What are the types of companies in Saudi Arabia under the new companies system?

Choosing the right type of company is one of the most important steps in establishing your business in Saudi Arabia. The Saudi system offers numerous options that meet the needs and aspirations of entrepreneurs and investors. Whether you want to establish a joint-stock company, a limited liability company, or even a non-profit company, knowing the details of each type and its legal requirements will help you make the right decision.

In this article, we will review the types of companies in Saudi Arabia and the most important information you need to successfully establish your company.

First: Joint-stock Company:
Establishing a joint-stock company in Saudi Arabia is a company established by one or more natural or legal persons. Its capital is divided into tradable shares. The company bears sole responsibility for debts and obligations incurred or arising from its activities. Shareholders' liability is limited to the value of the shares subscribed for.

Joint-stock company capital requirements:
- The company's issued capital must not be less than 500,000 Saudi riyals, and the paid-up capital must not be less than a quarter (125,000 Saudi riyals) upon incorporation.

The issued capital of a joint-stock company represents the subscribed shares. The company's articles of association may specify an authorized capital. The board of directors may, by resolution, increase the issued capital within the limits of the authorized capital. The issued capital must be fully paid.

Documents and information required for establishing a joint-stock company in Saudi Arabia:
- The following must be attached to the articles of association when submitting an application to establish the company:

The names, addresses, and nationalities of the founders.

A statement of the expected business and expenses for establishing the company.

A declaration by the founders of their subscription to all of the company's issued shares and the amount paid thereof.

A certificate of deposit of the paid-up portion of the issued capital with a bank licensed in the Kingdom.

A decision by the founders appointing the first members of the board of directors, specifying their names, nationalities, addresses, and dates of birth, and appointing the first auditor, if required by the provisions of the law, if they are not appointed in the company's articles of association.

A declaration by the founders of their commitment to comply with all relevant law requirements for establishing the company.
A report prepared by one or more accredited appraisers showing the fair value of the in-kind shares, if any, and a statement from the remaining founders agreeing to the specified consideration.
Read also: General and private assemblies of joint-stock companies under the Saudi system

Learn about the election of the board of directors of joint-stock companies under the Saudi system and their powers

Second: Simplified Joint Stock Company:
Among the types of companies in Saudi Arabia is the simplified joint stock company, which shares some of its provisions with a joint stock company. Shareholders in a simplified joint stock company regulate the company's structure and operating procedures in accordance with the company's articles of association. Shareholders replace the ordinary and extraordinary general assemblies of the joint stock company in accordance with the provisions applicable to simplified joint stock companies. Shareholders may also determine who shall assume these powers in the company's articles of association. The chairman of the board of directors or the director of a simplified joint stock company shall exercise all the powers assigned to the chairman and members of the board of directors of a joint stock company and shall replace them.

The issued and paid-up capital of a simplified joint stock company is determined by the company's articles of association. It may be stipulated that the company shall have an authorized capital. However, the minimum capital requirement for a joint stock company does not apply to a simplified joint stock company.

Documents required to establish a simplified company in Saudi Arabia:
1- The company's articles of association shall contain the following information: (company name - company headquarters - company purpose - authorized, issued, and paid-up capital - number of shares, their types and categories, if any, and the nominal value and rights associated with each type or category - company term - company management and related provisions - transfer of shares - shareholders' meetings and the legal quorum for a valid meeting - shareholders' resolutions and the quorum required for their issuance - start and end dates of the company's fiscal year - any other provisions, conditions, or information agreed upon by the founders or shareholders to be included in the company's articles of association, provided that they do not conflict with the provisions of the law).

2- The application for establishing the company shall be submitted with the following documents attached (names of the founders, their addresses and nationalities - a statement of the expected business and expenses for establishing the company - the founders’ declaration of subscription to all the company’s shares and the amount paid thereof - a certificate of depositing the amount paid from the issued capital in one of the banks licensed in the Kingdom of Saudi Arabia - the founders’ decision to appoint the company’s chairman, manager or board of directors, including their names, nationalities, addresses and dates of birth - the founders’ declaration of compliance with all the system requirements related to establishing the company - a statement or report prepared by one or more accredited appraisers showing the fair value of the in-kind shares, if any, and a declaration from the remaining founders agreeing to the specified consideration).

Third: Limited Liability Companies:
Establishing a limited liability company is known as one of the most important types of companies in Saudi Arabia. A limited liability company is a company established by one or more natural or legal persons. Its liability is independent of the financial liability of each partner or owner. The company alone is liable for debts and obligations incurred by it or arising from its activities. Neither the owner nor the partner is liable for these debts and obligations except to the extent of their share in the capital.

