Business associations are governed by the Regulations for Companies (issued in 1982, and amended in 1992). (42) The utmost attractive to foreign investors, wherein joint stock companies and limited liability partnerships is the Regulations list Business Structures and Forms
The Regulations define a company as a joint undertaking to participate in an enterprise with a view to profit. Thus, a registered company is deemed to be a commercial entity, whatever its objectives may be. Upon registration, the company acquires legal personality. If it is not fully owned by Saudis it may not enjoy certain rights but would still be regarded as a Saudi company.
Every industrial or commercial establishment must be registered in the Commercial Register.
Participation of Saudi national ion foreign companies and branches must obtain the approval of the Foreign Investment Committee before registration.
The management is composed of a board of directors. This board, appointed by the shareholders, must have a minimum of three members. Directors must own at least 200 shares of the joint stock company.
The Sole Proprietorship is a single-partner Company.
Number of partners: One single person.
Capital (max/min): No minimum capital required.
Shareholders and liability:
The owner is liable for all business debts and personal assets can be taken.
As a limited liability company which involves a privately owned company used to establish industrial, agricultural, contracting or services projects having Saudi and a foreign participation. However, it is not being allowed to conduct operations such as; banking, insurance or savings as these type of entities might not be able to offer subscriptions to raise capital to the public and without partners common consent, both their interest cannot be transferred.
Under the Regulations for companies this must be registered also in the foreign capital investment regulatory of regime. A minimum capital of SR 500,000 is needed for the establishment of a partnership limited by shares. Stipulations of contribution and other mandatory information must be registered to the Ministry of Commerce.
An alliance of more than two persons is called a general partnership who are both liable for the debts of the partnerships to the extent of their personal fortunes. It can manage business in its own name as a split up legal entity.
Partners are not allowed to transfer interest without the common consent of the other partners. No minimum capital is required, a partnership agreement with concerns to contribution terms must be registered with the Ministry of Commerce.
It is composed of general partners who are accountable for the partnership’s debts to the extent of their personal fortunes and limited partners who are accountable for partnership’s debts only to the extent of their investments.
In partnership management joined by limited partner may open up to joint individual liability with general partners. Requirements on registration are the same with general partnerships.
At least one of general partner’s name should be incorporated in the name of limited partner, this partnership must avoid inclusion of their names in the firm liability reasons.
A foreign “free professionals’ like for instance lawyers, engineers and medical practitioners can establish joint practices with partnerships that are licensed locally as of 1991. The Ministry of Commerce needs approval for this partnership, that also regulates conditions relative to the foreign firms’ reputation, interest’s transfer and minimum participation of Saudi partners of 25 percent.
Likewise, foreign partners profits from these partnerships shall be most probably be taxable, not like professionals earned salaries that works in a local firm.
In joint ventures of foreign investment with Saudi partners has advantages. Whereas foreign partners in a joint venture may holds the equity of 100 percent in selected Gulf Cooperation Council (GCC) countries, having a local Saudi partner has an advantage that holds 50 percent of the equity or above.
For instance, if a Saudi owns an equity of 50 percent in a joint venture company it qualifies the firm to achieve a loan which is interest-free for up to 50 percent of the cost of the project, that over a period of ten years repayable. Also, it is entitled to preference after wholly Saudi-owned companies in the allotment of government contracts for majority Saudi-owned joint ventures.
Activities like trading and marketing aimed at Saudi individuals or wholly Saudi-owned companies. However, are forbidden to mix Saudi-foreign joint ventures as per Royal Decree M/11 of 1962.
It is owned by five or more individuals or entities. An apportioned capital is negotiable into shares of an equal amount, and shareholders are liable to the extent of the value of their holdings.
Two Million Saudi Riyals (SAR 2,000,000) or no less than Ten Million Saudi Riyals (SAR 10,000,000) is the required minimum capital if its shares are offered for public subscription.
Must not be less than Ten Riyals (SAR 10) the par value of each share , and upon incorporation, must be no less than one-half of authorized capital should be the issued paid-up capital.
To establish a branch in the Kingdom, may apply for a license to the Foreign Capital Investment Committee for foreign companies conducting industrial or contracting works, the company may complete its registration process under the Regulation.
It may be remarked that, a foreign entity’s branch is not eligible to a tax holiday unlike a limited joint venture.
On the other hand, the idea of branches has been stretched out to deal with firms that are not engaged in contracting and industrial works in recent years, although such licenses are rarely granted.
It requires foreign companies to obtain temporary commercial registration that will be operating exclusively for the purpose of government contracts implementation. This is only intended to contractors that operate in the public sector. But, if a foreign contractor is engaged in a governmental contract and does not have a Saudi partner, it must engage a Saudi national as an agent. However, an exception to this general rule may sometimes be made in cases of certain military contracts.
Not exceeding to 5 percent of the contract value may receive by the agents as compensation. And within 30 days of signing the contract, the agreement in the agency must be presented with the application for impermanent or temporary commercial registration to the Ministry of Commerce.
A trust is an arrangement whereby a person holds property as its nominal owner for the benefits of one or more beneficiaries.
The trust arrangement may be held for public proposes such as a private family.
Private family trust is usually designed to help a high net worth individual preserve asset and facilitate the transfer of assets to future generation.
In spite of the Saudi law permits to do business in Saudi Arabia through eight forms of business entity structure but the most common forms for the foreign investors through the following entities :