On June 28th, 2022, Saudi Arabia approved a new Commercial Companies Law, “New Law,” to enhance the country’s business environment. The law and its Executive Regulations entered into force on 19 January 2023, replacing the previous Saudi corporate law regime. The “New Law” was enacted by Cabinet Resolution No. 678, dated June 28, 2022, and ratified by Royal Decree No. (M/132), dated June 30, 2022, and consists of 281 articles.
Aligned with Vision 2030, this law introduces significant changes and reforms. Let’s explore the key highlights in this blog post.
The law unifies rules for commercial, professional, and non-profit companies, simplifying regulations and providing a comprehensive legal framework.
Introduction of Simplified Joint Stock Company (SJSC)
The SJSC allows entrepreneurship and venture capital demands without a minimum capital requirement. It enables attracting investments and offers flexibility through negotiable shares traded on the capital market.
The law differentiates between public and private non-profit companies. Public, non-profit companies must take the form of a Joint Stock Company (JSC), while private non-public companies can take the form of JSC, SJSC, or Limited Liability Company (LLC).
The law allows companies to choose names derived from their purpose or shareholders, removing restrictions on language use and complying with the Trade Names Law.
The name can be derived from the company’s purpose, current shareholders, or a combination. It can also choose a different name if it complies with Royal Decree No. M15/1420 approved by the Trade Names Law.
Companies that qualify as micro and small companies are exempt from appointing auditors during their first fiscal year or two consecutive fiscal years. However, foreign micro and small companies will be required to have auditors.
General assembly meetings can now be attended remotely, allowing greater convenience and accessibility for shareholders.
The law has introduced the ability for shareholders to enter into a binding shareholders’ agreement if it doesn’t conflict with the law. Now the shareholders can enter into agreements regulating the relationship among them or with the company, and such agreements are now fully recognized by courts in the Kingdom of Saudi Arabia.
Companies can issue ordinary, preference, and redeemable shares, as outlined in Article 108(1) of Saudi Arabia Cabinet Decision No. 678/1443, granting flexibility and the ability to assign different rights and obligations to various classes of shares.
The law gave shareholders more control over share transfers. Detailed share transfer provisions, including squeeze-out, drag-along, and tag-along clauses, may now be included by shareholders in the constitutive documents of the company.
With these modifications, Saudi law now has provisions that, for the first time, mandate or permit shareholders to sell shares in specific circumstances.
The law supports employee incentive schemes, allowing companies to issue shares allocated to employees without shareholders’ pre-emption rights and fostering talent within organizations.
Further controls and procedures for the allocation of shares to employees will likely be implemented.
With a 90% agreement, majority shareholders can require minority shareholders to accept a purchase offer for their shares, making Saudi companies more attractive to investment opportunities. However, it seems that the majority shareholders are required to guarantee that the sale of minority shares will be sold at the same price and on the same terms and conditions as the sale of majority shares.
The law clarifies and details the obligations of company management, providing a more transparent framework for operations and management practices.
The law allows arbitration for shareholders’ disputes, promoting alternative resolution methods and providing flexibility for resolving conflicts.
The recent Commercial Companies Law in Saudi Arabia ushers in a positive wave of changes, aligning with Vision 2030 and establishing a more robust legal framework. These reforms aim to enhance the business landscape and attract domestic and international investments to the Kingdom of Saudi Arabia.