Companies Law

Purpose and scope

• Governs the formation, management and governance of commercial companies, the rights of partners and shareholders, conversion, merger and division, and dissolution and liquidation.
• It applies to companies formed in the Kingdom, and to foreign companies operating there as far as their branches and activities are concerned.
• It replaced the previous Companies Law and introduced more flexible forms such as the simplified joint stock company, non-profit companies, and family companies governed by a family charter.

Key rules, rights and obligations

• Company forms: general partnership, limited partnership, joint venture, joint stock company, simplified joint stock company and limited liability company.
• A limited liability company or simplified joint stock company may be formed by one person; as a general rule a partner's liability in them is limited to his share of the capital.
• The articles of association are the first reference for profit sharing, the manager's powers, voting and share transfers, so careful drafting prevents most disputes.
• Partners in a limited liability company have a right of pre-emption when one of them transfers his share to an outsider, as set by the law and the articles.
• Managers and board members are liable for harm to the company, partners or third parties caused by breaching the law or the articles or by mismanagement, and may not have conflicting interests without authorisation.
• Annual financial statements must be prepared and filed with the competent authority, and assemblies or partners' meetings held on the statutory dates.

Violations, penalties and common problems

• Mixing a partner's money with the company's, or using the company for an unlawful purpose, may lift limited liability and expose the partner personally.
• When losses reach half the capital, management must inform the partners and invite them to decide whether the company continues or is dissolved within the periods set by the law; failing to do so engages the managers' liability.
• Disputes between partners over profits, management and the exit of a partner are among the most common, usually because the articles are unclear.
• Failing to update company data or to file financial statements exposes the company to fines by the Ministry of Commerce.
• The law sets severe penalties, up to imprisonment and large fines, for serious acts such as false or misleading statements, using company funds for personal benefit, or distributing fictitious profits.

Procedures and key deadlines

• Formation is done online through the Saudi Business Center, followed by entry in the commercial register and obtaining licences and registrations with the relevant bodies.
• Amending the articles, increasing capital or admitting a new partner requires a resolution by the majority set in the law and the articles, then official registration.
• A company may convert to another form or merge into another under procedures that protect creditors and partners.
• On dissolution the company enters liquidation and keeps its legal personality as needed; the liquidator pays the debts and then distributes the remainder to the partners.

An advisory summary prepared by Al-Bayan Al-Wadih Law Firm. It is not an official text and does not replace the law, its implementing regulations, or advice from a specialised lawyer. The official published text and its amendments prevail.