The Council of Ministers of Saudi Arabia approved the new Companies Law on November 9, 2015. The new law will take effect 150 days after its publication in the Saudi Official Gazette. This law is timely and follows high demand from the legal community for updates to the old companies law issued in 1965. The law has 227 articles and makes substantial changes to the existing framework. This law is the result of the recent efforts of the Ministry of Commerce and Industry (MOCI).
Among several significant changes, the most notable is the establishment of holding companies in Limited Liability Company (LLC) and Joint Stock Company (JSC) forms. Additionally, several provisions allow for greater flexibility for companies. In addition, the new companies law facilitates coordination between the Capital Market Authority (CMA), Saudi Arabian General Investment Authority (SAGIA) and MOCI. These governmental entities’ jurisdiction previously overlapped in some areas. This new law makes the coordination between the three entities transparent and workable.
At the entity level, a single shareholder may now establish an LLC whereas the old law required a minimum of two shareholders to establish an LLC. Revisions to debt allowance, statutory reserve and confidentiality are provided for in the new law. For the JSC, two shareholders are now permitted to establish a company, while in the past five shareholders were required. The minimum capital of the stock company now has been changed from 2 million SAR to 500,000 SAR.7 In addition, the law allows the establishment of a JSC with one shareholder for government entities or private parties having minimum capital of 5,000,000 SAR.8 Finally, the new law provides for JSC issuances of Sukuk (Islamic bonds) and debt instruments, and allows JSCs to repurchase or mortgage their shares.
The one shareholder company—whether the JSC or the LLC—will provide a significant advantage for foreign companies, especially with the recent opening the wholesale and retail sectors for 100% foreign ownership. The new companies law also addresses corporate governance. For example, the law forbids one person to serve concurrently as chairman of the board of directors and CEO. There will be few executive regulations for this law that will be issued later by the MOCI and the Board of the CMA.
