The Joint Stock company in the Kingdom of Saudi Arabia

Joint-Stock company Definition ?

A joint-stock company is a form of company that can be incorporated by an association of individuals in a business project with transferable shares of stock of equal value.

Types of Joint Stock Company (JSC)

  1. Closed Joint Stock Companies – these are JSCs that are not listed in the Saudi Stock Exchange
  2. Public Joint Stock Companies – these are JSCs that are listed in the Saudi Stock Exchange

Name of a Joint Stock Company

The name of a Joint-stock company should reflect the type of business running by the company following its purpose of incorporating the business.

If the Joint Stock Company is owned by a single proprietor, it should be indicated in the name of the Company.

The name of the company should not indicate the name of any natural person, except in case wherein the purpose of the company is to invest in a person’s patent or if the company or if the company was transferred to the Joint Stock Company form and the name of the old company has contained the name of a natural person.

Capital

The capital of the company should be enough to achieve the purpose of incorporating the company. Under the KSA Company law,  the minimum capital must be 500,000 SAR to establish a Joint Stock Company.

The amount paid off the capital should not be less than ¼ or 25% at the time of incorporation

 

How to establish a Joint Stock Company?

Government-Owned Corporations, General of Legal Status, and Companies that have capital of not less than 5 million Saudi Riyal may establish a joint-stock company of a single owner.

To establish a JSC, the Ministry of Commerce and Industry through a resolution may grant its authorization to operate upon fulfillment of the necessary legal procedures.

If the JSC is not a Closed Joint Stock Company, its stock must be issued to the public following the Capital Market Authority Laws.

 

Administration of a Joint-Stock company

The board of directors

The number of members in the board of directors should be specified in the memorandum of Agreement, but in all cases, the members should not be less than 3 and not more than 10. The duration of the membership in the board will be 3 years and the memorandum of agreement will specify the manner of choosing the directors. The board will vote to choose the president and the vice president and the memorandum of agreement will dictate the roles and responsibilities of each member of the board directors. Any member of the board of directors is not allowed to participate in any kind of business that has a conflicting interest with the company and must preserve all of the company’s secrets.

Shareholders assembly

The board of director’s president or vice president (in case of the absence of the president) will lead the shareholders’ assembly. All the shareholders have the right to attend the assembly and/or may authorize someone to attend on their behalf. The members of the board of directors and the company’s employees cannot appoint proxies.

 

Company’s Financial Accounts

The financial year of the company will be 2 months specified in its Memorandum of Agreement. As an exception, the first financial year could be 6 months but not exceed 18 months starting from the date of registration.

The board of directors is required to make a report at the end of every financial year indicating the financial status of the company and the way of distributing the profit.

 

Closing of the Joint-Stock company

If the company losses reach half of the paid amount of the capital at any time during the financial year, any responsible person or auditor in the company has to inform the board of director’s president as soon as he knows about the loss and the president has to inform the members of the board within 15 days upon knowledge of such losses, and the board has to hold a general assembly within 45 days upon knowledge of such losses and either increase or decrease the company’s capital in order the reduce the losses to the half of the capital or to dissolve the company before the date actual date of dissolution in its memorandum of agreement.

Advantages and Disadvantages of Joint-Stock company

Advantages

(a) A joint-stock company can sponsor its employees for residency purposes.

(b) A joint-stock company undertaking an industrial project would, in most cases, qualify for financing from the Saudi Industrial Development Fund at favorable rates.

(c) A joint-stock company may engage in the full range of activities that fall within the approved objects of the company and undertake projects in both the public and private sector. Besides, the company may promote and solicit business throughout the Kingdom.

(d) A joint-stock company may have easier access to capital through the issuance of shares and bonds.

 

Disadvantages 

(a) The activities of the joint-stock company are limited to the objects approved by the Saudi Arabian General Investment Authority  (SAGIA) and outlined in its Articles of Association.

(b) Unless the other partner(s) is/are an affiliate, the foreign partner will not have complete control over the management of the company or the treatment of its employees.

(c) The dissolution process can be fairly involved and if a partner chooses not to be cooperative, costly. The commitment should therefore be viewed as a long term one and partners very carefully chosen.

(d) Initial capitalization is required and may be quite large depending upon the objects of the company. 

(e) When a foreign company is participating in a joint-stock company with a Saudi partner SAGIA’s general policy is not to permit the foreign company to become a partner in another company or form a branch with similar or overlapping objects.

(f) The Founding shareholders are subject to a lock-up period of two financial years before they can dispose of their shares.

(g) A joint-stock company must have a board of directors and has much less flexibility in terms of management structure.

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