Unraveling Saudi Corporate Legislation: Navigating Business Regulations

abdul rafay

The corporate landscape of the Kingdom of Saudi Arabia has recently undergone a transformative shift with the advent of the new Saudi Companies Law. Approved by the Council of Ministers in June 2022 and in effect from January 19, 2023, this legislation replaces the previous Company Law of 2015 and the Professional Companies Law of 2019. Aligned with the ambitious Vision 2030, the law seeks to invigorate and evolve the commercial system, empower the private sector, and entice foreign investments, fostering a dynamic and diverse market.

Key Highlights of the New Saudi Companies Law

  1. Introduction of the Simple Joint Stock Company (SJSC): A focal point of the updated law is the introduction of the Simple Joint Stock Company (SJSC), tailored to the needs of entrepreneurs and venture capitalists. With enhanced flexibility, the SJSC imposes no minimum capital requirement, allowing establishment by one or more individuals, managed by one or more managers or a board of directors. It further facilitates the issuance of several classes of shares, providing a spectrum of investment opportunities.
  2. Flexibility in Corporate Governance: The law permits the inclusion of binding joint venture agreements and family charters in a company’s articles of association. These regulate ownership, governance, administration policies, employment of family members, and profit distribution in family-owned enterprises. This inclusion enhances corporate governance, ensuring the sustainability of family businesses.
  3. Enhanced Opportunities for Small and Micro Companies: The new Companies Law streamlines statutory requirements for small, medium, and micro companies, simplifying their establishment and operations in the Kingdom. Notably, these companies are exempt from audit requirements, fostering a conducive environment for their growth.
  4. Greater Control for Majority Shareholders: In a bid to attract investments and incentivize talent, the law allows companies to issue different classes of shares with distinct rights, privileges, or restrictions. Additionally, majority 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.
  5. Facilitation of Digital Procedures: Embracing technological progress, the new law empowers companies to conduct various procedures electronically through remote means of communication. This encompasses submitting incorporation applications, participating in general assemblies, and voting on decisions, streamlining and modernizing business operations.

The implementation of the new Companies Law in Saudi Arabia signifies a substantial leap towards modernizing the corporate legal framework and enhancing the business environment in the country. Key features such as the introduction of the Simple Joint Stock Company, improvements in corporate governance, and relaxed requirements for small and micro companies are poised to stimulate entrepreneurship, attract foreign investments, and propel business growth.

For entrepreneurs aiming to establish a business in Saudi Arabia, a comprehensive understanding of the nuances of the new Saudi Companies Law is imperative. Navigating the application process, especially for foreign entities, can be intricate; hence, seeking expert assistance is paramount. With the rollout of the new law, Saudi Arabia is on the cusp of a new era in business development and prosperity, aligning seamlessly with its ambitious Vision 2030 objectives.

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