How to form a new business entity in KSA

What are the types of companies in Saudi Arabia?

 

Saudi Arabia is renowned for being a foreign investment haven. Apart from countless business opportunities, the relatively low tax for foreigners in the Kingdom makes it a very attractive prospect especially for investment companies. Anyone who wishes to establish or register a commercial undertaking in Saudi has several options. According to Companies Law of Saudi Arabia, a company incorporated in the Kingdom shall take one of the following forms:

 

Unlimited Liability Company

 

An unlimited liability company is a company of two or more partners with natural personality who are jointly and personally liable in all their assets for the company’s debts and liabilities. A partner in this company shall acquire the capacity of a merchant. 

 

Limited Partnership

 

A limited partnership comprises two types of partners, one of which includes at least one partner who is jointly liable in all his assets for the company’s debts and liabilities (general partner(s)), and the other type includes at least one partner whose liability is limited to the value of his share in the partnership’s capital (limited partner(s)). A limited partner shall not acquire the capacity of merchant. 

 

Partnership

 

A partnership is a company that is not legally disclosed to third parties, and may be established by means of proof. It does not enjoy a separate legal personality, and is not subject to publication procedures. As such, there is no need for it to register with the commercial register of Saudi Arabia.

 

Joint Stock Company

 

A joint stock company is an entity with a capital that is divided into negotiable shares of equal value. It has a legal personality and is solely liable for debts and liabilities arising from its activities in and out of Saudi Arabia.  Its capital may not be less than 500,000 riyals, and the paid-in capital upon incorporation shall not be less than one quarter.

 

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Just like all companies, except a partnership, joint stock companies need commercial registration in Saudi Arabia. To register, an application for incorporation of a company signed by the applicant(s), together with the articles of incorporation and articles of association, shall be filed with the Ministry of Commerce of Saudi Arabia.

 

Limited Liability Company

 

A limited liability company is a company comprising not more than fifty partners, where its liability is separate from the financial liability of each partner. The company shall be solely liable for due debts and liabilities. If the number of partners exceed fifty, it shall be transformed into a joint-stock company within a year. 

 

It may be set up by one person, and all shares of a limited liability company may devolve to one person. However, a natural person may not set up or own more than one limited liability company of one person. Similarly, a limited liability company owned by one person, natural or legal, may not set up or own another limited liability company of one person.

 

A limited liability company may not engage in banking, financing, saving or insurance activities, or investment of funds for third parties in Saudi Arabia. Nor can it use initial public offering to create or increase its capital or to obtain a loan, or issue negotiable instruments.

 

Holding Company

 

A holding company is a joint-stock or a limited liability company that aims to control other joint-stock or limited liability companies, called subsidiaries, by owning more than half of the capital of such companies or by controlling the formation of their boards of directors. 

 

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Note that a subsidiary may not acquire shares in a holding company. Any action to transfer the ownership of shares from a holding company to a subsidiary shall be deemed null and void.

 

Transformation and Merger

 

Transformation happens when a company takes a different form from another. On the other hand, a merger is made by combining one or more companies with another existing company or by combining two or more Saudi companies to establish a new company. Both may be validly effected, provided the decision to do so is in accordance with the conditions prescribed for the amendment of the company’s articles of incorporation. Provided, further, that it meets the incorporation, publication and the council’s registration requirements as provided for by the laws of Saudi Arabia. 

 

Transformation does not create a new legal person. Accordingly, the company’s rights and obligations subsist. Merger on the other hand results in a single entity to which rights and obligations are transferred. 

 

Branch (SAGIA certificate)

 

A foreign company may establish a branch in Saudi Arabia upon obtaining authorization from the proper government agency and the Saudi Arabian General Investment Authority (SAGIA) in the form of a SAGIA license. As its name suggests, SAGIA is the foreign investment license provider in the Kingdom. The requirements of SAGIA include business and Saudi address registration.

 

It must be noted however that a branch may not issue or offer securities for subscription or sale in the Kingdom except in accordance with the Capital Market Law.

 

Capitalization

 

A partner’s contribution may be in cash or in kind. The contribution may also take the form of work, but it may not be in the form of reputation or influence. Accordingly, only cash and/or in-kind contributions shall form the company’s capital. Such capital may be altered only in accordance with the provisions of the Saudi Arabian laws and in conformity with conditions set forth in the company’s articles of incorporation or articles of association. 

 

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Saudi Council Registration Process

 

Except for partnerships, a company’s partners, directors or board members, as the case may be, shall publish the articles of incorporation (and articles of association of a joint-stock company) and any amendments thereto on the Saudi Arabian Ministry of Commerce’s website. The Ministry may charge a fee for its services relating to publication and authentication of documents. It shall then provide the company with a copy or more of the company’s articles of incorporation and articles of association upon certification indicating publication.

 

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