Establishing a Limited Liability Company in Saudi Arabia – A Comprehensive Legal Guide

The limited liability company (LLC) is one of the most common legal forms in the Kingdom of Saudi Arabia, especially among entrepreneurs and investors, due to the protection it offers to partners and its managerial flexibility. The Saudi Companies Law regulates this type of company within a clear and modern legal framework.

In this article, we provide a simplified overview of everything you need to know about the limited liability company: its definition, advantages and disadvantages, the conditions and procedures for incorporation, as well as the obligations of partners and the legal liability involved.

What Is a Limited Liability Company?

A limited liability company is an entity established by two or more persons (and it may also be established by a single person in certain cases), each contributing a share in the company’s capital, whether in cash or in kind. The key feature of this type of company is that the liability of each partner is limited to the amount of their share in the capital; they are not liable for the company’s debts and obligations beyond that share.

According to Article 71 of the Saudi Companies Law, issued by Royal Decree No. (M/132) of 1443 AH, the limited liability company is one of the officially recognized legal forms in the Kingdom and acquires a separate legal personality once it is registered in the Commercial Register.

Advantages of a Limited Liability Company

The limited liability company enjoys several characteristics that make it popular in Saudi Arabia, particularly among local and foreign entrepreneurs and investors:

1. Limited liability of partners: A partner is only liable for the company’s debts up to the value of their share, which provides significant legal and financial protection.
2. Possibility of single-member incorporation: The law permits the establishment of a limited liability company by a single person, whether Saudi or foreign (in accordance with the Investment Law).
3. Management flexibility: The law allows for the appointment of one or more managers to run the company without the need to form a board of directors, which facilitates decision-making.
4. Transfer of shares: Partners may transfer their shares to others in accordance with specific regulations, which facilitates sales and the attraction of new investors.
5. Suitable for start-ups and medium-sized businesses: This form of company is well-suited for small and medium private sector projects that require a flexible and secure legal structure.

Disadvantages of a Limited Liability Company

Despite the legal and organizational advantages of the limited liability company, there are some challenges that investors should consider before choosing this legal form:

1. Restrictions on share transfers: A partner may not transfer their share to non-partners without following specified procedures, including offering the share first to the other partners, which may limit the speed of disposal.
2. Maximum number of partners: The number of partners may not exceed fifty, which can restrict expansion in certain activities or limit the ability to attract a large number of investors.
3. Administrative and financial oversight: The company is subject to increased regulatory requirements if its capital or number of partners exceeds certain thresholds, such as appointing an external auditor if the capital exceeds one million Saudi riyals, in accordance with Article (78) of the law.
4. Restriction on certain activities: Limited liability companies are not permitted to engage in certain activities that must be carried out through joint stock companies, such as banking or insurance.
5. Impact of the sudden withdrawal of a partner: The withdrawal or death of a partner may necessitate amending the articles of association or even dissolving the company, unless the articles provide otherwise.

Partners’ Liability in a Limited Liability Company:

One of the most important features of this type of company is that partners’ liability is limited. Under Article (71) of the Companies Law, a partner is not liable for the company’s debts or obligations beyond the amount of their share in the capital.

Partners may not be required to pay financial obligations exceeding the value of their contributions, which provides clear legal protection for their personal assets. However, any violation of the law by a partner—such as fraud or unlawful conduct—may expose that partner to personal (civil or criminal) liability.

The Implementing Regulations of the Companies Law clarify that partners are jointly liable only if fraud or conduct intended to harm others is proven.

Who Bears the Debts of a Limited Liability Company?

A limited liability company has a separate legal personality and is solely responsible for its debts and obligations towards third parties. The liability of partners does not extend to their personal assets; it is limited to the value of the shares they have contributed to the capital.

However, there are exceptional cases where partners or the manager may be held personally liable, such as:

• Using the company’s name in a fraudulent or unlawful manner.
• Failure to register the articles of association or any amendments in the Commercial Register.
• Engaging in conduct that involves fraud or deceit.

In such cases, liability shifts from “limited” to “personal,” and the relevant individual may be held liable for the damages caused to the company or third parties.

The Capital of a Limited Liability Company in Saudi Arabia:

The Companies Law provides that the capital of a limited liability company must be divided into equal shares, which may be in cash or in kind. The capital must be fully paid up at the time of incorporation, and no negotiable instruments may be issued to represent these shares.

