Law of Professional Companies in Saudi Arabia

The Law of Professional Companies in the Kingdom of Saudi Arabia is a set of legal rules formulated to regulate and clarify the procedures and provisions related to professional companies in the Kingdom. It was issued in 2019 and comprises twenty-nine articles, replacing the previous Law of Professional Companies, which was issued in 1991.

The Law of Professional Companies in the Kingdom was first issued in 1991. It addressed topics related to professional companies, including the provisions for establishing such companies, the obligations of partners, the essential clauses and information that must be included in the company's contract, the provisions for registering the company, the responsibilities of partners, and the manager, and the procedures for decision-making in this type of companies.

The law was replaced by a new version bearing the same name, issued on September 25, 2019.

Article Two of the Law of Professional Companies in the Kingdom stipulates that a professional company is a civil company with a separate legal personality. It is established by one or more individuals who are legally licensed to practice one or more professions, or by them in partnership with others, and its purpose is to practice those professions.

According to Article Three of the law, a professional company may take one of the following forms: an unlimited liability company, a joint-stock company, a limited partnership, or a limited liability company.

The new Law of Professional Companies refers to the provisions related to the establishment of companies in the Companies Law issued in 2023. To avoid confusion between the Companies Law and the new Law of Professional Companies, the latter clarifies that a partner or shareholder in a professional company does not acquire the status of a merchant, whether by virtue of their share in the company or their ownership of shares.

Licensed individuals practicing a single profession are permitted to establish a professional company among themselves in any of the forms outlined in the law. Additionally, a licensed individual practicing a single profession may establish a single-member limited liability professional company to practice their profession through it. If an individual is licensed to practice more than one profession, they are allowed to practice all or some of those professions through the company, provided that they meet the conditions and regulations set forth by the regulations.

According to Article Five, it is also permissible to establish a professional company between individuals licensed to practice more than one profession. Additionally, a professional partnership may be formed between individuals licensed to practice one or more professions and non-Saudi professional companies. The executive regulations of the law clarify the specific conditions for the establishment of these companies and the regulations governing their activities.

A natural person who is not licensed to practice the profession(s) involved in the company's activities or a legal entity, may participate in or hold shares in the professional company, except in the case of a general partnership or as a general partner in a limited partnership. The regulations specify the conditions and controls for such participation or shareholding, and they establish the general rules for managing this type of professional company to ensure the independence of professional partners or shareholders in practicing their professions.

The Law of Professional Companies in the Kingdom permits the partners or shareholders in a professional company to convert it into another form of the company mentioned in Article Three of the law, provided that the conditions and regulations set out in the law or its regulations are met. Furthermore, a partner or shareholder in a professional company who practices a profession is prohibited from participating in or holding shares in another professional company that practices the same profession.

Article Eight of the Law of Professional Companies in the Kingdom outlines the requirements for establishing professional companies. The Ministry of Commerce is responsible for issuing licenses for the establishment of professional companies in accordance with the procedures and controls set forth by the law or its regulations while taking into account the provisions of the Foreign Investment Law.

The professional company must be registered in a special register at the ministry, known as the Professional Companies Register. The professional company does not acquire legal personality and cannot commence its operations until it is registered in this register. The regulations specify the provisions and procedures for registration, and the fees to be collected for this purpose.

The professional company may only practice the profession or professions involved in its activities through its licensed partners or shareholders. However, the professional company may seek the assistance of individuals licensed to practice the profession or professions involved in its activities, provided that these individuals are under the company's supervision and responsibility.

According to Article Eleven, the professional company is limited to practicing the profession or professions involved in its activities only. It is not permitted to engage in commercial activities or participate in the establishment of commercial companies or another professional company. However, it is allowed to own financial and real estate assets to serve its purposes.

Article Fourteen of the Law of Professional Companies in the Kingdom states that a professional company may be named after one or more of its partners or shareholders. The company may also adopt an innovative name for conducting its activities. In all cases, the name of the professional company must be followed by an indication that it is a professional company.

In the event of the withdrawal or death of a partner or shareholder whose name the professional company bears or includes in its name, the company may not continue to bear or include the name unless written consent is obtained from them or their heirs, as applicable.

The management of a professional company is undertaken by one or more of its partners or others. If the management is assigned to a single individual, they must be one of the licensed partners. However, if more than one person manages the company, the number of licensed partners must be at least half, or as determined by the executive regulations of the law. The company's founding contract specifies the conditions for appointing the manager, their powers, compensation, term of management, and the procedure for their dismissal.

In the case of a professional joint-stock company, the management is handled by a board of directors composed of a number of its shareholders or others, provided that at least half of the board members are licensed shareholders, or as specified by the regulations. The company's articles of association outline the powers of the board and the provisions related to its formation.

Article Twenty-Four of the Law of Professional Companies in the Kingdom specifies the penalties for violating its provisions. A fine not exceeding SAR500,000 is imposed on any single-owner company that practices more than one profession in violation of the conditions and regulations set by the executive regulations of the law. Any manager or board member of a professional company who violates the conditions for establishing professional companies, their regulations, and the registration procedures outlined by the regulations, or breaches the regulations governing the activities of professional companies, or violates the general rules for managing professional companies. Any person who participates in or contributes to more than one professional company that practices the same profession, in violation of the provisions of Article Seven of the law.