The documents and information required to establish a limited liability company are:
The articles of association shall include the following information: (names and details of the partners, name of the company, company headquarters, purpose of the company, company capital and its distribution among the partners, partners' acknowledgment of payment of the value of the shares, company term, if applicable, company management, transfer of shares, means of communicating the notifications that the company may send to the partners, partners' decisions, method of distributing profits and losses among the partners, start and end dates of the fiscal year, dissolution of the company, and any other provisions, conditions, or information that the partners agree to include in the articles of association that do not conflict with the provisions of the law).
The following documents must be attached to the articles of association when submitting the application to establish the company:
A declaration by the founders of their compliance with all requirements of the law related to the establishment of the company.
A statement or report prepared by one or more accredited appraisers indicating the fair value of the in-kind shares, if any, and an acknowledgment by the remaining founders of their approval of the specified consideration.
Fourth: General Partnership:
One of the types of companies in Saudi Arabia is the general partnership, which is established by two or more natural or legal persons. They are personally liable for all their assets and jointly liable for the company's debts and obligations. Each partner in the partnership has the status of a merchant.

It is managed by its partners or the legal representative of the legal entity, if a partner. One or more managers may be appointed from among the partners or third parties, and their powers may be determined. They may represent the company before the courts, arbitration bodies, and third parties, all within the limits of the company's activities. A non-managing partner may not interfere in the company's management. Neither the manager nor the partner may engage in any activity similar to the company's activities without a license from all partners, which must be renewed annually.

The manager is prohibited from engaging in activities that do not fall within the company's purpose except by a decision from the partners or by an explicit provision in the company's articles of association. This prohibition applies to the following activities:

- Establishing or closing company branches; donations, except for small, customary donations; the company's guarantee of third parties; settlement of company rights; the sale or mortgage of company real estate unless the sale falls within the company's purpose; the sale or mortgage of the company's commercial premises; and borrowing on behalf of the company.

- It is also prohibited for a partner to contract for his own account with the company except with the authorization of all partners, issued in each case separately. Partners may authorize one or more managers to issue the authorization for any of the company's managers if there are multiple partners.

- A general partnership shall not expire upon the death, departure, withdrawal, incapacity, or commencement of liquidation of the company in accordance with the bankruptcy law, unless the articles of association provide otherwise. The partnership shall continue among the remaining partners, and this partner or his heirs shall only be entitled to his share in the company's assets. His share shall be evaluated based on a report from an accredited appraiser, unless the articles of association do not specify the method of evaluation.

- In the event of the death, departure, withdrawal, incapacity, or commencement of liquidation of the company in accordance with the bankruptcy law, and only one partner remains in the company, he shall be given a period of 90 days to rectify the company's status, either by bringing in another partner or converting the company to another form of company existing under the Saudi system. Otherwise, the company shall be dissolved by force of law upon the expiration of that period.

Fifth: The Limited Partnership:
A company consisting of two groups of partners: one group includes a natural or corporate partner who is jointly and severally liable for the company's debts and obligations, with all of his assets, and the other group includes a natural or corporate limited partner who is only liable for the company's debts and obligations to the extent of his share in the company's capital.

- The limited partner does not acquire the status of a merchant, as general partners in a limited partnership are subject to the provisions governing partners in a general partnership. The provisions of a general partnership apply to limited partnerships insofar as they are not specifically provided for.

The limited partner may not interfere in external management, even if he has been given a power of attorney. If he does interfere, he will be personally and jointly liable, with all of his assets, for the company's debts and obligations arising from his work. However, the limited partner may interfere in the company's internal management in accordance with the provisions of the articles of association.

A limited partnership shall not expire upon the death, incapacity, insolvency, withdrawal, or commencement of liquidation of a limited partner in accordance with the bankruptcy law, unless otherwise provided for in the company's articles of association.

Read also: How to Change the Legal Form of Companies in the Kingdom of Saudi Arabia

Sixth: Non-profit Companies in the Saudi System:
Non-profit companies in the Saudi system are divided into two types: public non-profit companies and private non-profit companies.

Public non-profit companies:
A company that takes the form of a joint-stock company and may not take any other legal form. Its profits are spent on public non-profit organizations and activities that serve the community. The Saudi Ministry of Commerce, in coordination with the National Center for Non-Profit Sector Development, determines these organizations and activities. These organizations shall have their own articles of association.

Private non-profit companies:
A company that takes the form of a joint-stock company, a simplified joint-stock company, or a limited liability company. It may not take any other legal form. Its profits are spent on public non-profit organizations and activities. They shall have their own articles of association or articles of association.

A decision to amend the articles of association of a public non-profit company regarding the disposal of assets, the powers of the board of directors, or the company's expenditures and areas shall not be made without obtaining the Ministry's approval.

When establishing a public non-profit company, the articles of association must specify the public non-profit expenditures and areas. When establishing a private non-profit company, the articles of association or the articles of incorporation must specify the private non-profit expenditures and areas.

