Decoding Saudi Companies Law: Navigating Business Regulations

by | Aug 7, 2023 | Corporate Law

August 7, 2023

The Kingdom of Saudi Arabia has recently witnessed a significant milestone in its corporate landscape with the introduction of the new Saudi Companies Law. Approved by the Council of Ministers in June 2022 and effective from January 19, 2023, this law replaces the previous Company Law of 2015 and the Professional Companies Law of 2019. Designed to align with the Kingdom’s Vision 2030, the new law aims to stimulate and develop the commercial system, empower the private sector, and attract foreign investments, fostering a diverse and thriving market.

The Key Features of the New Saudi Companies Law

Introduction of the Simple Joint Stock Company (SJSC)

A major highlight of the new Companies Law is the introduction of the Simple Joint Stock Company (SJSC), catering to the needs of entrepreneurs and venture capitalists. Offering greater flexibility, the SJSC has no minimum capital requirement, can be established by one or more individuals, and is managed by one or more managers or a board of directors. Additionally, it can issue several classes of shares, providing diverse investment opportunities.

Flexibility in Corporate Governance

The law allows for the inclusion of binding joint venture agreements and family charters in the company’s articles of association, which regulate ownership, governance, administration policies, employment of family members, and distribution of profits in family-owned companies. This move enhances corporate governance and ensures the sustainability of family businesses.

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Enhanced Opportunities for Small and Micro Companies

The new Companies Law eases statutory requirements for small, medium, and micro companies, making it easier for them to establish and operate in the Kingdom. Such companies are exempt from audit requirements, providing a conducive environment for their growth.

Greater Control for Majority Shareholders

To attract investment and motivate talent, the law allows companies to issue different classes of shares with varying rights, privileges, or restrictions. Additionally, shareholders holding 90% or more of the total voting shares can compel minority shareholders to sell their shares at a fair value, streamlining corporate transactions.

Facilitation of Digital Procedures

The new law embraces technological advancements, enabling companies to conduct various procedures electronically through remote means of communication. This includes submitting incorporation applications, attending general assemblies, and voting on decisions, streamlining business operations.

The new Companies Law in Saudi Arabia represents a significant step towards modernizing the corporate legal framework and enhancing the ease of doing business in the country. The law’s key features, such as the Simple Joint Stock Company, improved corporate governance, and relaxed requirements for small and micro companies, are set to stimulate entrepreneurship, attract foreign investments, and promote business growth.

For entrepreneurs seeking to establish a business in Saudi Arabia, it is crucial to understand the intricacies of the new Saudi Companies Law. Navigating the application process can be challenging, especially for foreigners, therefore; seeking expert assistance is important. With the new law’s implementation, Saudi Arabia is poised to usher in a new era of business development and prosperity, aligning with its ambitious Vision 2030 goals.

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