Questions on forming companies

1. 01What types of company can be set up in Saudi Arabia?

   Five. The Companies Law recognises the general partnership, the limited partnership, the joint stock company, the simplified joint stock company and the limited liability company. Professional, non-profit and holding companies are not separate forms: each takes one of these five forms and is also subject to its own special rules.

   SourceCompanies Law, Arts. 4, 185, 198 and 216 (Umm Al-Qura official gazette)

   Read moreBefore signing a partnership agreement: management, profits, exit and disputes

2. 02Can a limited liability company have just one owner?

   Yes. A single natural or legal person may form an LLC, and the company's finances remain separate from the owner's. The sole owner holds the powers of the manager, the board of managers and the partners' general assembly; their decisions are made in writing and entered in a special register kept by the company. The owner may appoint one or more managers to represent the company before the courts and third parties. Instead of a memorandum of association, a single-owner LLC has articles of association.

   SourceCompanies Law, Arts. 156 and 157 (Umm Al-Qura official gazette)

3. 03Is the owner of an LLC personally liable for its debts?

   As a rule, no. The company alone is liable for its debts and obligations, which it bears out of its own separate estate, and an owner or partner is liable only up to the amount of their share in the capital. The position changes if the owner has given a personal guarantee or if the law establishes an independent ground of liability against them.

   SourceCompanies Law, Art. 156 (Umm Al-Qura official gazette)

   Read moreBefore signing a partnership agreement: management, profits, exit and disputes

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4. 04When does a company acquire legal personality?

   Once it is entered in the commercial register. During the incorporation period it has legal personality only to the extent needed to complete its formation, and only if the formation is completed. On registration, the contracts and acts the founders entered into on its behalf pass to the company, which also bears the incorporation expenses.

   SourceCompanies Law, Art. 9 (Umm Al-Qura official gazette)

   Read moreThe new commercial register: one register and the annual confirmation

5. 05Who is liable for obligations taken on in the name of a company whose incorporation was never completed?

   The people who acted for it. If the incorporation procedures were not completed as the law requires, everyone who dealt or acted in the company's name or on its behalf is personally liable, with all of their assets and jointly with the others, towards third parties for what they did during the incorporation period.

   SourceCompanies Law, Art. 9 (Umm Al-Qura official gazette)

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6. 06Is a commercial registration enough to carry on any activity?

   No. A company may pursue its objects once it is entered in the commercial register and has obtained any licences the relevant authorities require for the activity.

   SourceCompanies Law, Art. 10 (Umm Al-Qura official gazette)

   Read moreThe new commercial register: one register and the annual confirmation

7. 07Is an agreement between partners outside the memorandum of association binding on them?

   Yes. The Companies Law allows founders, partners and shareholders to make one or more agreements governing their relationship with each other or with the company, during incorporation or afterwards. Such an agreement is binding and may be made part of the memorandum, provided it does not conflict with the law or with the company's memorandum or articles of association.

   SourceCompanies Law, Art. 11 (Umm Al-Qura official gazette)

   Read moreBefore signing a partnership agreement: management, profits, exit and disputes

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8. 08Can a family charter govern how the company is run and how shares pass to heirs?

   Yes. A family charter may regulate the family's ownership of the company, its governance and management, its business policy, the employment of family members, profit distribution, dealings in shares and how disputes are resolved. A partners' agreement may also set out how heirs join the company, either in person or through a company they form for the purpose. The charter is binding as long as it does not conflict with the law or the company's memorandum or articles of association.

   SourceCompanies Law, Art. 11 (Umm Al-Qura official gazette)

   Read moreBefore signing a partnership agreement: management, profits, exit and disputes

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9. 09Must a company's memorandum of association be in Arabic?

   Yes. The memorandum or articles of association must be in Arabic. A translation into another language may accompany it.

   SourceCompanies Law, Art. 7 (Umm Al-Qura official gazette)

10. 10Can a partner contribute work instead of money?

    Yes, except in joint stock and simplified joint stock companies. A partner's contribution may be work in return for a share of the profits fixed in the memorandum of association, but it cannot be the partner's reputation or influence. A work contribution does not form part of the capital, which consists only of cash and in-kind contributions.

    SourceCompanies Law, Art. 13 (Umm Al-Qura official gazette)

    Read moreBefore signing a partnership agreement: management, profits, exit and disputes

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11. 11What happens if a partner fails to pay in their share of the capital?

    The partner owes that contribution to the company. If it is not made by the due date, the company may demand performance or suspend the rights attached to the partner's shares, such as the right to profits or to vote. In every case the company keeps its right to claim compensation for the harm caused by the delay.

    SourceCompanies Law, Art. 15 (Umm Al-Qura official gazette)

    Read moreBefore signing a partnership agreement: management, profits, exit and disputes

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12. 12Does changing a company's name wipe out its existing debts?

    No. Changing the trade name does not affect the company's rights or obligations, or any legal proceedings it took or that were taken against it before the change.

    SourceCompanies Law, Art. 5 (Umm Al-Qura official gazette)

    Read moreThe new commercial register: one register and the annual confirmation

13. 13Must a company's contracts and receipts state its legal form and capital?

    Yes. Contracts, receipts and other documents the company issues must show its name, legal form, head-office address, email address (if any) and commercial registration number. Under Article 12 of the law they must also state the capital and how much of it is paid up, except for general and limited partnerships. During liquidation the words “under liquidation” must be added to the company's name.

    SourceCompanies Law, Art. 12 (Umm Al-Qura official gazette)

These answers are brief general information. They are no substitute for a review of the facts and documents of a particular matter.