The Draft New Companies Law in KSA
The changes in Saudi-Arabia’s (KSA) legal landscape have been frequent and meaningful over the last few years owing to the country’s appetite for foreign direct investment. Between these changes are reforms envisaged in corporate law. The main regulators for corporate law, the Capital Market Authority and the Ministry of Commerce presented a comprehensive draft for a new companies’ law in Arabic (Draft). The Draft, among other things, includes the following changes:
1. The Draft endeavors to integrate all corporate vehicles into one piece of legislation. It now covers not only commercial companies but also comprises professional as well as nonprofit companies. In addition, the Draft features two new forms of stock companies, the Partnership on Stock (with personally liable partners on the one hand and (tradable) stocks with limited liability on the other) and the Simple Joint Stock Company (a new concept in the GCC, easier to incorporate and manage than a fully-fledged joint stock company and thereby potentially more suitable also for smaller and medium sized ventures). The currently included silent partnership (joint venture) is not recognized as a company form in the Draft.
2. The Draft furthermore proposes the following general corporate rules:
- Recognition of shareholders’ and JV agreements;
- Adherence to Gregorian calendar for financial year;
- Eased regulations for SMEs;
- Introduction of different classes of shares;
- Share registers are centrally regulated and supervised, thus paving the way for simplified share transfers and a unified Ultimate Beneficial Owner register system to adhere to OECD standards.
3. In connection with Limited Liability Companies, the Draft includes the following changes:
- Removal of the maximum limit of 50 shareholders;
- Elimination of restrictions for single-shareholder-LLCs (i.e. now single-shareholder-LLCs can hold other single-shareholder-LLCs and individuals can hold several single-shareholder-LLCs);
- Cancellation of prohibited activities (e.g. banking);
- Removal of requirement to pay the share capital into a blocked account before incorporation;
- Possibility to issue bonds;
- Power of attorney by default for the director to represent the LLC in litigation and arbitration by default. Previously this was subject to special powers of attorney and proved challenging in practice.
The Draft promises a more elaborate corporate environment for KSA’s future. It leaves behind many stereotypes and simplifications of GCC corporate legislation and adopts a bespoke approach to corporate solutions in KSA. We are looking forward anticipate these initiatives to be formulated into the law soon.
SCHLÜTER GRAF's dedicated KSA team will keep you posted on the final enactment of the law as well as the details of its content and implications for businesses and investors in the Kingdom of Saudi Arabia. For more information, please contact your usual contact person at SCHLÜTER GRAF or send an email to email@example.com.