Introduction:

Companies of various types represent one of the fundamental pillars of the economic structure in the Kingdom of Saudi Arabia, serving as the primary legal vehicle for conducting commercial and investment activities. The New Companies Law, issued under Royal Decree No. (M/132) dated 1/12/1443H, was enacted to establish a flexible and stimulating regulatory environment for the business sector, in alignment with the objectives of Saudi Vision 2030 to support the national economy and diversify income sources.

The law regulates five main types of companies: partnership companies, limited partnerships, joint-stock companies, simplified joint-stock companies, and limited liability companies, in addition to provisions for holding companies and foreign companies. Choosing the appropriate company type is a pivotal step that determines the course and nature of the relationship between partners, as well as the legal and accounting responsibilities associated with the business activity.

1. Partnership Company

What is a Partnership Company?

A partnership company 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 partnership company must include the names of all partners, or the name of one partner followed by an indication of other partners, such as “and partners.”

Partnership companies are often used in activities that require a high level of mutual trust between partners, such as law firms or family businesses.

Advantages of a Partnership Company in Saudi Arabia:

1. Ease of formation and legal procedures: Partnership companies are highly flexible in terms of establishment compared to other types of companies.
2. Flexible management: Partners can make decisions directly without the need for boards of directors or general assemblies.
3. Strong internal trust: Due to joint liability, these companies often rely on personal relationships and mutual trust.
4. Low operating costs: They do not require complex administrative structures or heavy accounting requirements like joint-stock companies.

Disadvantages of a Partnership Company:

1. Unlimited liability: Partners are personally and jointly liable for all company debts, even from their own assets.
2. Difficulty in adding new partners: New partners cannot join without the consent of all existing partners, limiting expansion.
3. Company affected by actions of any partner: Any mistake or violation by one partner directly impacts the entire company.

2. Limited Partnership

What is a Limited Partnership in Saudi Law?

A limited partnership combines characteristics of a partnership company and a limited liability company. It consists of two types of partners:

1. General partners: Personally and jointly liable for the company’s obligations, similar to partnership company partners.
2. Limited partners: Contribute capital but are liable only up to their share and do not participate in management or representation of the company.

Advantages of a Limited Partnership:

1. Flexibility in organizing partner relationships: Having two types of partners allows flexible administrative and financial structuring.
2. Suitable for inactive investors: Limited partners can invest capital without assuming full management or legal liability.
3. Limited liability for limited partners: Liable only up to their capital contribution.

Disadvantages of a Limited Partnership:

1. Unlimited liability for general partners: General partners remain fully responsible for company obligations.
2. Limited oversight for limited partners: They cannot intervene in management, reducing their influence on decisions.
3. Limited prevalence in Saudi market: Less common compared to limited liability or joint-stock companies.

3. Joint-Stock Company

The new Saudi Companies Law defines a joint-stock company as a company whose capital is divided into equal, tradable shares, with each shareholder liable only to the extent of their shares, without extending liability to personal assets.

This type of company suits large companies or those intending to list on the stock market, featuring a clear administrative structure and regulatory oversight from the Capital Market Authority if listed. It can be established by one or more persons and may be either publicly listed or unlisted.

Advantages:

1. Limited liability: Shareholders are not responsible for losses beyond the value of their shares.
2. Ease of ownership transfer: Tradable shares allow easy entry and exit of investors.
3. Institutional investment appeal: Due to high transparency and regular financial disclosures.
4. Ability to increase capital: Through issuing new shares or debt instruments, facilitating growth and financing.
5. Legal continuity: The company continues despite the death or withdrawal of a shareholder.

Disadvantages:

1. Complex legal procedures: Requires precise, documented processes for establishment and governance.
2. High operational costs: Due to need for legal advisors, external auditors, and independent boards.
3. Reduced individual control: Shareholders generally do not manage daily operations unless they are board members.

4. Simplified Joint-Stock Company

What is a Simplified Joint-Stock Company?

A simplified joint-stock company is one of the latest types introduced under the Saudi Companies Law of 1444H, designed for startups and SMEs, offering a flexible alternative to traditional joint-stock companies without compromising legal structure efficiency.

It can be formed by one or more persons, with each shareholder liable only to the extent of their shares. No board of directors is required, and management and control mechanisms can be defined in the company’s bylaws.

Advantages:

1. Flexible formation and management: No board required; simplified administrative structure possible.
2. Single founder possible: Enables entrepreneurs to start legally without partners.
3. No complex governance requirements: Compared to traditional joint-stock companies.
4. Suitable for innovative and startup projects: Especially those with low capital or simple administration needs.

