Companies of all types represent one of the main pillars of the economic structure of the Kingdom of Saudi Arabia, as they are the primary legal vehicle for conducting commercial and investment activities. The new Companies Law, issued by Royal Decree No. (M/132) dated 1/12/1443 AH, was introduced to create a flexible and business-friendly regulatory environment in line with the objectives of Saudi Vision 2030 to support the national economy and diversify income sources.

The Law regulates five main types of companies: general partnership companies, simple limited partnerships, joint stock companies, simplified joint stock companies, and limited liability companies, in addition to provisions governing holding companies and foreign companies. Choosing the appropriate company type is a critical step that shapes the course and nature of the relationship between partners and the legal and accounting obligations arising from the business activity.

First: General Partnership Company

What is a General Partnership Company?

A general partnership is a form of company established by two or more persons, where the partners are jointly and severally liable with all their personal assets for the company’s obligations and debts. Article (20) of the Companies Law stipulates that the name of a general partnership must include the names of all partners or the name of one partner followed by an indication that there are other partners, such as “& Partners”.

General partnerships are often used in activities that require a high degree of mutual trust between partners, such as law firms or family businesses.

 

Advantages of a General Partnership in Saudi Arabia

1. Ease of incorporation and legal procedures: General partnerships are relatively flexible and simple to establish compared to other company types.
2. Flexible management: Partners can make decisions directly without the need for boards of directors or general assemblies.
3. Strong internal trust: Because liability is joint and several, these companies are typically built on personal relationships and mutual trust.
4. Low operating costs: They do not require a complex management structure or heavy accounting requirements as in joint stock companies.

 

Disadvantages of a General Partnership

1. Unlimited liability: Partners are personally and jointly liable for all company debts, even with their personal assets.
2. Complexity in admitting new partners: New partners can only join with the unanimous consent of all existing partners, which limits expansion.
3. Company exposure to a partner’s conduct: Any error or violation committed by one partner may directly affect the entire company.

 
 

Second: Simple Limited Partnership

What is a Simple Limited Partnership under Saudi Law?

A simple limited partnership is a type of company that combines characteristics of general partnerships and limited liability companies. It consists of two categories of partners:

1. General partners: They are personally and jointly liable with all their personal assets for the company’s obligations, similar to partners in a general partnership.
2. Limited partners: They contribute capital but are only liable for the company’s obligations up to the amount of their contributions and do not participate in management or represent the company before third parties.

 

Advantages of a Simple Limited Partnership

1. Flexibility in structuring partner relationships: The existence of two types of partners provides flexibility in both administrative and financial structuring.
2. Suitable for passive investors: Limited partners can contribute capital without bearing management responsibilities or full legal liability.
3. Limited liability for limited partners: They are only liable for company debts to the extent of their capital contributions.

 

Disadvantages of a Simple Limited Partnership

1. Unlimited liability for general partners: General partners remain exposed to legal claims against their personal assets.
2. Limited partner oversight challenges: Limited partners are not allowed to intervene in management, which reduces their involvement in decision-making.
3. Limited prevalence in the Saudi market: This form is less common than limited liability or joint stock companies.

 

Third: Joint Stock Company

The new Saudi Companies Law defines a joint stock company as:

A company whose capital is divided into equal-value shares that are negotiable, where each shareholder is liable only to the extent of their share in the capital and their liability does not extend to their personal assets.

This type of company is suitable for large enterprises or those intending to be listed on the capital market, as it features a clear and transparent governance structure and is subject to regulatory oversight by the Capital Market Authority if listed.

A joint stock company may be established by one or more persons, and it may be listed or unlisted.

 

Advantages of a Joint Stock Company under Saudi Law

1. Limited liability of shareholders: A shareholder does not bear any losses beyond the value of their shares in the capital.
2. Ease of transferring ownership: The negotiability of shares allows investors to enter and exit easily.
3. Attractive to institutional investors: Due to the high level of transparency and regular financial disclosures.
4. Ability to increase capital: Through issuing new shares or debt instruments, facilitating expansion and financing.
5. Legal continuity: The company is not affected by the death or withdrawal of any shareholder.

 

Disadvantages of a Joint Stock Company

1. Complex regulatory procedures: Both incorporation and governance require precise and well-documented processes.
2. High operating costs: Due to the need for legal advisers, external auditors, and independent boards of directors.
3. Reduced individual control: Shareholders do not participate in daily management unless they are members of the board of directors.

 

Fourth: Simplified Joint Stock Company

What is a Simplified Joint Stock Company under Saudi Law?

The simplified joint stock company is one of the newest company types introduced by the Saudi Companies Law of 1444 AH. It was created to meet the needs of start-ups and medium-sized enterprises and to offer a flexible alternative to the traditional joint stock company while maintaining an efficient legal structure.

It may be established by one or more persons, and each shareholder is liable only up to the amount of their contribution. A board of directors is not required, and the mechanisms of management and oversight may be determined in the company’s bylaws.

 

Advantages of a Simplified Joint Stock Company

1. Flexibility in incorporation and management: A board of directors is not mandatory, and a simplified management structure can be agreed upon in the bylaws.
2. Single-shareholder incorporation: Entrepreneurs can establish this type of company on their own without needing partners.
3. Less complex governance requirements: Compared with traditional joint stock companies.
4. Suitable for innovative and start-up projects: Especially where large capital or a complex management structure is not required.

