Company Formation in Saudi Arabia

Company Formation in the Kingdom of Saudi Arabia is a system designed to facilitate business activities within the Kingdom. Its regulatory framework began with the issuance of the Companies Law by Royal Decree in 1965 and a decision by the Council of Ministers in the same year.

Records from the Ministry of Commerce indicate that Zainal Bin Ali Reda is the founder of the first commercial company in the Kingdom, established in 1869, and it was registered under commercial registry number one during the Saudi state period.

With the evolution of commercial activities and the expansion and diversification of businesses, the amended Companies Law was issued by Royal Decree No. (M/3) in 2015. In alignment with Saudi Vision 2030 and to facilitate business environments, the Ministry of Investment launched a new service in 2021 for establishing and starting business operations from outside the Kingdom. This service was introduced in partnership with the Ministry of Foreign Affairs and the Ministry of Commerce, aiming to enable companies and investors to quickly and easily obtain investment licenses in accordance with best global practices.

Under this service, new investors can now authenticate the agency and document the company formation in three steps instead of ten. The process begins with visiting the Saudi Ministry of Foreign Affairs website and submitting a request for 'Adding a Request for Authentication of the Formation Contract' at Saudi diplomatic missions abroad. Next, investors should visit the electronic services portal on the Ministry of Investment’s website to issue the investment license. Finally, the investor must visit the Ministry of Commerce website to document the formation contract and issue the commercial registration.

The Ministry of Commerce has developed a new company formation law designed to streamline procedures and regulatory requirements to stimulate the business environment and support investment. Its significance lies in its comprehensiveness, encompassing all forms and types of companies (commercial companies, professional companies, and non-profit companies) within a single legislative document. This law facilitates the establishment, sustainability, and expansion of companies, encourages venture investment, and addresses challenges faced by family businesses and entrepreneurship.

The Council of Ministers approved the new Companies Law in 2022, which contributes to stimulating and developing the commercial ecosystem. This law is characterized by its high flexibility for protecting companies and empowering the private sector. Its goals include enhancing the sustainability of companies, supporting investment in small and medium-sized enterprises by simplifying procedures and regulatory requirements, achieving greater market diversity by adding new types of entities, increasing flexibility in regulations, safeguarding the rights of stakeholders, reducing disputes, and ensuring fair treatment among stakeholders.

The new Companies Law and its executive regulations came into effect on January 19, 2023, addressing all challenges faced by the business sector and regulating all provisions related to companies, including commercial, non-profit, and professional companies. This ensures that these provisions are consolidated into a single legislative document, with companies taking one of the following forms: General Partnership, Limited Partnership, Joint Stock Company, Simplified Joint Stock Company, and Limited Liability Company.

The law enhances the effectiveness of various types of companies, allowing the creation of a family charter that regulates family ownership in family businesses, governance, management, work policies, employment of family members, profit distribution, exit strategies, and more. Additionally, a new type of company called the "Simplified Joint Stock Company" has been introduced to meet the needs and requirements of entrepreneurship and venture capital growth.

As part of simplifying formation procedures and achieving the goal of diversification, the law reduces the regulatory requirements and procedures for small, medium, and micro-sized enterprises. It also eases the requirements and processes for company formation, granting flexibility to include special provisions and conditions in company formation contracts or bylaws. Additionally, it introduces enabling mechanisms for entrepreneurs, venture capitalists, and private equity owners.

The law supports the business environment with numerous facilitations, including the removal of many restrictions across all stages of formation, operation, and exit, as well as restrictions on company names. It allows limited liability companies to issue debt instruments or tradable financing sukuk, enhances the provisions for company transformation and mergers, and permits the division of a company into two or more entities. Additionally, it allows sole proprietors to transfer their assets to any form of company.