Disadvantages:

1. Lower investor confidence: Due to less stringent disclosure and oversight.
2. Not suitable for public listing: Shares cannot be listed on the stock market.

5. Limited Liability Company (LLC)

Definition:

Under the new Saudi Companies Law (1444H), a limited liability company is defined as a company with no more than 50 partners, where each partner is liable only up to their share in the capital.

LLCs are suitable for small and medium-sized businesses, combining the flexibility of personal companies with the liability limitation of financial companies.

Advantages:

1. Limited liability: Partners’ personal assets are protected.
2. Ease of formation and management: Less complex than joint-stock companies.
3. Flexible ownership structure: Can be formed by one or more partners, not exceeding 50.
4. Control retention: Transfer of shares can be restricted, preserving partnership structure privacy.
5. Suitable for diverse business activities: Real estate, contracting, technology, distribution.

Disadvantages:

1. Restrictions on share transfer: Requires consent of other partners, limiting new investor entry.
2. Maximum number of partners: Cannot exceed 50.
3. Difficulty converting to joint-stock: Requires additional procedures and restructuring.

6. Holding Companies

Definition:

A holding company is legally allowed to own shares or stakes in other companies to manage them administratively, financially, or organizationally without necessarily engaging in direct commercial activity.

Under the 1444H Companies Law, a holding company can own shares in existing or new companies, manage them, provide loans and guarantees, or hold intellectual property rights.

Advantages:

1. Centralized management improves overall performance and reduces duplication.
2. Subsidiaries can operate financially independently while the holding retains legal control.
3. Distribution of business activities across multiple subsidiaries.
4. Subsidiaries can be independently listed for financing opportunities.

Disadvantages:

1. Complex administrative structure requires highly efficient coordination.
2. Risk of conflicts of interest if authorities are not clearly defined.
3. Regulatory and legal oversight burden, especially if listed.
4. High operational costs due to diverse subsidiaries needing specialized expertise.

7. Foreign Companies in Saudi Arabia

What is a Foreign Company?

A foreign company is defined as any natural or legal person who is not a Saudi national and conducts investment activities in the Kingdom through an existing company, branch, or representative office.

Saudi Arabia allows foreign investors to establish fully-owned entities or joint ventures with Saudi partners, in line with efforts to enhance economic attractiveness and diversify income sources under Vision 2030.

Requirements for Establishing a Foreign Company:

1. Obtain an investment license from the Ministry of Investment (MISA).
2. Submit a clear business plan for commercial, industrial, or service activities.
3. Provide a commercial register and certified incorporation documents from the country of origin, with legal translation.
4. Specify capital according to activity (some activities require a minimum amount).
5. Register the company with the Ministry of Commerce after obtaining the investment license.
6. Open tax and Zakat files with the Zakat, Tax, and Customs Authority.
7. Comply with annual reports and governance according to the entity type.

مع التحولات الاقتصادية في المملكة، أصبح فهم أنواع الشركات أمراً ضرورياً لتأسيس كيان تجاري ناجح. يوفّر نظام الشركات الجديد (1444هـ) بيئة مرنة تُلبي احتياجات المستثمرين بمختلف فئاتهم.

اختيار الشكل النظامي يؤثر في الحماية والاستدامة والجاذبية الاستثمارية. فشركة التضامن تلائم الشراكات الصغيرة، والمساهمة للشركات الكبرى، والمبسطة للناشئة.

لذلك، يُنصح بمراجعة الأنظمة بانتظام والرجوع إلى الأدلة الرسمية من الجهات المختصة.

إن فهم أنواع الشركات في النظام السعودي الجديد لا يمنحك فقط انطلاقة قانونية صحيحة، بل يضعك على طريق استثماري مستدام وآمن. سواء كنت رائد أعمال ناشئ، أو تمثل كياناً عائلياً أو مؤسسة استثمارية كبرى، فإن اختيار الشكل القانوني الأنسب لشركتك يُعد قراراً محورياً يتطلب دراسة دقيقة واستشارة مختصة.

في “صريح – محامون ومستشارون”، نمتلك الخبرة القانونية والعملية لمرافقتك في كل خطوة من خطوات تأسيس شركتك، بدءاً من اختيار النوع الأنسب، مروراً بإجراءات التأسيس، وصولاً إلى الامتثال الكامل للأنظمة والتشريعات.