Demystifying the Saudi Arabian Market: Key Features of Various Business Entities (Part 3)

By: Wassem M. Amin, Esq.

In Part 2, the various business entities that may be used in Saudi Arabia were discussed.  This post outlines, in greater detail, the key features of the most popular entities used by foreign investors.

Limited Liability Companies (LLCs)

100% Foreign Management and Ownership – Unlike many other business entities, Saudi law does not require a minimum level of Saudi participation nor does it require that any manager be a Saudi national or a member of the LLC. Foreign management is only allowed if the LLC has a foreign capital investment license from SAGIA.

Board Members; Number of LLC Members – Under Saudi law, LLCs must have at least 2, but not more than 50, members.  The law provides for automatic dissolution if the number of members falls below 2.  The LLC may have either a manager or a board of managers.  However, if the LLC has more than 20 members, it must have a separate advisory board to oversee and advise management.

Limited Liability – The personal liability is generally limited to the individual member’s contribution to the company’s capital.  However, liability may extend to the shareholders, individually, in the event that the company’s losses exceed 50% of capital and no action has been taken to rectify losses.

Preemptive Rights – There are no shares issues in an LLC.  Investors hold a proportion of the uniform nominal value.  Further, equity transfers of a member’s ownership are permitted, but subject to the preemptive rights of other LLC members.  That means, a member wishing to dispose of his ownership must offer it to the other members first.

Minimum Capital Requirement – Minimum capital for an LLC with only foreign investors is 500,000 Saudi Riyals (SR).  There is no minimum capital requirement for LLCs wholly owned by members from the Gulf Cooperative Council countries.  Further, the Saudi Arabian General Investment Authority has the discretion to increase or decrease the capital requirement for an LLC.

Joint Stock Company (JSC)

A JSC is most analogous in structure to that of a C Corporation in the United States.  A JSC is often used when the company anticipates a public offering of shares on the Saudi Stock Exchange (Tadawul).

100% Foreign Ownership – As with an LLC, foreign ownership of all issued shares are allowed.

Board Members and Shareholders – The minimum number of shareholders allowed is 5.  The minimum number of directors required is three, including a chairman and a managing director.  Directors of the corporation are required to own shares in the corporation with a nominal value of at least SR10,000.

Preemptive Rights – Unlike LLCs, shares in a JSC are freely transferable.  Preemptive rights must be expressly added in the JSC’s organizational documents to be enforceable.

Minimum Capital – JSCs must have a minimum capital of SR2 Million.  In the event the JSC decides to issue public shares, the minimum capital requirement is SR10 Million.  Regulation of public offerings is under the auspices of the Capital Market Authority.

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