Top ten things you should know about the new Saudi Companies Law

Last month, the Ministry of Commerce and the Capital Market Authority in the Kingdom of Saudi Arabia concluded the public consultation on the new Companies Law. The new Companies Law will supersede two laws, the current Companies Law and the Professional Companies Law. The current Companies Law was enacted by Royal Decree No (M/3) on 10 November 2015 and came into force on 2 May 2016. The Professional Companies Law promulgated by Royal Decree No. (M/17) on 25 September 2019.

The new law will have a direct impact on a broad spectrum of companies’ structure and operations. From enhancing corporate governance to reducing commercial disputes by clarifying the foundations that companies must take to run their commercial interests and to attract capital at the lowest costs for small and medium companies.

The new Companies Law is a direct result of comprehensive studies and deep analysis of companies legal systems in the UAE, Singapore, France, the UK, and the US. As a result of this analysis, the new Companies Law introduces the following essential changes to the current corporate environment, including:

1. The elimination of partnership companies and creation of a new form of companies called Société par Actions Simplifiée (SAS) companies. That means, companies in the Kingdom of Saudi Arabia will take one of six forms which are: unlimited liability, limited partnership, limited by shares, joint-stock, SAS, and limited liability company




2. Permitting single-member limited liability and joint-stock company profiles




3. Non-profit companies will be introduced by the new Law. This will allow enterprises in education, science, health, combating poverty programs as well as any other charitable areas specified by the regulations to operate in the kingdom as a joint-stock or limited liability company;




4. Allowing partners or shareholders to include any additional provisions in the company's articles of incorporation or articles of association, provided that they do not conflict with the Companies Law or its regulation;




5. Placing increased responsibilities on board members to act in the best interest of the company and avoid decisions based on conflict of interest;




6. Holding companies (joint-stock or limited liability) will be permitted to carry out any economic activities which commensurate with their nature;




7. Eliminating the power of law to wind up a joint-stock company or a limited liability company when its debt reaches half of its capital. Therefore, the new law will grant any individual with an interest in the company the right to seek a court order to wind up the company, which allow the court’s discretion to be applied on a case by case basis;




8. Excluding micro and small companies from the requirement to appoint an auditor (unless the company is listed in Tadawul stock exchange);




9. The limit of a maximum of eleven board members for joint-stock companies will be lifted;




10. The new law will lift the limit of 50 members and allow a natural person to own more than one limited liability company.

These changes will create a favourable economic climate for the positive commercial development the Kingdom is witnessing. The effects will be especially visible in the support of small and medium businesses, the strengthening of corporate governance principles, and the acceleration of foreign investment opportunities which enhance market competition.