Single Owner LLC, Analytical comparison between Saudi System and US system.
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COMMENTARY
© 2015 Jones Day. All rights reserved.
NOVEMBER 2015
namely Cooperative Companies, Partnerships Limited
by Shares, and Variable Capital Companies, have
been eliminated, and it will no longer be possible to
establish such companies. Subject to narrow excep-
tions, the companies with the eliminated forms that
do not adopt one of the approved forms will be void,
and the respective partners will be jointly and sever-
ally liable for the obligations of the void company.
The new law contemplates that the Ministry of
Commerce and Industry (“MOCI”) will continue as the
primary regulator of Saudi companies, although the
Capital Markets Authority has been entrusted to over-
see JSCs listed in the Saudi financial markets.
Number of Shareholders In perhaps the most significant departure from
the existing regime, the new law removes the two-
shareholders minimum requirement for LLCs, and
it is now possible to establish an LLC with a single
shareholder. Certain restrictions apply; for instance,
it is not possible for a natural person to establish
more than one single-shareholder LLC, and a single-
shareholder LLC may not in turn establish or own
another single-shareholder LLC. While the law is not
explicit in this regard, it appears possible for body
The Saudi government recently unveiled a compre-
hensive update to the Saudi Companies Law that has
been some time in the making. The new law will come
into effect 150 days from the date of publication in the
official gazette (Um Al-qura) and, when effective, will
entirely replace the current Companies Law issued by
Royal Decree M/6 dated 22/3/1385 Hijri, and it will over-
ride all rules that conflict with the new law. Companies
already existing as of the date of the coming into force
of the new law are required to effect such changes as
to comply with the new law within a one-year period
(subject to any rules set out by the competent authori-
ties for such period).
The new Companies Law represents a significant
overhaul and modernization of the Saudi Companies
Law, aligning it closer to global trends and develop-
ments in corporate law and governance. Some of the
key aspects of the new law are discussed below.
Corporate Forms The new law recognizes five corporate forms: (i)
General Partnership, (ii) Limited Partnership, (iii) Joint
Venture Company, (iv) Joint Stock Company (“JSC”),
and (v) Limited Liability Company (“LLC”). Three of
the corporate forms permitted by the current regime,
Saudi Arabia: New Companies Law 2015 Approved
2
Jones Day Commentary
corporates to establish one or more single-shareholder
LLCs in the Kingdom, although it remains to be seen how
flexibly the MOCI will administer this aspect.
JSCs now require a minimum of only two shareholders (down
from five shareholders in the existing law). However, the gov-
ernment, juridical public entities, companies wholly owned by
the government, and companies with a capital of more than 5
million Saudi Riyals will be able to establish a JSC with just a
single shareholder under the new law.
Share Capital There continues to be no minimum capitalization requirement
for LLCs. The minimum capital to establish a JSC has been
reduced from 2 million Saudi Riyals to 500,000 Saudi Riyals.
As a practical matter, the Saudi Arabian General Investment
Authority (“SAGIA”), which licenses all foreign investment into
the Kingdom, may impose additional capital requirements for
foreign investors above and beyond the minimum require-
ments of the Companies Law, depending on the nature of the
envisaged commercial activity.
Electronic Publication The law calls for various publications and proclamations to
be made on the MOCI website electronically including the
publication of Articles, Bylaws, and their amendments, thus
potentially removing the requirement to publish such docu-
ments in the official gazette.
Joint Stock Companies/Corporate Governance In the event that the chairperson and members of the board
of directors of a JSC resign or if the General Assembly has
been unable to constitute the board of directors by voting,
the MOCI, or the Capital Markets Authority (in the case of
listed companies), may step in and form a temporary commit-
tee to oversee the company with the appropriate experience,
specialization, and number of members.
Enhanced corporate governance provisions impose new
restrictions on the combining of the post of chairperson of
the board with executive positions. Further, an audit com-
mittee is required to be established to oversee the JSC’s
business, and the members of the audit committee—consist-
ing of between three and five members—may not be com-
posed of executive members of the board (whether from the
shareholders or not). In the matter of voting rights, cumulative
voting is permitted for the election of the board of directors
provided that the voting rights per share may not be used
more than once.
