Saudi Companies Law: A Comprehensive Guide to Types of Companies

The Kingdom of Saudi Arabia has witnessed significant development in its legislative and regulatory system, having issued the new Company Law as part of economic reforms in line with Vision 2030. The Saudi Company Law aims to stimulate the business environment and attract investments through an integrated legislative framework. In this article, we will review the main differences between the new and old Company Law, detailing the approved types of companies and the executive regulations that govern their operations, in addition to how companies can benefit from the Mezan cloud accounting application to comply with the system's requirements.

Evolution of Saudi Company Law

The new Saudi Company Law was introduced to replace the old Company Law that no longer met the needs of the growing economy. The new system is characterized by flexibility, simplified procedures, and the introduction of new types of companies in line with international standards. Article 17 of the law defines a company as a legal economic entity established according to an incorporation contract whereby one or more persons commit to contributing to a profit-seeking project.

The Saudi Company Law includes comprehensive regulatory rules for the establishment, management, and governance of companies, and regulates the relationships between partners or shareholders and defines their responsibilities and rights. The new system includes several updates aimed at keeping pace with global economic developments and improving the business environment in the Kingdom.

Types of Companies in Saudi Arabia

There are multiple types of companies in Saudi Arabia according to the Company Law, divided into the following main categories:

1. Commercial Companies

Commercial companies are divided into two main types:

A. Partnerships

General Partnership Company:

• Established by two or more partners, whether natural or legal persons
• Partners are jointly liable with all their personal assets for the company's debts
• A partner acquires the status of a merchant
• Managed by the partners themselves or by someone they appoint, as stipulated in the company's articles of incorporation

Limited Partnership Company:

• Consists of two teams: general partners who are jointly liable, and limited partners who are liable only to the extent of their shares
• The limited partner does not acquire the status of a merchant
• The limited partner has the right to review the company's business without interfering in external management

B. Capital Companies

Joint-Stock Company:

• Established by one or more persons, with capital divided into tradable shares
• The company alone is responsible for debts and obligations
• The issued capital is not less than 500,000 Saudi Riyals
• Managed by a board of directors of at least three members
• Subject to the supervision of the Capital Market Authority if listed
• The company's bylaws determine the term of the board of directors (not exceeding 4 years)

Simplified Joint-Stock Company:

• A new form introduced in the new Company Law
• Subject to the provisions of non-listed joint-stock companies in a manner consistent with its nature
• Characterized by greater flexibility in management and organizational structure
• Can be managed by the company's president, system, director, or board of directors as stipulated in the company's bylaws

Limited Liability Companies:

• Established by one or more persons under articles of incorporation
• The company alone is responsible for its debts and obligations
• The owner or partner is only liable to the extent of their share in the capital
• Managed by one or more directors from among the partners or others
• Has a general assembly consisting of all partners that meets at least once a year

2. Professional Companies

• Established by one or more licensed professionals in a liberal profession
• The partner or shareholder does not acquire the status of a merchant
• The profession is practiced only through licensed partners
• The director (if there is only one) must be from among the licensed partners
• Subject to the provisions of the company form it takes, in a manner consistent with its nature

3. Non-Profit Companies

Divided into two types:

General Non-Profit Company:

• Takes the form of a joint-stock company only
• Spends profits in general non-profit areas that serve the community
• Prohibited from distributing profits to its members or directors
• Subject to the supervision of the National Center for Non-Profit Sector Development

Private Non-Profit Company:

• Takes the form of a limited liability company, joint-stock company, or simplified joint-stock company
• Spends profits in non-profit areas specified in its bylaws
• Can allocate some of its profits to develop its investments according to regulations
• Non-profit companies are an important mechanism for achieving sustainable development goals in the Kingdom

4. Holding and Subsidiary Companies

Holding Company:

• A joint-stock, simplified joint-stock, or limited liability company
• Establishes other companies or owns shares in existing companies that become its subsidiaries
• Exercises management and control over the subsidiary companies
• Considered an important mechanism for organizing large commercial groups

Subsidiary Company:

