Saudi Arabia

Saudi: New companies law to be in force from Jan. 19

Saudi Arabia’s Ministry of Commerce and the Capital Market Authority (CMA) unveiled on Wednesday the mechanism for implementing the new Companies’ Law, approved by the Council of Ministers on June 28, 2022.

The new law, which was published in the official Umm Al-Qura Gazette on July 4, 2022, will come into force on Jan.19, 2023, the Saudi Press Agency reported.

The ministry and the CMA stated that the new law was approved as per the Royal Decree issued on Dhul Hijjah 1, 1443, which is included in item three of the law as follows: “Regarding the companies that are existing when the law comes into effect – referred to in item 1 of this decree – its conditions will be amended in accordance with its provisions within a period not exceeding two years starting from the date when it comes into force. As an exception to that, the Ministry of Commerce and the Capital Market Authority — each in its own jurisdiction – can determine the provisions contained in it and to which these companies are subject to during that period.”

The period for adjusting the conditions described in the aforementioned item does not include new companies that are established after the law comes into force. All provisions of the law will apply to it from that date.

Also, this period does not cover the provisions as per the Companies Law issued by a Royal decree on Muharram 28, 1437, and it does not include the crimes and violations stipulated in this law and the penalties prescribed in the law for such crimes.

The provisions under which companies are given a deadline to amend their status are outlined in articles 36, 52, 61, 158 of the law. As per the provision of Paragraph 1 of Article 68 of the law, companies must apply the aforementioned provision at the end of the term of the current Board of Directors and during the election of a new Board of Directors or after the passing of two years from the date when the law comes into force, whichever is sooner.

The ministry and CMA stated that the existing companies do not have the right to take any action or arrange or create any new legal centre that is contrary to the law after the law comes into effect. The companies, partners and shareholders can exercise all the rights stipulated in the law from the day it comes into force, taking into account the amendment of the basic laws of companies and their articles of incorporation, if necessary.

By implementing the new mechanism, the ministry and CMA are looking forward to contributing to achieving its objectives, which include strengthening the regulatory environment for companies, facilitating procedures and regulatory requirements to stimulate the business environment and attract investment. It also aims at achieving a balance between stakeholders, and providing an effective and fair framework to corporate governance, devoting institutional work, contributing to the sustainability of economic entities, attracting local and foreign investments, providing sustainable financing sources, in addition to meeting the needs and requirements of the entrepreneurship sector, and stimulating the growth of small and medium enterprises.

The new law will be instrumental in further stimulating and developing the Kingdom’s commercial system. The most important features of the law include high flexibility to protect companies and empower the private sector in a way keeping pace with best international practices. The new law brings down the statutory requirements and procedures for small, medium and micro companies, in addition to simplifying the requirements and procedures for establishing companies.

The law removes many restrictions at all stages including establishment, engaging in business and exiting the market as well as restrictions on company names, and allowed the limited liability company to issue debt instruments or negotiable financing instruments. The law modified the provisions of transformation and merger between companies, permitting the company to be divided into two or more companies, and allowing the owners of individual entities to transfer their assets to any type of company.


Saudi Gazette

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