How to Set up a Company in Saudi Arabia? Choose the best type of company to start your business in Saudi Arabia now

To set up a company in Saudi Arabia, you should think and plan carefully, particularly with respect to choosing the most suitable legal form. It is a strategic step, where the Saudi legal system provides diverse kinds of the companies, each of which has distinguished characteristics, advantages and legal obligations. Whether you are a Saudi entrepreneur or foreign investor, it is important to understand the available options, because this ensures the compliance with Saudi laws and compatibility of your company's structure with your goals.

This article highlight how to set up a company in Saudi Arabia by choosing the best types of the legally licensed companies in Saudi Arabia in more detail, the key advantages of setting up a company in Saudi Arabia and some legal considerations important for the foreign investors.

The most common types of Companies in Saudi Arabia

There are legally licensed companies with multiple legal forms in Saudi Arabia, each of which is governed by specific provisions of Saudi Companies Law. The most common types of these companies include:

1. General Partnership

The general partnership is established by two or more persons or entities. In the general partnership, the partners are jointly and severally responsible for the debts and obligations of the company. Each partner is deemed as a merchant and assumes unlimited personal liability. This type of company is usually appropriate for partners who conduct the business dynamically and have strong mutual trust.

2. Limited Partnership

The limited partnership is composed of two kinds of partners, joint partners (who are severally and jointly responsible for the Company's obligations) and dormant partners (whose responsibility is limited to the shares owned by them in the capital). The dormant partners don’t take over management of the company and may not oblige the company to conduct any transactions.

3. Joint Stock Company

The major investors prefer this type of company. In the joint stock company, the capital is divided into negotiable shares, where the shareholders are liable only for the value of their shares. The joint stock companies are an optimal choice for mega projects.

Key advantages of a Joint Stock Company

Collecting significant capital through public and private subscriptions.
Ability to fund the big projects
Distribution of the dividends according to the shareholding.
More flexible for expansion and mergers.

Major Obstacles:

The adherence to the strict statutory and disclosure requirements.
There is a need for periodic financial reporting and audit compliance.
Management of the joint stock company is taken over by the board of directors and executive management, both of which must have specialized experience. In addition, the company must comply with the corporate governance criteria and keep its operational activities transparent.

4. Simple Joint Stock Company

This modern legal structure offers the flexibility of limited liability companies along with the share-based formation of a Joint Stock Company. It can be formed by one or more individuals or organizations, without the need for a minimum of capital. Liability of the shareholders remains restricted to the amount of their shares.

Advantages include:

There is no obligatory minimum capital.
There are different types of shares with flexible options and distinguished rights and obligations.
The management may be taken over by one or more directors or a board of directors.
Corporate governance can be modified according to the provisions of the corporate charter.

5. Limited Liability Company (LLC)

Limited liability companies are considered the most common type of medium-sized companies in Saudi Arabia. LLC may be incorporated by one or more shareholders (up to 50). In an LLC, the shareholder is liable only for the value of his/her share, and this type of company provides a safe legal setting for the investors.

Advantages:

Safeguarding the personal assets from the commercial and legal responsibilities.
Optimum option for SMEs, which look for credit facilities and legal safeguarding.
Flexibility in the management with minimum reporting requirements versus JSCs.

Benefits of setting up Companies in KSA

KSA has a strong business ecosystem supported by ambitious economic reforms and a strategic location between Europe, Asia, and Africa. The investors, who incorporate companies in Saudi Arabia, can take advantage of:

100% Foreign Ownership: The investor from Non-GCC countries can own 100% of the Saudi company in most fields.
GCC Nationals’ Privileges: nationals of GCC countries have better treatment in setting up companies.
WTO Membership: As a World Trade Organization (WTO) member, KSA easy access to the international markets.
Favorable Regulatory Climate for Investors: minimal bureaucracy, digital establishment services, and government incentives encouraging foreign investors.
Cutting Edge Infrastructure: There are international ports, airports, industrial areas, and logistic networks in Saudi Arabia.
Skilled and Experienced Manpower: There is an increased number of educated professionals and flexible labor recruitment procedures.

Legal Requirements for Foreign Investors

The foreign investor shall fulfill several requirements and take specific steps to incorporate a company in KSA.

Investment License: Obtain a foreign investment license from the Ministry of Investment of Saudi Arabia (MISA).
Business Activity Classification: Select the company’s business activity and legal structure.
Company's documents:

Submit a translated Company Charter authenticated by the Saudi consulate.
Submit a commercial register of the company, authenticated by the Saudi consulate.
Submit audited financial statements for the latest fiscal year, authenticated by the Saudi consulate.

Commercial Registration (CR): Register the company at the Ministry of Commerce.
Zakat and Tax Registration: Register the Company at Zakat, Tax, and Customs Authority (ZATCA).

Capital requirements

The minimum capital differs according to the company's activity and structure. For instance, some regulated sectors or foreign investors may require minimal capital limits.

Tax for the Companies owned by foreign investors

The foreign companies operating in Saudi Arabia shall pay 20% income tax on the net profits. Moreover, the withholding tax may fall due on certain cross-border deals, and all companies must adhere to VAT rules (15%).

Main Factors to Consider in order to choose the best type of companies

When choosing the proper legal structure for your company, it is necessary to evaluate the following:

Type of Business activity: Take into account the scope, field, and statutory requirements.
Share Capital: Evaluate your solvency and capacity to increase the external finance.
Ownership and Control: Determine whether you want sole ownership or are willing to form a partnership with other parties.
Assuming responsibility: Assess the level of personal responsibility you accept.
Tax Effects: Assess the tax consequences for every company type.
Regulatory Requirements: Take into account the reporting and compliance responsibilities in each structure.

It is our firm's role to advise you before making your final decision to ensure complete adherence to Saudi laws and regulations and maximize operational effectiveness. You can contact Sadany & Partners law firm now to assist you.

Conclusion: Set up your company and start your Business in Saudi Arabia now

Saudi Arabia offers an active and business-friendly environment for both local and international investors. Whether you're planning to start a new business, grow your existing operations, or create a regional head office, selecting the proper company structure is a very important step that positively affects your long-term success.

With a clear understanding of the legal form and consultation, you can proceed with establishing the company with confidence. For customized support, legal advice, and practical assistance, you can consider seeking legal advice from professional, experienced lawyers like Sadany & Partners.