Professional Services in the Kingdom of Saudi Arabia are services provided by freelancers to others through companies incorporated by one or more persons licensed to practice one or more professions. This contributes to increasing and improving job opportunities in the professional services sector and helps establish competitive professional companies both locally and internationally.
Regulation of professional services in Saudi Arabia
The Kingdom has regulated the performance of professional services and issued the Professional Companies Law as part of the new Companies Law, which came into effect on January 19, 2023. This law aims to stimulate and develop the commercial ecosystem, offering high flexibility to protect companies and enabling the private sector to significantly contribute to achieving the goals of Saudi Vision 2030. The law facilitates the establishment, continuance, and expansion of companies and addresses the challenges they face.
The Companies Law dedicates Part Eight to professional companies, detailing them in nineteen articles (197-215). It defines a professional company as a company incorporated by one or more persons licensed to practice one or more professions, or by a combination of licensed professionals and others; its purpose is to practice such professions.
A professional company may take one of the five forms of companies mentioned in the Companies Law: a general partnership, a limited partnership, a joint-stock company, a simplified joint-stock company, or a limited liability company.
The law allows persons licensed to practice a single profession to establish a professional company in any of the forms provided by the law. It is possible to establish a professional company by persons licensed to practice more than one profession, or by a combination of licensed individuals in one or more professions and a non-Saudi professional company. However, a partner or shareholder in a professional company practicing one profession cannot participate in or contribute to another professional company practicing the same profession unless the company's memorandum or articles of association state otherwise.
According to the law, a professional company can only practice the profession or professions specified in its activity through its licensed partners or shareholders. The company may engage other licensed individuals to perform the profession or professions in its activities, provided they are supervised by the company and remain under its responsibility. A professional company may only practice the profession or professions specified in its activity and is not permitted to engage in commercial activities. However, it may own real estate assets and invest its funds in real estate, securities, or any other type of investment to serve its purposes. Such activities are governed by the regulations.
If a partner or shareholder in a professional company temporarily loses their license to practice their profession, they must immediately cease working in the company until the license is restored. If they are the sole practitioner of that profession among the other partners or shareholders or the sole owner of the professional company, the company must cease practicing the profession until the license is restored. In the case of permanent loss of a license by a partner or shareholder, they are considered withdrawn from the company unless the company's memorandum or articles of association stipulate their continued participation as a non-licensed partner or shareholder in the company.
Benefits of the Professional Companies Law
The Professional Companies Law acts as a strong catalyst for freelancers, thereby strengthening their activity. The law’s Implementing Regulations defines freelancing as a profession through which a person provides services to others on a professional basis, based on experience, qualification, talent, or skill, and after obtaining a license from the relevant authority responsible for overseeing and regulating the profession.
The Professional Companies Law provides a host of advantages, including: licensing multidisciplinary professional companies according to controls; enabling the participation of freelancing non-professionals (investors) in professional companies; permitting the transfer of deceased professional partners' property to their heirs through facilitated procedures; and authorizing the establishment of a one-man professional limited liability company to pursue one or more professions under specific controls. In addition, the professional company may be in the form of a limited partnership, a limited liability company, or a joint-stock company, in addition to the form of a partnership company that is permitted by the old Professional Companies law.
Objectives of the Professional Companies Law
Government laws aim to supervise professional services in the Kingdom, develop freelancing occupations, and maximize their value to achieve the desired impact in terms of gross domestic product (GDP). The objectives of the Professional Companies Law include: motivating freelancers to establish companies; encouraging professional companies to apply organizational structure and build strong entities to increase professional growth; and enabling self-employed entrepreneurs to lead competitive professional companies locally and internationally.
These goals are expanded to include job opportunities in terms of increasing and improving them within the professional services sector, especially since the sector can provide a large percentage of businesses. Such goals also aim at facilitating financing for the establishment and expansion of professional companies through investors in professional companies, enhancing the confidence of those dealing with professional companies, and arranging the rights and duties of partners or shareholders in professional companies.
The Implementing Regulations of the Professional Companies Law
To enhance professional practice in the Kingdom, the Implementing Regulations of the Professional Companies Law were issued in 2020 and were incorporated into the Implementing Regulations of the Companies Law issued in 2023. The latter has dedicated Part Five to professional companies, covering articles seventy-four to eighty-five, to strengthen institutional work in this field.
Chapter One of Part Five of the Implementing Regulations of the Companies Law includes the conditions and controls for establishing professional companies and practicing the profession, the conditions for establishing a professional company to practice more than one profession, the regulations for a professional company practicing more than one profession, the conditions and regulations for establishing a professional company in partnership with a non-Saudi professional company, and the controls for the participation of a non-licensed person in a professional company. Chapter Two covers the management of the professional company by more than one person, decisions of the company’s managers or its board of directors, participation in more than one company, ownership of financial and real estate assets, converting the professional company into another form, dissolving the professional company before its term ends, and notifying of any amendments or changes.
Article Seventy-Six of the regulations outlines the controls for a professional company practicing more than one profession, emphasizing the need to adhere to relevant laws, regulations, and standards when conducting its business and providing its services, as well as the following controls:
- The practice of the profession must be carried out by a licensed practitioner.
- Maintaining the independence of each profession provided by the company and separating them in terms of relevant service and work delivery, considering cases where services and business are provided through the participation of more than one professional practice for the same project.
- Each licensee must conduct their professional service within the limits and scope of their licensed professional practice as per the laws, regulations, and standards of the profession without interfering with the services and business of other professions.
- Each licensee must abide by the laws, regulations, and standards of their profession in cases of conflict of interest.
Pursuant to the law’s requirements, the number of companies operating in the professional services sector and the number of existing records for professional companies have increased in 2020. According to the Ministry of Commerce's data, there are 418 existing records for engineering consulting, 137 for legal consulting, sixty for real estate valuation, and eighty-four records for accounting consulting.
Entity supervising the professional services sector in Saudi Arabia
The professional services sector in the Kingdom is supported and supervised by the Ministry of Commerce. The ministry has indicated that laws enhance the establishment and opportunities of professional companies, grant them agility and the option to choose between corporate forms, and facilitate their financing to expand their growth.
In view of its procedural and supervisory role, the Ministry of Commerce is the competent licensing authority for the establishment of professional companies, in accordance with the rules and procedures stipulated by the law and its regulations, taking into account the provisions of the Foreign Investment Law.
Given laws’ considerations of value attainment and maximization in GDP, the Professional Companies Law is expected to enhance the confidence of those dealing with professional companies falling under the provisions of the Companies Law, without prejudice to their nature.
In an effort to develop services, the Ministry of Commerce announced in 2022 that it would enable the owners of commercial records of enterprises (main and subsidiary) and subsidiary records of companies to delete their records electronically and immediately once the late fees for the commercial records (if any) are paid, without requiring a review of other parties before deletion, while the procedures for deleting the companies' main records require completing the requirements for liquidation of the company's business before deleting the record.
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