natural or legal personality who shall be jointly and personally liable for the company’s debts and liabilities, and the other group shall include at least one limited partner of a natural or legal personality who shall not be liable for the company’s debts and liabilities except to the extent of his interests in the company’s capital. A limited partner shall not acquire the capacity of a merchant.

Article 36 of the Commercial Companies Law requires the inclusion of the following information for a general partnership company:

1. Partners’ names and other details.
2. Company’s name.
3. Company’s headquarters.
4. Company’s purpose.
5. Company’s capital and its distribution among partners, together with sufficient details on the contribution guaranteed by each partner and its due date.
6. Company’s term, if any.
7. Company’s management.
8. Issuance of partner decisions and the quorum required for their issuance.
9. Distribution of profits and losses among partners.
10. Dates on which the company’s fiscal year commences and ends.
11. Termination of the company.
12. Any other terms, conditions, or information the partners agree to include in the company’s Articles of Incorporation are not inconsistent with the provisions of this Law.

BENEFITS OF PARTNERSHIP STRUCTURES IN SAUDI ARABIA

In partnerships, partners can combine their resources and divide the financial responsibilities of the company. This can be especially helpful when launching a firm that needs a substantial upfront commitment in finance. Furthermore, such structures provide a great deal of managerial and decision-making flexibility. The partnership agreement can be tailored by the partners to their unique requirements and preferences. Customised management structures and profit-sharing agreements are made possible by this flexibility. Working with Saudi citizens or organisations can bring useful local insight and experience. Businesses trying to successfully negotiate the local market, laws, and cultural nuances may find this to be very helpful.

TAKEAWAY

It’s crucial to remember that while partnerships provide numerous benefits, they also have their own set of risks and difficulties, including the possibility of partner disputes and General Partnerships with unlimited responsibility. It’s critical for those thinking about forming a partnership in Saudi Arabia to carefully balance these advantages and risks.

Saudi Arabia offers numerous opportunities for growth and collaboration, and choosing the right partnership structure can be a strategic move toward achieving your business goals in the Kingdom. We encourage you to explore these options further, consult with legal experts, and embark on your journey toward prosperous partnerships in Saudi Arabia.

Creation Business Consultants specialises in assisting SMEs, MLEs, and multinational corporations with market entry solutions to expand and restructure in the UAE, Saudi Arabia, and wider GCC region. Contact a member of our team to learn more email [email protected] or call Saudi Arabia +966 54 511 2494 UAE +971 4 878 6240 today.

Scott Cairns,
Managing Director