Types of Companies in Saudi Arabia Under the New Companies Law: A Simple Guide
The Companies Law in force since 2023 sets out clear legal forms for companies. We compare them on liability, management and suitability so you can choose the right form for your business.
The Companies Law, in force in the Kingdom since 2023, regulates several legal forms for profit-making companies, the main ones being the limited liability company (LLC), the joint stock company, the simplified joint stock company, the general partnership and the limited partnership. Each form differs in the extent of the partners' liability, how it is managed and its ability to attract investors, so choosing the right form is a foundational decision that shapes the future of the business.
What changed with the new Companies Law?
The new law takes a clear direction towards flexibility and ease of doing business. Its features include:
- Introducing the simplified joint stock company to suit startups and entrepreneurs.
- Giving partners wider freedom to organise their relationships in the articles of association and partners' agreements.
- Reducing some of the forms that existed under the previous law.
- Strengthening governance rules and the protection of partners' and shareholders' rights.
Companies that existed before the law remain required to bring their status into line with the law and its regulations, as specified.
In practice, this means business owners are no longer forced to accept rigid templates. Together with their partners, they can design the rules of their relationship to suit their activity, within the mandatory rules that cannot be contracted out of. But this very flexibility makes precise drafting of the articles of association or bylaws critical, because anything not clearly regulated can become a source of dispute at the first turning point.
What is a limited liability company (LLC)?
This is the most widespread form among small and medium-sized businesses. It can be formed by one or more persons, and each partner's liability is limited to their share in the capital, so as a rule it does not extend to their personal assets. It is easy to set up and manage, but it does not issue shares, and its shares (quotas) are subject to transfer rules set out in the law and the company contract. It suits online stores, consultancies, and service and trading businesses run by a small number of partners, and it can be managed by a manager who is either a partner or an outsider.
What is the difference between a joint stock company and a simplified joint stock company?
A joint stock company is intended for large projects. Its capital is divided into tradable shares, it is managed by a board of directors under strict governance rules, and it can be listed on the stock market if it meets the requirements.
A simplified joint stock company is a flexible form that combines the advantages of shares with simplicity of management. It can be formed by one or more persons, and the law gives its founders greater freedom to organise management and the relationship between shareholders, making it an attractive option for startups planning investment rounds.
What are partnership companies: general and limited partnerships?
- General partnership: the partners are jointly liable, with all their assets, for the company's debts, and it is based on personal trust between them. It suits small family or professional activities.
- Limited partnership: it has two types of partner: a general partner, who is liable for the debts with all their assets and usually manages the company, and a limited partner, whose liability is limited to their share and who does not take part in management.
How do you choose the right form for your business?
Ask yourself the following questions:
- Do you want to protect your personal assets? If yes, forms with limited liability are more suitable.
- Do you plan to attract investors or issue shares? A simplified joint stock company or joint stock company is the natural choice.
- How many partners are there, and what is the relationship between them? High trust may suit partnership companies, while a larger number of partners needs clear governance rules.
- How large is the business, and what do the regulators of your activity require? Some activities require a particular legal form or additional requirements.
- Is there a foreign investor among the partners? This involves specific requirements with the authorities responsible for investment.
There is no single right answer for every case: a business may start as an LLC and later convert to a simplified joint stock company as it grows. Beyond the legal form, do not overlook protecting intangible assets from the start, such as the business name and logo, as they are part of the company's value whatever its form.
Frequently Asked Questions
Q: Is a sole proprietorship still an option? A: A sole proprietorship (sole establishment) is not a company; it is a commercial activity carried on by a person in their own name, with unlimited liability. Anyone who wants to separate their personal finances can form a single-person limited liability company.
Q: Can a company's form be changed after incorporation? A: Yes. The law allows a company to be converted from one form to another under specified procedures and conditions.
Q: Where can I find the official text of the Companies Law? A: On the laws platform of the Bureau of Experts at the Council of Ministers.
How can we help?
FATIMA AL ASMARI Law & Intellectual Property Company in Jeddah provides corporate consultation to help you choose the most suitable legal form and draft your articles of association and partnership contracts, for clients across all regions of the Kingdom. Book your consultation to start your business on the right footing.
Legal sources
This article is for general awareness and is not legal advice.
