Saudi Arabia's new companies’ law highly flexible, embraces international best practices

June 29, 2022

Saudi Gazette report

RIYADH — The new Companies’ Law, approved by the Council of Ministers on Tuesday will be instrumental in further stimulating and developing the Kingdom’s commercial system. The most important features of the law include high flexibility to protect companies and empower the private sector in a way keeping pace with best international practices.

The law aims to enhance the sustainability of companies, support investment in small and medium companies through facilitating procedures and regulatory requirements, and achieve greater diversity in the market by adding new corporate entities, in addition to raising the level of flexibility in the systems, preserve the rights of customers, bring down disputes and ensure fair treatment among the stakeholders.

The new law was prepared in a way keeping pace with the international best practices to address all the challenges facing the business sector, and that is in partnership with many bodies from the public or private sectors. The law was formulated after seeking opinions and listening to professional bodies, international organizations and specialized consulting offices.

The law regulates all provisions related to companies, both commercial companies, non-profit companies and professional companies. This is to ensure that these provisions are available in a single legislative document by taking one of the following types of companies: joint liability company, limited partnership company, joint stock company, simple joint stock company, and limited liability company.

The law enables concluding of a family charter that regulates family ownership in the family business, its governance and management, work policy, employment of family members, and distribution of profits so as to ensure the sustainability of these companies, in addition to exempting micro or small companies from the audit requirement.

Under the law, a new form of company has been created called the ‘simplified joint stock company’ that meets the needs and requirements of entrepreneurship and venture capital growth. It will also serve as an investment arm that enables non-profit companies to advance to the third sector, stimulate social responsibility, and allow them to generate returns in their businesses and spend them on non-profit purposes.

The new law brings down the statutory requirements and procedures for small, medium and micro companies, in addition to simplifying the requirements and procedures for establishing companies. It gives flexibility to include special terms and conditions in the contracts of incorporation of companies or their articles of association, and created possible mechanisms for entrepreneurs, owners of venture capital and private ownership.

The law removes many restrictions at all stages including establishment, engage in business and exiting the market as well as restrictions on company names, and allowed the limited liability company to issue debt instruments or negotiable financing instruments. The law modified the provisions of transformation and merger between companies, permitting the company to be divided into two or more companies, and allowing the owners of individual entities to transfer their assets to any types of companies

With regard to attract investment, the law allowed the issuance of different types of shares with varying categories and rights, privileges or restrictions, and the possibility of issuing shares allocated to employees to attract and motivate talent. It also allowed the distribution of profits temporarily or annually with governance that ensures that the company’s creditors obtain their rights.

The law also made it possible to implement procedures electronically through remote means of communication, including submitting incorporation applications, attending general assemblies of shareholders or partners, and voting on decisions. It provides means for resolving disputes and disagreements by resorting to arbitration or other alternative means to settle them, in addition to developing provisions for the liquidation of the company and facilitating its procedures, in line with the provisions of the bankruptcy law.

The new law keeps pace with all economic developments in the business environment as it comes six years after the adoption of the previous law in 2016. The law is in line with the Kingdom’s Vision 2030 and its view of the private sector as a strategic partner, as well as its objectives related to facilitating the work of companies and enabling them to maintain the momentum of expansion and growth.

June 29, 2022
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