Introduction

The non-profit companies sector in the Kingdom of Saudi Arabia is witnessing rapid qualitative development. These entities have become a key player in supporting social and economic development in line with Saudi Vision 2030. The new Companies Law and its Implementing Regulations were issued to regulate this type of company within a robust legal framework that balances non-profit work with institutional governance.

First: Definition of Non-Profit Companies under Saudi Law

According to Article (185) of the Saudi Companies Law, issued by Royal Decree No. (M/132) dated 1/12/1443 AH, a non-profit company is defined as a joint stock company, a limited liability company, or a simplified joint stock company whose purpose is to engage in activities that generate public benefit and that does not aim to distribute profits to partners or shareholders. Instead, profits are reinvested in non-profit channels and fields specified in its articles of association or bylaws.

Second: Forms and Types of Non-Profit Companies

The Law provides for two main types:

1. Public non-profit company: Serves public interests and requires approval from the competent authorities for its incorporation.
2. Private non-profit company: May be established by natural or legal persons for specific non-profit purposes.

Non-profit companies are prohibited from adopting other legal forms, and their shares may not be offered for public subscription.

Third: Areas of Activity of Non-Profit Companies

According to the Implementing Regulations of the Companies Law, the areas of activity of non-profit companies include:

• Education, training, and vocational qualification.
• Healthcare and medical services.
• Support for families, children, and social development.
• Environmental protection and wildlife conservation.
• Support for entrepreneurship and small enterprises.
• Artificial intelligence and information technology.
• Support for volunteer work and social impact investment.

Fourth: Financial Regulation and Profit Governance

The Law prohibits the distribution of profits to partners, but allows the use of financial surpluses to grow and support the specified non-profit channels and fields. It also permits payment of remuneration to board members or employees in return for their services, provided that such payments are not treated as commercial profit distributions.

Fifth: Obligations of Non-Profit Companies under the Law

The main statutory obligations include:

• Explicitly stating non-profit channels and fields in the articles of association or bylaws.
• Submitting periodic reports to the competent authorities.
• Maintaining a membership register and updating it regularly.
• Complying with financial accounting standards and transparency requirements.
• Obtaining ministerial approval for changes to the objectives or governance structure in public non-profit companies.

Sixth: Statutory Exemptions and Privileges

Non-profit companies may enjoy zakat and tax exemptions as determined by the Zakat, Tax and Customs Authority in coordination with the Ministry of Commerce. Donations made to such companies may also be deductible when calculating the taxable base.

Seventh: Role of the Public Sector in Establishing Non-Profit Companies

Government entities, universities, and public authorities may establish or participate in non-profit companies, thereby strengthening the partnership between the public and non-profit sectors in achieving development goals.

Eighth: Relationship with the Commercial Sector and Opportunities for Cooperation

Although these companies are not profit-oriented, the Law permits them to enter into commercial contracts and receive financial consideration for their services, provided that such revenues are spent on achieving their non-profit objectives. This approach opens broad opportunities for partnership with the private sector in corporate social responsibility initiatives and social impact investments.

Ninth: Governance and Oversight in Non-Profit Companies

Non-profit companies should adhere to sound governance principles, such as:

• Forming an independent and effective board of directors.
• Defining membership categories, powers, and voting rights.
• Monitoring the use of financial surpluses.
• Ensuring transparency in the disclosure of expenses and revenues.

Tenth: Dissolution of the Company and Disposal of Its Assets

Upon liquidation of a non-profit company, its assets must be transferred to other non-profit entities specified in its articles of association or bylaws, or to the competent authorities as determined by the court. Under no circumstances may assets be distributed to members or partners.

Conclusion

Non-profit companies in Saudi Arabia constitute an advanced legal tool for achieving sustainable development and serving the community, while maintaining financial discipline and institutional governance. The Saudi legislator has ensured a comprehensive legal framework that grants these companies the flexibility and privileges needed to expand their impact without undermining their non-profit nature.

Frequently Asked Questions (FAQ)

1. 1. Can non-profit companies operate in information technology fields?
   Yes, provided that the revenues are directed towards achieving clearly defined non-profit objectives stated in the company’s constitutive documents.
2. Can a for-profit company be converted into a non-profit company?
   Yes, with the approval of all partners or shareholders and in accordance with the statutory requirements.
3. Are non-profit companies subject to zakat?
   Non-profit companies may be exempt from zakat and taxes subject to conditions set by the Zakat, Tax and Customs Authority in coordination with the Ministry of Commerce.
4. Can a non-profit company pay remuneration to its members?
   Yes, in return for actual services and within reasonable limits that are not considered distribution of profits.
5. Are non-profit companies allowed to enter into commercial contracts?
   Yes, provided that the resulting revenues are directed to the non-profit channels specified in the company’s bylaws.

Practical Guide for Decision-Makers: Steps to Establish an Effective Non-Profit Company

• Clearly define the non-profit objective in the bylaws.
• Ensure that the company’s activities align with the permitted non-profit channels and fields.
• Engage an experienced lawyer to draft the articles of association in line with applicable laws.
• Register the company with the Ministry of Commerce and obtain all necessary approvals.
• Maintain financial transparency and sound governance in all procedures.