All of us know that if a foreigner wants to start a business in Saudi Arabia, he has to apply for SAGIA license. We have explained in detail the step by step procedure to apply for SAGIA license. One of the steps to apply for the SAGIA license is to choose the type of company you want to start to operate in Saudi Arabia.
The Kingdom of Saudi Arabia encourages and welcomes any investments in the business sectors, being free from any and all restrictions. Foreign investments in the Kingdom of Saudi Arabia can establish 7 various legal entities.
The 4 most common types are; Joint Stock Companies, Limited Liability Companies, Limited Partnerships, and General Partnerships. The most common out of these are the LLC’s or Limited Liability Companies, which are relatively easier to establish and also offer protection to the individuals or investors as the liability of these individuals is limited to the total capital they invested into the company.
LIMITED LIABILITY COMPANY: Under the companies’ law in the Kingdom of Saudi Arabia, partners are responsible to pay off the debts of the company personally if the losses of the company exceed 75 of the total stated capital of the company and there is no resolution of partners providing the payment of debts and continuation of the company which may be adopted within a 30-day period.
This resolution would determine whether the company would continue or be dissolved after all the partners have paid off the debts.
REGULATIONS FOR LIMITED LIABILITY COMPANY: The Company can have between two to fifty partners, who can only be legal residents in the Kingdom of Saudi nationals. There must also be a supervisory board comprising of at least three members if the total shareholders of the company exceed 20 people.
The company shares have to be offered first to the partners and then it may be sold to third parties. The company’s SAGIA license, Articles of Association and Commercial Registration have to be amended prior to the transfer of any share.
JOINT STOCK COMPANIES: The administration of the Joint Stock Companies is more detailed than the ones which are applicable to the Limited Liability Companies.
However, the requirements for a joint stock company are not as strict as the ones which are found in some of the Civil Law Jurisdictions. Simply stated the cost of administration for the Joint Stock Company is not higher than that of the Limited Liability Company
REGULATIONS FOR JOINT STOCK COMPANIES: The Articles of Association which has been proposed for the Joint Stock Companies should be following a model which has been issued by the Ministry of Commerce and Industry.
The Joint Stock Company must have a board of directors which is made up of at least 3 people. The managing director and chairman must be included on the board of directors and they cannot own less company stock than SAR 10,000.
There must also be an ordinary shareholders meeting which must be held at least once annually, however, it has to be held within 6 months after the end of the fiscal year of the company. Special shareholders’ meetings may be called in order to amend any of the Articles of Association of the company.