Saudi Arabia New Companies’ Law 2022

On Tuesday 28^th June 2022, the Council of Ministers has approved the long-awaited new Companies’ Law (“New Law”). The New Law was enacted by Cabinet Resolution No. 678, dated 29/11/1443H (corresponding to 28^th June 2022) and ratified by Royal Decree No. (M/132), dated 01/12/1443H (corresponding to 30^th June 2022), and consists of (281) articles. The New Law, which is in line with the Kingdom’s 2030 Vision, introduces new changes, allows greater flexibility, safeguards businesses’ interests, empowers the private sector and follows the best international practices.

The Companies Law of 1437H (2015) and the Professional Companies Law of 1441H (2019) will be repealed, and any other provisions (in any other law in force) which are in conflict with the New Law will be overridden by the New Law, once it comes into effect, (180) days following its publication in the Official Gazette.

The New Law regulates commercial companies, non-profit companies and professional companies, and it enables investors to incorporate any of the following types of companies: (1) Joint Liability Company (2) Limited Partnership Company (3) Joint Stock Company (4) Simple Joint Stock Company and (5) Limited Liability Company.

The New Law has, specifically, introduced a new form of company – the “Simple Joint Stock Company” (“SJSC”). The SJSC will be able to accommodate the entrepreneurship and venture capital rising demands. It is a flexible corporate entity, which can be established by one or more persons, issue several classes of shares, can be managed by one or more managers, or board of directors. It may also act as a vehicle for investments and enable non-profit companies to enter the private sector.

In addition, article 11 of the New Law allows for the introduction of binding (provided it does not conflict with the law, articles or the bylaws) joint venture agreements and family charter in the company’s articles of association to regulate family owned businesses, their governance and administration policy, the employment of family members and the family business’ profits.

The New Law has also made a number of other changes, the most notable of which are the following:

• Increased flexibility: it eases the statutory requirements for small and micro companies, facilitates the incorporation procedures and allows extra flexibility in forming and setting out the company’s articles of association or bylaws.
• It creates more sophisticated vehicles for entrepreneurs, venture capitalists and private equity.
• It removes many restrictions in the company’s incorporation, business conduct and exit from the market.
• It now grants limited liability companies the right to issue negotiable debt instruments or financing instruments.
• It has introduced more developed and elaborate re-structuring and merger provisions.
• It allows companies to split into two or more companies.
• It allows owners of sole proprietorship to transfer their assets to any form of company.
• It allows the issuance of different classes of shares with different rights, privileges or restrictions, and the issuance of shares to employees to attract and motivate talent.
• It allows the distribution of profits on an interim or annual basis and safeguards creditors’ rights.
• It allows attendance at general assembly meetings through electronic means.
• It provides for shares to be divided or split into shares of lower value, or consolidation thereof to represent shares of a higher nominal value.
• It exempts small and micro companies from auditing requirements.
• “Partnership” companies are no longer recognized as a category of companies.
• Under Article (181) of the New Law, the company’s articles of association may provide that, upon the approval of one or more shareholders representing at least (90%) of the company’s capital (1) the majority of the shareholders may force the minority to accept an offer from a bona fide buyer to purchase all the company’s shares at the same price and conditions, (2) the minority of shareholders may force the majority to guarantee the sale of the minority shares if the majority decides to sell their shares, at the same price and condition.

The SJSC will be able to accommodate the entrepreneurship and venture capital rising demands. It is a flexible corporate entity, which can be established by one or more persons, issue several classes of shares, can be managed by one or more managers, or board of directors.

In summary, the New Law increases business sustainability, encourages investments in small and micro companies, simplifies procedures and regulatory requirements, increases market diversity by introducing new company types, protects shareholders and reduces potential disputes.

Please contact our Saudi based corporate team for any queries and we would be delighted to assist.