Kingdom of Saudi Arabia new company laws

On 28 June 2022, the KSA adopted a new companies law that will replace the current Companies Law of 2015 as well as the Professional Companies Law of 2019. KSA being one of the powerful energy and oil producing economy in the Middle East. It is also a hub attracting foreign investments from all over the World. The pre-existent legal system had limitations in allowing flexibility in  the  domestic  market and attracting foreign investors, compared the other countries in  Europe, the US and Asia, which in fact gives way to Abu Dhabi Global Market or the Dubai International Finance Centre.  

Simplified Closed Joint Stock Companies (SCJSC) shall combine all the benefits of an LLC in terms of no minimum share capital, ease of management, ease of establishment, ease of making shareholders’ resolutions as well as the benefits of a Closed Joint Stock Company in terms of the ease to trade shares, creating any type of special shares like non-voting shares or premium shares.

  • • A significant addition to the regulatory framework of JSCs, CJSCs and SCJSCs is that shareholders owning 90% or more of the total voting shares gains more power in the hold of the company and can force the owners of the remaining 10% to sell their shares for a fair value.
  • • The courts now recognizes the shareholders agreements because in the old law, contrary to the old situation where, it regarded the Articles of Association of a company already governs the relationship between the shareholders.
  • • The new law resolves the drag-along and tag-along rights for LLCs, CJSCs and SCJSCs, which is difficult in practice prior.
  • • The new Companies Law now allows LLCs to  create security instruments, to pledge their shares, issue Sukuks or any other debt instruments.
  • • The New Companies Law deleted the reference to Sharia Law, which existed, which allowed the companies to have varying dividend distribution among the shareholders despite ownership percentage, now the new law allows shareholders to agree on whatever percentages that suit them.
  • • The new Law lifted allows for talented to Board members as the top performing directors and the remuneration should be  according to the businesses contrary to the prior rule which had specified remuneration and board members.
  • • A company general manager or board member will not be liable for the adverse effects of a decision suffered by the company, provided that the general manager or board member:

           i. Does not have personal interests in the decision;

           ii. Is sufficiently aware of the matter to the required extent given the surrounding circumstances, all in accordance with the manager’s reasonable belief; and

           iii. Genuinely and reasonably believes the decision is in the company’s best interests.

  • • The concept of a general manager was recognized only for SCJSCs, where the general manager of such company can make any decisions whatsoever even if such decisions are out of the manager’s powers. The same concept is also recognized for the board of directors of CJSCs and JSCs but with certain limitations related to third-parties. A CJSC or JSC will not be bound if the third-party knew such decision is out of the board’s powers.
  • • A foreign company should have auditors even if such companies qualify as a small or very small companies as these types of small companies in KSA do not require an auditor.
  • • The new law allows the right to arbitration is agreed on by the shareholders and included as a relevant provision in the Articles of association or in the by-laws of the company.

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