Under the Implementing Regulations, the articles of association must specify:

• The amount of the capital.
• The number and value of the shares.
• The method of distributing shares among partners.

The company must also appoint an external auditor if its capital exceeds one million Saudi riyals or if the number of partners exceeds twenty, as stated in the Implementing Regulations.

Fees for Establishing a Limited Liability Company in Saudi Arabia:

The fees for establishing a limited liability company in the Kingdom are governed by the Companies Law and the Commercial Register Law and vary depending on the type of activity and the level of licensing. They typically include:

• 1,200 Saudi riyals covering Commercial Register fees.
• Approximately 500 Saudi riyals for publication fees.

These fees do not include the value-added tax (VAT) of 15%.

What Are the Conditions for Establishing a Limited Liability Company in Saudi Arabia?

The Saudi Companies Law sets out the legal requirements for establishing any company, including a limited liability company, as follows:

1. Having a written articles of association that include the partners’ details, share ratios, the company’s purpose, and the manager’s details.
2. Full payment of the agreed capital, whether in cash or in kind.
3. Registering the company in the Commercial Register at the Ministry of Commerce.
4. Providing proof of the founders’ identity (civil registry/commercial registry/investment license).
5. Appointing one or more managers as specified in the articles of association.
6. Ensuring that the number of partners does not exceed fifty.
7. Ensuring that the company does not engage in prohibited or restricted activities without obtaining the necessary licenses from the competent authorities, such as the Ministry of Health, the Capital Market Authority, or the General Real Estate Authority.

What Are the Procedures for Establishing a Limited Liability Company?

The incorporation procedures are completed via the Ministry of Commerce’s online platforms and include the following steps:

1. Accessing the “Absher Business” portal or the “Business Center Platform”.
2. Selecting the service “Establish a Limited Liability Company”.
3. Entering the partners’ details, share allocations, and the company’s purpose.
4. Choosing a standard articles-of-association template or uploading a customized one.
5. Paying the required fees electronically.
6. Submitting the application for approval by the partners via digital authentication or a notary public.
7. Registering the company in the Commercial Register and issuing the electronic certificate of incorporation.

Once these steps are completed, the limited liability company becomes legally established, acquires a separate legal personality, and may commence its activities immediately after obtaining any required regulatory licenses.

Sample Articles of Association for a Limited Liability Company – Ministry of Commerce

The company’s articles of association are the primary legal document governing the relationship between partners. The Ministry of Commerce oversees the standardization of such documents via an interactive electronic portal. According to the Implementing Regulations, the articles of association must include the following:

1. The company’s name and its legal form (limited liability company).
2. The company’s purposes in detail.
3. The capital, the number and value of shares, and the method of distribution.
4. Partners’ details (names, nationalities, and ownership percentages).
5. Manager’s details, their powers, and whether their appointment is for a fixed term or an indefinite period.
6. The company’s duration.
7. The method of distributing profits and losses.
8. The mechanism for transferring shares or admitting new partners.
9. Cases of company dissolution and liquidation.

 
These articles must be submitted electronically via the “Business Center” platform of the Ministry of Commerce and authenticated through the National Single Sign-On system or a certified notary public. The Ministry offers a flexible model template that can be customized according to the partners’ agreement.

Establishing a limited liability company in the Kingdom of Saudi Arabia is a sound legal and economic option that provides partner protection and management flexibility. To ensure proper incorporation in line with the legal framework, it is advisable to refer to the original texts of the Companies Law and its Implementing Regulations when drafting the articles of association, seek the assistance of a licensed lawyer or corporate legal adviser, ensure that the proposed activity complies with regulatory and licensing requirements, and avoid using generic contract templates without tailoring them to the partners’ needs.

At “Sareeh – Lawyers and Legal Consultants” (among the best law firms in Riyadh), we are with you at every stage of establishing and developing your company.

We support you from the very first step until your business is fully established and stable, through an integrated suite of services that includes:

1. Drafting customized articles of association in line with the Saudi Companies Law.
2. Conducting detailed legal reviews of activities and licenses.
3. Electronically authenticating contracts via official channels.
4. Providing full support for amending the legal structure or admitting new partners.
5. Drafting and reviewing commercial contracts and agreements.
6. Structuring relationships between partners or shareholders.
7. Representing you legally in commercial disputes.
8. Developing governance regulations and ensuring regulatory compliance.