Article 70 of the Saudi system's executive regulations defines these public non-profit sectors and areas as follows:

(Religious activities - education, training, and research and their fields - health and psychological affairs, nursing, patient treatment, and services - family and child care programs - support for vocational, health, social, psychological, and scientific rehabilitation programs - literature, culture, arts, talents, hobbies, and their activities - heritage, tourism, and entertainment activities - support and sponsorship of various types of crafts and professions - sports activities - provision of legal services to serve the community - support and sponsorship of citizenship, social, and economic development programs - support for housing programs for various segments of society - programs to combat poverty and provide subsidies to those entitled to them - income support and maintenance - information technology, data, and artificial intelligence activities - environmental protection and wildlife - support for entrepreneurship programs, small and medium enterprises, and consumer protection - establishment, operation, or maintenance of hospitals and medical centers - support and empowerment of social investment and volunteer work - any other public non-profit sectors and areas determined by the Ministry in coordination with the National Center for Sector Development (Non-profit).

A non-profit company may receive cash or in-kind returns for any work, product, or service it performs. It may engage in any legitimate activity that enables it to generate profits, which are then spent on the expenditures and areas stipulated in the company's articles of association or bylaws.

Seventh: Holding and Subsidiary Companies in the Saudi System:
A joint-stock company, a simplified joint-stock company, or a limited liability company that establishes companies or owns shares or stocks in existing companies to become a subsidiary.

A company is considered a subsidiary of a holding company if the conditions stipulated in the Saudi system are met, namely:
If the holding company is a partner or shareholder who owns shares or stocks in the subsidiary's capital that grant it a majority of the voting rights.
If the holding company is a partner or shareholder who solely controls the appointment of the director or a majority of the board members, or has the power to dismiss the director or a majority of the board members.
If the holding company is a partner or shareholder who solely controls the majority of the voting rights, based on an agreement with the remaining partners or shareholders.
If the subsidiary is a subsidiary of the holding company.
Requirements for Ownership of Shares or Stocks in a Holding Company:
A subsidiary company may not own shares or stocks in the holding company, and any action that transfers ownership of shares or stocks from the holding company to the subsidiary is null and void. If the subsidiary owns shares or stocks in the holding company before becoming a subsidiary, the following must be taken into account:
The subsidiary shall not have the right to make or vote on decisions within the holding company.
The subsidiary shall dispose of these shares or stocks within 12 months from the date of its affiliation with the holding company. The competent authority may extend this period.
This does not apply to persons licensed under the provisions of the Capital Market Law and its Implementing Regulations, if their ownership of shares or stocks in the holding company is within the normal scope of their activity. The competent authority may determine other cases.
Read also: Holding Company and Subsidiary Company in the Saudi System

Eighth: Professional Company in the Saudi System:
The last type of company in Saudi Arabia is the professional company, which is a company established by one or more persons legally licensed to practice one or more liberal professions, or by them in conjunction with others, with the purpose of practicing those professions.

Professional companies take one of the following legal forms under Saudi law:

(General Partnership - Limited Partnership - Joint Stock Company - Simplified Joint Stock Company - Limited Liability Company)

The provisions of these companies apply to them. A partner or shareholder in a professional company, regardless of its legal form, does not acquire the status of a merchant based on their partnership or ownership of shares or stocks in the company.

Partners or shareholders in a professional company may convert it to another legal form.

How to Establish a Professional Company Under the Saudi Law:
A professional company is established in accordance with the established incorporation procedures for the legal form of the company. Partners or shareholders may not dissolve the professional company unless they notify all parties involved in it in writing, in accordance with the procedures specified in the implementing regulations.
A professional company carries out its activities through licensed partners or shareholders. However, it may employ persons not licensed to practice the profession or professions within its scope of activity, provided they are subject to the supervision and responsibility of the company and the supervision of the entity or entities legally responsible for supervising the practice of those professions. The professional company must comply with the provisions of the law and regulations established by the relevant authority or authorities, according to their jurisdiction.
The relevant authority may review and inspect the professional company's records and documents, each within its jurisdiction, to verify its compliance with the provisions of the law related to the free profession in which it operates. The professional company must comply with the requirements.
A partner or shareholder in a professional company may only practice the free profession through the company, unless it is owned by a single person. However, a partner or shareholder may practice their free profession through a third party, provided the other partners agree to this in writing or obtain the approval of the general assembly, as applicable. If a partner or shareholder fails to comply, any fees and other financial benefits they receive will be the property of the company.

In conclusion, if you are planning to establish your company in Saudi Arabia, Al-Saadani & Partners Company Formation Services is ready to assist you with everything you need. With our expertise in procedures and laws, we provide the necessary support to establish your company easily and legally. Contact us now and take your first step toward success by:

Phone: 01069460940
Email: info@sadanykhalifa.com