The holding of general meetings of shareholders and the
participation of the shareholders in the deliberations and vot-
ing on decisions may now be conducted through “modern
technological means” in accordance with the regulations set
out by the competent authority. A similar facility for limited
liability companies does not seem to be contemplated.
The new law permits a JSC to issue debt instruments and
financing instruments (Sukooks). A JSC may also purchase
or pledge its own shares pursuant to the rules set out by the
competent authority; however, the shares so purchased by
the company may not be voted at shareholder meetings.
Concept of Holding Company Introduced The new law introduces the concept of an LLC or JSC being
used as a “holding company,” which is essentially a company
whose purpose is to control other LLCs or JSCs as subsidiar-
ies through the possession of more than half of the capital of
such companies or by controlling the formation of the board
of directors.
Holding companies can be used for a variety of purposes
including investing in stocks and other securities, owning its
own real estate and movables, and holding intellectual prop-
erty. A holding company is required to prepare annual con-
solidated financial statements using recognized accounting
practices for covering all its subsidiaries.
Losses If the losses of an LLC reach 50 percent of the capital, Art.
181 states that the manager must register this fact at the
Commercial Register and call a general assembly of the
shareholders within 90 days from the day of notifying them
in order to consider whether to continue or dissolve the com-
pany. If the manager neglected to call the partners or if no
Jones Day publications should not be construed as legal advice on any specific facts or circumstances. The contents are intended for general infor- mation purposes only and may not be quoted or referred to in any other publication or proceeding without the prior written consent of the Firm, to be given or withheld at our discretion. To request reprint permission for any of our publications, please use our “Contact Us” form, which can be found on our website at www.jonesday.com. The mailing of this publication is not intended to create, and receipt of it does not constitute, an attorney-client relationship. The views set forth herein are the personal views of the authors and do not necessarily reflect those of the Firm.
action is taken by the partners to continue or dissolve the
company, the company will be dissolved by force of law. In
the existing law, the shareholders could have been jointly and
severally liable if no decision were made as to whether to
continue or dissolve the company.
If the losses of a JSC reach 50 percent of the paid capital at
any time during the financial year, Art. 150 requires the board
to call an extraordinary meeting of the shareholders within
prescribed timelines in order to decide whether to increase
or decrease the share capital of the JSC or to liquidate it.
If the extraordinary meeting of the shareholders does not
occur on a timely basis, or if the meeting takes place and
no decision is made, or if a decision was made to increase
the capital and the raising of funds was not completed within
90 days of the issuance of the decision of the sharehold-
ers’ meeting to increase the capital, then the JSC will be dis-
solved by force of law.
Model Forms The MOCI will publish on its website model forms of Articles
and Bylaws for all types of companies within 120 days from
the date of issuance of the law.
Conclusion The possibility of setting up single-shareholder LLCs is a
welcome development, particularly for foreign investors
who have long struggled with the additional paperwork and
administrative burdens induced by the two-shareholder mini-
mum requirement. The easing of capital and shareholder
rules for JSCs could make JSCs a viable option for many
businesses that would have otherwise sought the benefits
of a JSC (including higher visibility, enhanced corporate
governance framework, ability to seek access to the public
markets) but for the associated administrative and financial
burdens. The enhancement of the LLC’s limited liability status
is also a positive development.
It remains to be seen how the new law will benefit foreign
investors, given that all inbound foreign investment (including
the establishment of companies in the Kingdom by non-GCC
persons) is still subject to licensing pursuant to SAGIA rules.
It will be interesting to see to what extent SAGIA updates its
rules to accommodate the new Companies Law.
Lawyer Contacts For further information, please contact your principal Firm
representative or one of the lawyers listed below. General
email messages may be sent using our “Contact Us” form,
which can be found at www.jonesday.com/contactus/.
Yusuf Giansiracusa
Saudi Arabia
+966.12.616.3939
Thomas C. Mahlich
Saudi Arabia
+966.13.849.6606
Marc O. Peisert
Saudi Arabia
+966.12.616.3939
Frankfurt
+49.69.9726.3120
Edward Rose
Saudi Arabia
+966.50.096.7559
Ebrahim M. Al-Habardi
Saudi Arabia
+966.12.616.3939
Charles B. Magee
Saudi Arabia
+966.12.616.3939
Prem Anand
Saudi Arabia
+966.12.616.3939
Michael Maloney
Saudi Arabia
+966.13.849.6606
