A joint stock company in Saudi Arabia is one of the most prominent and effective investment models, offering significant opportunities for both large and small investors. These companies manufacture and produce various essential products, aiming primarily to enhance income diversification opportunities for shareholders.
In Saudi Arabia, investors aim to grow their investments quickly and securely. The corporate sector, which meets investors’ needs and provides them with beneficial returns, contributes to this goal and fosters economic growth in the Kingdom. A supportive and flexible regulatory environment for establishing companies in Saudi Arabia is a fundamental factor attracting investors to this critical sector.
Joint Stock Companies in Saudi Arabia
According to Article 58 of Saudi Arabia’s new Companies Law, a joint stock company can be established by one person, a group of individuals, or organizations. Its capital is divided into transferable shares, and the company alone bears full responsibility for any debts or obligations arising from its activities. The shareholder’s liability is limited to the value of the shares they own.
Characteristics of Joint Stock Companies in Saudi Arabia
- Minimum Shareholders: The company requires at least two shareholders but can exceed this number. If there are only two shareholders, the company may be dissolved if one passes away.
- Minimum Capital Requirement: The company’s capital must not be less than SAR 500,000.
- Large Number of Individuals: A large number of shareholders often form these companies, with the emphasis placed on capital rather than individual identities, as joint stock companies generally require substantial capital.
- Name: The company’s name should reflect its primary purpose and should not include the name of an individual, unless it is a personal invention or when a private company converts into a joint stock company.
- Separate Legal Personality: The company has a distinct legal personality separate from its shareholders, preventing it from being affected by personal circumstances affecting any shareholder.
- Large-Scale Projects: Given their substantial capital, joint stock companies are typically suited for large-scale economic projects that smaller companies or individuals cannot undertake.
- Single Shareholder Establishment: According to Article 55, a joint stock company can be established by a single person if they have a legal personality (such as the state or state-owned entities) or if the company’s capital is at least SAR 5 million.
- Limited Shareholder Liability: Shareholders have limited liability that does not grant them the status of a merchant, and their loss cannot exceed their initial investment.
Requirements and Conditions for Establishing a Joint Stock Company in Saudi Arabia
Company Name
The name must adhere to the guidelines specified in Article 5 of the Companies Law in Saudi Arabia. It may be in Arabic or any other language, and can be derived from the company’s primary purpose.
Company Capital
According to Article 59 of the new Companies Law, a minimum capital of SAR 500,000 is required, with at least a quarter of this amount paid at the time of establishment. Under Article 13, the capital contribution can be in cash, assets, or both but cannot be in the form of services, reputation, or influence.
Company Articles of Association
Per Article 7, an Articles of Association document is required, serving as a contract for the joint stock company. Article 8 specifies that it must be written in Arabic but can be translated into other languages.
Essential Provisions in the Articles of Association for Joint Stock Companies in Saudi Arabia
Article 61 outlines the necessary details to be included in the Articles of Association:
- Company name.
- Purpose of the company.
- Head office location.
- Capital amount, its source, and paid portion.
- Share types, categories, nominal value, and rights attached to each type.
- Company duration if a specific timeframe is set.
- Fiscal year start and end dates.
- Number of board members and company management structure.
- All terms agreed upon within the company’s Articles of Association, provided they comply with Saudi regulations.
Dissolution and Liquidation of a Joint Stock Company in Saudi Arabia
Under the new Companies Law, a joint stock company may dissolve or liquidate in the following cases:
- End of Contractual Period: The company may continue if the duration is extended.
- Merger: Merging with another company requires a new contract.
- Loss of Half the Capital: If losses reach half the capital, shareholders must convene an extraordinary general assembly to discuss increasing the capital or dissolving the company early.
- Death of a Shareholder: If only one shareholder remains and fails to meet the conditions of Article 55, the company must convert to a limited liability company within one year.
- Court Ruling: A judicial decision may dissolve or invalidate the company.
