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

A Limited Liability Company (LLC) is one of the most common legal forms in the Kingdom of Saudi Arabia, particularly among entrepreneurs and investors, due to the protection it provides to partners and the flexibility in management. The Saudi Companies Law regulates this type of company within a clear and advanced legal framework.

In this article, we provide a simple overview of everything you need to know about an LLC: its definition, advantages and disadvantages, establishment requirements and procedures, as well as partner obligations and legal responsibilities.

What is a Limited Liability Company?

An LLC is an entity established between two or more persons (it can also be established by a single person in specific cases), each contributing a share of the capital, either in cash or in kind. The key feature of this type of company is that each partner’s liability is limited to their share in the capital, meaning they are not personally 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) for the year 1443H, an LLC is officially recognized in the Kingdom and acquires an independent legal personality upon registration in the Commercial Register.

Advantages of a Limited Liability Company:

LLCs have several characteristics that make them popular in Saudi Arabia, especially among local and foreign entrepreneurs and investors:

1. Limited liability for partners: Partners are only liable for company debts up to the value of their share, providing significant legal and financial protection.
2. Single-person establishment: The law allows an LLC to be established by a single person, whether Saudi or foreign (according to the Investment Law).
3. Management flexibility: The company can appoint one or more managers without the need for a board of directors, enabling easier decision-making.
4. Transfer of shares: Partners can transfer their shares to others under specific regulations, facilitating sales or attracting new investors.
5. Suitable for startups and SMEs: This structure is ideal for small and medium private sector projects that require a flexible and secure legal entity.

Disadvantages of a Limited Liability Company

Despite its advantages, LLCs have some challenges investors should consider:

1. Restrictions on share transfer: Shares cannot be transferred to outsiders without following certain procedures, including offering them first to other partners, which may slow down transactions.
2. Maximum number of partners: An LLC cannot exceed fifty partners, which may limit expansion or attracting a large number of investors.
3. Administrative and financial oversight: Companies exceeding a certain capital or number of partners are subject to increased regulatory requirements, such as appointing an external auditor if capital exceeds 1,000,000 SAR (Article 78).
4. Restriction on certain activities: LLCs cannot conduct activities reserved for joint-stock companies, such as banks or insurance companies.
5. Impact of a partner’s sudden exit: Withdrawal or death of a partner may require amending the founding contract or even dissolving the company unless otherwise stated in the contract.

Partner Liability in an LLC:

One of the most important features of an LLC is that partner liability is limited. According to Article 71 of the Companies Law, partners are only liable for company debts or obligations up to the value of their capital share.

Partners cannot be asked to pay amounts exceeding their contribution, providing clear legal protection. However, any violation by a partner, fraud, or illegal act results in personal liability, civil or criminal. The executive regulations specify that partners are jointly liable only in cases of proven fraud or intent to harm others.

Who is Responsible for the Debts of an LLC?

An LLC has an independent legal personality and is responsible for its debts and obligations. Partner liability does not extend to personal assets, limited to their capital contribution.

Exceptions occur where partners or managers can be held personally liable, such as:

• Using the company name fraudulently or illegally.
• Failing to register or amend the company’s founding contract in the Commercial Register.
• Participating in fraudulent or deceptive acts.

In such cases, liability becomes personal, and the individual is accountable for damages to the company or others.

Capital of an LLC in Saudi Arabia:

The Companies Law stipulates that LLC capital must be divided into equal shares, which can be in cash or in kind. Capital must be fully paid upon establishment, and no tradable instruments can represent the shares.

The founding contract must specify:

• Capital amount.
• Number and value of shares.
• Share distribution among partners.

An external auditor must be appointed if capital exceeds 1,000,000 SAR or if there are more than 20 partners, as per the executive regulations.

Fees for Establishing an LLC in Saudi Arabia:

LLC establishment fees in the Kingdom are subject to the Companies Law and the Commercial Register system, varying based on activity and license level:

• 1,200 SAR including commercial registration fees.
• Approx. 500 SAR for publication fees.

These fees do not include 15% VAT.

Requirements for Establishing an LLC in Saudi Arabia:

The Saudi Companies Law outlines the following requirements:

1. Written founding contract: Including partner details, share percentages, company purpose, and manager information.
2. Full payment of capital: Either cash or in-kind.
3. Company registration in the Commercial Register with the Ministry of Commerce.
4. Proof of founders’ identity: Civil record/commercial register/investment license.
5. Appointment of one or more managers as specified in the founding contract.
6. Maximum of 50 partners.
7. Compliance with activity restrictions: Prohibited or restricted activities require specific licenses from relevant authorities such as Ministry of Health, Capital Market Authority, or Real Estate General Authority.

LLC Establishment Procedures:

The process is conducted via the Ministry of Commerce platform and includes the following steps:

1. Access “Absher Business” or the “Business Center Platform”.
2. Select the service “Establish a Limited Liability Company”.
3. Enter partner details, shares, and company purpose.
4. Choose a template founding contract or upload a custom contract.
5. Pay required fees electronically.
6. Submit the request for approval by partners via digital authentication or notary.
7. Register the company in the Commercial Register and issue the electronic certificate of incorporation.

After completing these steps, the LLC is officially established, acquires legal personality, and may commence activities immediately after obtaining necessary licenses, if any.

LLC Founding Contract Template – Ministry of Commerce:

The founding contract is the legal document organizing relations between partners. The Ministry of Commerce provides standardized electronic templates. The contract must include:

1. Company name and type (LLC).
2. Company purposes in detail.
3. Capital amount, number of shares, value, and distribution method.
4. Partner information (names, nationalities, percentages).
5. Manager information and powers, including whether on a fixed-term or indefinite contract.
6. Company duration.
7. Profit and loss distribution method.
8. Mechanism for share transfer or new partners.
9. Company dissolution and liquidation conditions.

  The contract is submitted electronically via the Ministry of Commerce “Business Center” platform, authenticated through the National Single Sign-On (NSO) or an accredited notary. A flexible model is provided that can be modified according to partner agreements.

Establishing an LLC in Saudi Arabia is a sound legal and economic choice, offering partner protection and management flexibility. To ensure proper establishment, refer to the original Companies Law and executive regulations when drafting the founding contract, consult a licensed lawyer or corporate legal advisor, and ensure the proposed activity complies with legal and licensing requirements. Avoid using generic templates without adapting them to partner needs.

At “Sareeh – Lawyers and Consultants” (top law firm in Riyadh), we assist you in all stages of establishing and developing your company.

We support you from day one to business stabilization, through comprehensive services including:

1. Drafting the founding contract

تأسيس مخصص وفق نظام الشركات السعودي.

2. مراجعة قانونية دقيقة للأنشطة والتراخيص.
3. توثيق العقود إلكترونياً عبر القنوات الرسمية.
4. دعم كامل في تعديل الكيان القانوني أو دخول شركاء جدد.
5. صياغة ومراجعة العقود التجارية والاتفاقيات.
6. تنظيم العلاقات بين الشركاء أو المساهمين.
7. تمثيلك القانوني في النزاعات التجارية.
8. بناء لوائح الحوكمة وضمان الامتثال النظامي.