 

Disadvantages of a Simplified Joint Stock Company

1. Lower confidence among major investors: Because it is not subject to the same level of disclosure and oversight as traditional joint stock companies.
2. Not suitable for public listing: Its shares cannot be listed on the stock exchange.

 
 

Fifth: Limited Liability Company

Definition of a Limited Liability Company

Under the new Saudi Companies Law (1444 AH), a limited liability company is defined as:

A company in which the number of partners does not exceed fifty (50), and where each partner is liable for the company’s debts and obligations only to the extent of their share in the capital.

This form is suitable for small and medium-sized businesses, combining the flexibility of personal companies with the limited liability features of capital companies.

 

Advantages of a Limited Liability Company in Saudi Arabia

1. Limited liability of partners: Liability does not extend to their personal assets, which reduces financial risk.
2. Ease of incorporation and management: Incorporation procedures are less complex than those for joint stock companies.
3. Flexible ownership structure: One or more persons may establish the company, provided the number of partners does not exceed 50.
4. Maintaining control: The ability to restrict the transfer of shares helps preserve the privacy of the ownership structure.
5. Suitable for a variety of commercial activities: Such as real estate, contracting, technology, and distribution.

 

Disadvantages of a Limited Liability Company

1. Restrictions on share transfers: A share may not be sold or transferred without the approval of the other partners, which may hinder the entry of new investors.
2. Maximum number of partners: The number of partners cannot exceed 50.
3. Challenges in conversion to a joint stock company: Conversion requires additional procedures and restructuring.

 
 

Sixth: Holding Companies in Saudi Arabia

What is a Holding Company?

A holding company is a legal form that is permitted to own shares or interests in other companies for the purpose of administrative, financial, or organizational oversight of those companies, without necessarily engaging directly in commercial activities.

The new Saudi Companies Law of 1444 AH regulates holding companies within the general framework of company law and defines a holding company as:

A company established for the purpose of owning shares or interests in existing or newly formed companies and managing these companies, or providing them with loans and guarantees, or owning intellectual property rights.

 
Advantages of Holding Companies

1. Holding structures enable unified and centralized management of subsidiaries, improving overall performance and reducing duplication.
2. Subsidiaries can operate with financial independence while legal control remains with the holding company.
3. Business and investment activities can be distributed across several subsidiaries, thereby diversifying risk.
4. The holding company may list its subsidiaries independently, thereby enhancing financing opportunities.

 
Disadvantages of Holding Companies

1. Complex management structure: Requires highly efficient management to coordinate between the holding company and its subsidiaries.
2. Risk of conflicts of interest: Especially where powers are not clearly defined between the holding company and its subsidiaries.
3. Regulatory and legal review burden: Holding companies are subject to intensive regulatory scrutiny, particularly if listed.
4. High operating costs: Especially where numerous subsidiaries operate in different sectors requiring diverse expertise.

 
Seventh: Foreign Companies in the Kingdom of Saudi Arabia

What is a Foreign Company?

Under Saudi law, a foreign company is defined as:

Any natural or legal person who does not hold Saudi nationality and conducts investment activity within the Kingdom, whether through an existing company, a branch, or a representative office.

The Kingdom now allows foreign investors to establish a legal entity that is wholly foreign-owned or to partner with a Saudi investor, subject to specific conditions. This is part of the Kingdom’s efforts to enhance the attractiveness of its economy and diversify income sources under Vision 2030.

 
Requirements for Establishing Foreign Companies in Saudi Arabia

1. Obtaining an investment license from the Ministry of Investment (MISA).
2. Submitting a clear business plan for the commercial, industrial, or service activity.
3. Providing a commercial registration and duly notarized articles of incorporation from the country of origin, with a certified legal translation.
4. Determining the capital requirement according to the activity (some activities require a minimum capital).
5. Registering the company with the Ministry of Commerce after obtaining the investment license.
6. Opening tax and Zakat files with the Zakat, Tax and Customs Authority.
7. Complying with annual reporting and governance requirements in accordance with the nature of the entity.

 
With the economic transformation taking place in the Kingdom, understanding the different company types has become essential for establishing a successful commercial entity. The new Companies Law (1444 AH) provides a flexible environment that meets the needs of investors across all categories.

The choice of legal form affects protection, sustainability, and investment appeal: general partnerships are suitable for small partnerships, joint stock companies for large enterprises, and simplified joint stock companies for start-ups.

It is therefore advisable to regularly review relevant legislation and refer to official guidance issued by the competent authorities.

 
Understanding the types of companies under the new Saudi Companies Law does not only provide a correct legal starting point; it also places you on a sustainable and secure investment path. Whether you are an emerging entrepreneur, represent a family business, or manage a large investment institution, selecting the most appropriate legal form for your company is a pivotal decision that requires careful study and professional advice.

 
At “Sareeh – Lawyers and Legal Consultants”, we have the legal and practical expertise to support you at every stage of establishing your company—from choosing the most suitable company type, through incorporation procedures, to ensuring full compliance with laws and regulations.