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Saudi Arabia's New Company Law in Force Including New Simplified Joint Stock Company — Orbitax Tax News & Alerts

Saudi Arabia's new company law entered into force on 19 January 2023. The new law, approved in June 2022, replaces the prior company law issued in 2015. Under the new law, the following main corporate forms are allowed:

  • General partnership company;
  • Limited partnership company;
  • Joint stock company (JSC);
  • Simplified joint stock company (SJSC); and
  • Limited liability company (LLC).

As compared to the prior law, joint venture companies are no longer allowed, while a new corporate form, SJCS, is introduced. The SJSC is a flexible corporate form that can be established by one or more persons, with no minimum capital requirements. SJSCs also allow for simpler management structures, including that a single shareholder can form and run an SJSC as a manager.

In regard to other corporate forms, some important changes are made for JSCs and LLCs:

  • Changes for JSCs include:
    • the minimum capital requirement for JSCs is set to a general amount of SAR 500,000 (SAR 5 million minimum previously applied for single shareholder JSCs, unless established by a government entity);
    • the cap on the maximum number of board members is removed (previously limited to 11), although a minimum of 3 is maintained;
    • the issuance of different classes of shares with varying rights and obligations is allowed, including ordinary, preferred, and redeemable shares; and
    • the lock-up period restricting the trade of founders' shares following JSC incorporation (or conversion) is removed, along with new rules allowing for an IPO at different stages, including the incorporation stage;
  • Changes for LLCs include:
    • the restrictions on financing are removed, with LLCs allowed to raise capital through the issuance of sukuks, debt instruments, or financing instruments;
    • the maximum number of shareholders condition is removed (previously, 50); and
    • the restriction on single-shareholder LLCs owning another single-shareholder LLC is removed.

In general, the new company law applies for entities incorporated/formed on or after 19 January 2023. For existing entities, a compliance grace period of two years has been granted to implement any required changes to comply with the new law.