Limited Liability Companies in the Kingdom of Saudi Arabia
Limited Liability Company: A company established by one or more natural or legal persons, its liability shall be independent of the financial liability of each partner or owner. The company shall be solely responsible for the debts and obligations arising from it or arising from its activity. Neither the owner nor the partner shall be responsible for these debts and obligations except to the extent of his share in the capital.
What is the consequence if the limited liability company consists of one person?
A- This person shall have the powers and authorities of the director, the company’s board of directors and the general assembly of partners. his decisions shall be issued in writing and recorded in a special register with the company.
B- This person may appoint one or more directors who will represent the company before the courts, arbitration entities and others. He shall be responsible for its management before the partner owning the company’s shares.
C- A limited liability company owned by one person shall have a memorandum of Association. Every reference to the articles of association in the provisions that
apply to the limited liability company means the company’s articles of association.
What data must be provided when establishing a limited liability company?
A- Names of the partners, and their data.
B- Name of the company.
C- The head office of the company.
D- The purpose of the company.
E- The capital, and its distribution between partners.
F- Declaration by the partners to pay share prices
G-Term of the company
M- The start and end date of the fiscal year.
N- Expiry of the company.
H- Management of the company.
I- Waiver of shares.
J- The means of reporting by the company to the partners.
K- Partners' decisions.
L- Distribution of profits and losses between the partners.
O- Any other terms, conditions or data agreed by the partners to be included in the company’s articles of association and that do not conflict with the provisions of the Law.
What should be included in the company's articles of incorporation?
— Acknowledgment by the founders to comply with all the system requirements related to the establishment of the company.
— A statement or report prepared by one or more approved valuers showing the fair value of the in-kind shares, if any, and an acknowledgment from the rest of the founders of approval on its specified value.
Can the company's articles of incorporation be amended?
Yes, it is permissible in these cases:
1- The company’s articles of incorporation may be amended, including increasing or decreasing its capital, with the approval of one or more partners who represent at least (three quarters) of the capital, unless the articles of incorporation provide for a larger proportion.
2- The partner, upon approval of an increase in the company’s capital by issuing new shares, shall have priority in owning the shares issued in exchange for cash shares in the company’s capital under the regulations.
3- It is not permissible to increase the capital by raising the nominal value of the partners’ shares or suspending preemptive rights, except with the unanimous consent of the parties.
How to determine the capital of a limited liability company according to the new company’s law?
The partners determine the amount of the company’s capital in its articles of incorporation. it shall be divided into shares of equal value and the share shall be indivisible and negotiable. If the share is owned by multiple persons, the company may suspend the use of the rights related to it until the owners of the share elect from them who is considered a Sole Proprietor against the company. The company may set a date for this election for them, otherwise, it may sell the share to its owner’s account after its expiry. In this case, the share shall be offered to the other partners and then to third parties.
What are the required procedures if the losses of the limited liability company amount reach half of its capital?
The director of the company must call the general assembly of the partners to a meeting within (sixty) days from the date of knowledge of the loss to consider the continuity of the company and take the required procedures to remedy or dissolve such losses.
Is it possible to extend the term of the limited liability company?
Yes, the term of the company can be extended if:
1- The company has a fixed term before its expiry for another term by a decision issued by the general assembly of partners from any number of partners owning half of the shares representing the capital; Unless the company's articles of Association provide for a larger majority.
2- If no decision has been issued to extend the company’s term and it continues to perform its activities, the company’s term shall be extended for a similar term under the same conditions stipulated in its memorandum of association.
3- A partner who does not desire to continue with the company may exit from it and his shares will be evaluated and the extension of the term shall not be effective until the sale of the share of this partner to the partners or third parties — as the case may be — and payment of its value to him unless the withdrawing partner agrees with the rest of the partners otherwise.
4- A third party who has an interest in not extending the term may object to it and uphold his ineffectiveness.
What are the cases of limited liability companies’ termination according to the new companies’ law?
The Limited Liability Company shall not terminate upon the death of a partner, nor by the disability of his financial activity, nor by taking any liquidation procedures against him in accordance with the bankruptcy system, nor by his insolvency, nor by his withdrawal, unless the company’s articles of incorporation stipulate that.
We can refer to the difference between a one-person company and a sole proprietorship for Not to be confused:
Limited Liability Company
It is independent of the partner’s liability and the financial claim is separate from his own funds
It is non-independent from its owner and the financial claim shall incur on his own funds
It consists of one natural or legal person and he may appoint another director
Its owner is a natural person and he may appoint another director other than himself
It requires publishing to the public when adjusting the capital
It does not require publishing to the public when adjusting the capital
Do not turn into a sole proprietorship
It turns into a One-person company