• Considered a subsidiary if the holding company owns the majority of voting rights
• Or if the holding company controls the appointment of the director or majority of board members
• Or if the holding company controls the majority of voting rights through an agreement with partners
• The articles of incorporation of the subsidiary company stipulate its relationship with the holding company

5. Foreign Companies

• Conduct their activities in the Kingdom through a branch, representative office, or any other form
• Subject to the Foreign Investment Law and relevant regulatory provisions
• Comply with regulations and conditions set by the competent authorities
• Amendments to the Company Law have facilitated the operation of foreign companies in the Kingdom

Types of Institutions in Saudi Arabia

Types of institutions in Saudi Arabia include many legal entities alongside companies, including:

1. Sole Proprietorships:

• Individual ownership by a single natural person who bears full responsibility
• Characterized by ease of establishment and simple management
• Considered the optimal choice for small and medium enterprises

2. Charitable Institutions:

• Aim to provide social and humanitarian services without profit motive
• Subject to the supervision of the Ministry of Human Resources and Social Development
• Play an important role in community development and promoting social solidarity

3. Endowment Institutions:

• Based on the Islamic Waqf system
• Managed according to the conditions of the endower and under the supervision of the General Authority for Endowments
• Contribute to sustainable development through investment of endowed assets

4. Government Institutions:

• Subject to direct state supervision
• Provide public services to citizens and residents
• Operate according to national development strategies and plans

5. Civil Institutions Subject to Special Regulations:

• Such as educational, health, and cultural institutions
• Operate according to regulations specific to their nature of activity
• Subject to oversight and supervision by competent authorities according to their field

The Role of Mezan in Facilitating Compliance with Saudi Company Law

The Mezan cloud accounting application is an effective tool that helps small and micro enterprises comply with the requirements of Saudi Company Law through:

1. Facilitating Compliance with Financial and Accounting Requirements

Mezan provides small and micro companies with integrated accounting tools that help them:

• Prepare financial statements in accordance with the requirements of Saudi Company Law
• Organize accounting books and financial records required by law
• Manage shares and profits for partners in an organized and accurate manner
• Track capital and its changes according to the controls stipulated in the system

2. Customized Solutions for Various Types of Companies

Mezan offers diverse accounting solutions suitable for various types of companies in Saudi Arabia:

For Limited Liability Companies:

• Track shares and distributions for partners
• Manage financial records according to the requirements of the general assembly of partners
• Specialized financial reports for partner meetings

For Sole Proprietorships:

• Simple tools for daily financial management
• Clear separation between the owner's financial liability and the institution
• Tax reports compatible with the requirements of the Zakat, Tax and Customs Authority

For Professional Companies:

• System for managing fees and professional services
• Customized reports for profit distribution among professional partners
• Tools for separating operational and professional expenses

For Non-Profit Companies:

• Tracking revenues and expenses by projects and activities
• Special reports on spending in non-profit areas
• Tools for organizing donations and grants

3. Features Supporting Governance and Transparency

Mezan enhances governance and transparency in small companies through:

• Multi-level authorization system compatible with different management structures
• Periodic reports for management, boards of directors, and partners
• Documentation of financial transactions in a secure and archived manner
• Audit log that tracks all financial operations
• Notification system for legal and financial due dates

4. Integration with Regulatory and Tax Requirements

Mezan helps companies integrate with:

• Zakat and tax requirements according to the Kingdom's regulations
• Electronic invoicing according to the requirements of the Zakat, Tax and Customs Authority
• Periodic reports required by regulatory authorities
• Retention of financial records for the required legal periods

5. Supporting Company Growth Stages and Legal Form Changes

Mezan application provides flexibility in:

• Supporting the company's transformation from one legal form to another while preserving its financial data history
• Expanding the scope of financial services with company growth
• Supporting mergers and acquisitions through the consolidation of accounts and financial reports
• Providing analytical reports that help in making expansion and growth decisions

Executive Regulations for the Company Law

The executive regulations for the Company Law are a complementary document to the system, detailing the mechanisms for its application and clarifying practical procedures. The Company Law regulations cover important aspects such as:

1. Incorporation Procedures:

• Required documents and registration steps for each type of company
• Models of articles of incorporation and bylaws
• Requirements for publicity and announcement of company establishment

