The New Companies Law: Company Forms, Key Changes and What Existing Companies Had to Do

Issuance and entry into force

The Companies Law was issued by Royal Decree No. (M/132) dated 1/12/1443 AH, based on Council of Ministers Resolution No. (678) dated 29/11/1443 AH, and was published on 23/12/1443 AH. Article 281 provides that it takes effect one hundred and eighty days after its publication in the Official Gazette, and the Ministry of Commerce and the Capital Market Authority announced that the law and its implementing regulations took effect on 26/6/1444 AH, corresponding to January 19, 2023.

Under Article 280, the law replaced the Companies Law issued in 1437 AH and the Professional Companies Law issued in 1441 AH, and repealed all conflicting provisions.

Company forms under the law

Article 4 sets out the forms a company formed under the law may take:

• General partnership.
• Limited partnership.
• Joint stock company.
• Simplified joint stock company.
• Limited liability company.

Article 2 allows a company to be formed by the sole will of one person in accordance with the law, and allows non-profit companies to be formed under Part Seven of the law.

The simplified joint stock company

The simplified joint stock company is one of the law's most notable additions. The joint stock company provisions apply to it where there is no specific provision and insofar as they suit its nature, except for a number of articles listed in Article 138. Under Article 139, its bylaws set its issued capital and the paid-up portion, and the minimum capital requirement for joint stock companies does not apply to it. This makes it an option worth considering for startups and investment projects, depending on the nature of the business and its funding plans. Still, the absence of a minimum capital does not mean the absence of obligations: the bylaws, management structure and shareholder rights remain carefully regulated, and it is best to prepare them carefully from the outset to avoid disputes when new investors come in.

Partners' agreements and family charters

Article 11 allows founders, partners or shareholders, during or after formation, to enter into agreements governing their relationship with one another or with the company, including how their heirs will join the company. It also allows them to adopt a family charter governing family ownership, its governance and management, the policy on employing family members, profit distribution, dealings in shares or stock, and the mechanism for settling disputes. The agreement or charter is binding and may form part of the articles of association or bylaws, provided it does not contravene the law or the company's documents. These tools are particularly useful in family companies with partners across generations, since they set clear rules before disputes arise. They connect directly with our corporate governance services.

How do you choose the right form?

Company forms differ in the partners' liability, how the company is managed, the transferability of shares or stock, and capital, disclosure and governance requirements. The choice therefore rests on practical questions, such as:

• How many founders are there, and will investors join later?
• Does the company need flexibility in issuing shares or creating different classes of them?
• Who will manage the company, and how will key decisions be made?
• Is it a family company that needs to organize the transfer of ownership between generations?
• What does the licensing authority for the activity require?

Answering these questions before formation reduces the need for later statutory amendments.

What were existing companies required to do?

The Council of Ministers resolution accompanying the law required companies existing when it took effect to bring their status into line with it within no more than two years from its effective date, with the Ministry of Commerce and the Capital Market Authority determining which provisions applied to them during that period. The Ministry of Commerce called on companies to amend their articles of association or bylaws through the "Amend Articles of Association/Bylaws" service on the Saudi Business Center platform, announced that the deadline would end on January 18, 2025, and stated that it would take statutory action against non-compliant companies.

In practice, bringing a company into line involves reviewing provisions on management, partners' or general assembly meetings, profit distribution and dealings in shares or stock so that they conform to the law and its regulations. If your company's documents have not yet been amended, it is best to review its legal status without delay.

When do you need a legal review?

• When choosing the right company form before formation.
• When drafting the articles of association or bylaws and the shareholders' agreement.
• When preparing a family charter for a family company.
• When a partner joins or exits, when capital is increased or reduced, or when the legal form is converted.
• When reviewing an existing company's compliance with the new law.

This can be arranged through our company formation and statutory amendments service, bearing in mind that the right solution varies with the company's activity, partners and documents.