Saudi Arabia Approves New Companies’ Law 2022 to Promote Investment and SMEs

On 4th July 2022, the Saudi Arabia Council of Ministers issued the new Companies’ Law which will replace the previous Companies Law of 2015 as well as the Professional Companies Law of 2019.

The new law which is in line with the Kingdom’s 2030 vision, brings in a number of significant changes to modernise the Saudi corporate law framework and enhance the flexibility and ease of doing business in Saudi Arabia for existing businesses as well as attract foreign investments in the country thus creating greater diversity in the market.

The new Companies’ Law is considered to be instrumental in further stimulating and developing the Kingdom’s commercial system. It aims to empower the private sector, enhance the sustainability of companies, support investment in small and medium enterprises through facilitating procedures and regulatory requirements, boost entrepreneurship and promote investment.

With the new law, the government is trying to stay shoulder to shoulder with the best international practices to address the existing concerns and challenges of the business sector and safeguard their interest.

New Companies’ Law 2022

The new Companies law will regulate all provisions related to companies, whether commercial, non-profit or professional.

It enables the following types of company formation in Saudi Arabia.

• Joint Liability Company
• Limited Partnership Company
• Joint Stock Company
• Simple Joint Stock Company
• Limited Liability Company

Key Amendments and New Provisions Introduced by New Companies Law

• The new law has introduced and regulated a new form of company – a Simple Joint Stock Company, which aims to meet the needs of entrepreneurs and attract venture capital. It is a flexible corporate entity, which can be established by one or more persons, managed by one or more managers or board of directors and issue several classes of shares. It can also serve as an investment arm for non-profit companies enabling them to enter the private sector and generate returns and finance non-profit projects.
• The new law has introduced and regulated non-profit professional companies.
• The law allows for the introduction of binding joint venture agreements and family charter in the company’s articles of association to regulate ownership, governance, administration policy, work policy, management, relatives employment, and dividends distribution in family owned companies.
• It creates more sophisticated vehicles for entrepreneurs, venture capitalists and private equity.
• Limited liability companies are granted the right to issue negotiable debt instruments or financing instruments.
• Removal of partnership companies from the category of companies.
• Sole proprietorship owners are allowed to transfer their assets to any form of company.
• Several restrictions on the company’s incorporation, business conduct, company name, and exit from the market have been removed.
• Small and micro companies are exempted from audit requirements.
• It allows companies to split into two or more companies.
• Introduction of more developed and elaborate re-structuring and merger provisions.
• The law provides for shares to be divided or split into shares of lower nominal value, or merging them to result in shares with a higher nominal value.
• It allows the distribution of interim and annual dividends to the partners and shareholders.
• The law simplifies the liquidation procedures in line with the KSA Bankruptcy Law.
• Introduction of alternative methods for dispute resolution.
• It facilitates automation of processes by enabling attendance at general assembly meetings through electronic means, facilitating virtual voting using technology tools and automating establishment requests.
• Extends a helping hand to companies to attract and motivate talent by allowing the issuance of different classes of shares with different rights, privileges or restrictions to employees.
• The law offers increased flexibility to small and micro companies by easing their statutory requirements, incorporation procedures and offering extra flexibility in forming and setting out the company’s articles of association or bylaws.
• The new law empowers the majority shareholders by offering greater control over the company in the event of planned sale or other material corporate transactions. The law allows the shareholders owning 90% or more of the total voting shares to force the owners of the remaining 10% to sell their shares for a fair value.

Stay tuned to know more about the Saudi Arabia New Companies’ Law 2022.

For any queries related to the New Companies’ Law, please contact IMC Group’s corporate law team.