2. Governance Rules:

• Management and control mechanisms and duties of boards of directors
• Controls for appointing directors and board members
• Rights of shareholders and partners and mechanisms for their protection

3. Financial Controls:

• Capital and reserve requirements
• Preparation and review of financial statements
• Controls for profit distribution and allocation of reserves

4. Transformation and Merger Procedures:

• Mechanisms for transforming a company from one form to another
• Steps for merging companies and its legal implications
• Procedures for dividing companies and restructuring them

5. Liquidation Rules:

• Steps for dissolving and liquidating the company
• Powers and responsibilities of the liquidator
• Distribution of company assets and settlement of its obligations

How Mezan Facilitates the Implementation of Company Law Requirements

Mezan cloud accounting application offers multiple advantages that help companies implement the requirements of the Company Law and its executive regulations:

1. Reports Compatible with System Requirements

• Financial statements that meet the needs of ordinary and extraordinary general assemblies
• Reports designed according to accounting standards adopted in the Kingdom
• Special reports for tracking shares and shareholders' rights

2. Management of Legal Requirements

• Automatic alerts for regulatory deadlines (submission of financial statements, partner meetings, etc.)
• Templates for disclosures required by law
• Archiving of required official documents and reports

3. Assistance for Startups and Small Companies

• User-friendly interface that does not require advanced accounting expertise
• Prices suitable for small and micro companies
• Specialized technical support that helps companies comply with official requirements

4. Continuous Updates

• Continuous updating of the system to keep pace with changes in Saudi Company Law
• Addition of new features that align with legislative amendments
• Awareness bulletins about new legal requirements and how to comply with them

Advantages of the New Company Law Compared to the Old One

The new Saudi Company Law offers many advantages compared to the old Company Law:

1. Simplified Procedures:

• Reducing incorporation and registration steps
• Possibility of electronic establishment of companies
• Reducing the time required to complete procedures

2. Introduction of New Forms:

• Simplified joint-stock company
• Non-profit companies of various types
• Clearer classification of professional companies

3. Allowing One-Person Companies:

• In limited liability companies
• In joint-stock companies
• In simplified joint-stock companies

4. Enhancing Governance:

• Development of control and transparency mechanisms
• Defining responsibilities of board members
• Activating the role of general assemblies in oversight

How Mezan Helps Meet the Needs of Each Type of Company

For Limited Liability Companies

Mezan offers specialized tools that help limited liability companies:

• Track partner shares and profit distributions
• Prepare reports for the general assembly of partners
• Comply with the requirements of Article 18 of the Company Law
• Provide financial statistics that help directors in decision-making

For Joint-Stock and Simplified Joint-Stock Companies

Mezan provides joint-stock companies with:

• Integrated system for tracking shares and shareholders' rights
• Special reports for board meetings
• Tools for distributing profits to shareholders
• System for periodic reports submitted to ordinary and extraordinary general assemblies

For Professional Companies

Mezan services for professional companies include:

• Management of fees and professional services
• System for distributing revenues among professional partners
• Customized reports that consider the nature of professional work
• Tools for separating administrative and professional expenses

Conclusion

The new Saudi Company Law is an important step toward developing the legislative environment for business in the Kingdom, as it provides an integrated framework that regulates types of companies in Saudi Arabia and enhances competitiveness and transparency.

The Mezan cloud accounting application plays a pivotal role in helping small and micro enterprises comply with system requirements in an easy and effective manner, contributing to achieving the Kingdom's Vision 2030 goals in supporting small and medium enterprises and enhancing their contribution to the national economy.

Through the Company Law and its executive regulations, and using advanced technical tools such as the Mezan application, small and micro enterprises can focus on growing their business while ensuring compliance with legal and regulatory requirements, which enhances their sustainability and supports their growth in the long term.

The Ministry of Commerce and Investment provides a copy of the new Saudi Company Law pdf and an explanation of the Saudi Company Law pdf on its website, and the Mezan application also provides educational and instructional materials that help entrepreneurs and investors understand the system and apply it correctly, while benefiting from modern technologies in managing the financial and accounting aspects of their companies.