Simplified Joint Stock Company in Saudi Arabia: What It Is and Who It Suits
The simplified joint stock company is a legal form introduced by the Companies Law to encourage entrepreneurship and investment. We explain its features and when it is the smartest choice.
The simplified joint stock company is a new legal form introduced by the Companies Law in force since 2023. It combines dividing the capital into shares, as in joint stock companies, with flexible incorporation and management closer to that of small companies. It particularly suits startups planning to attract investors, and entrepreneurs who want a structure that can grow without the burdens of a traditional joint stock company.
Why did the law introduce this form?
Startups previously faced two less-than-ideal options: a limited liability company (LLC), in which it was difficult to bring in investors and grant them varied rights, or a joint stock company, requiring procedures and governance unsuited to the early stage. The simplified joint stock company was introduced to fill this gap and keep pace with venture capital and startup financing practices.
An investor in a startup usually looks for a clear structure that defines their rights precisely: their share of ownership, their say in important decisions, and what happens in a later funding round or on a sale of the company. A share-based structure with regulatory freedom in the bylaws allows these understandings to be turned into binding provisions, rather than relying on side arrangements that are hard to enforce.
What are the main features of a simplified joint stock company?
- Can be formed by one or more persons, whether individuals or entities.
- Capital divided into shares, making it easier to admit new shareholders and transfer ownership.
- Flexible management: the law gives founders greater freedom to set the management structure in the bylaws.
- Limited liability for each shareholder, as a rule, up to the value of their shares.
- Wider regulatory freedom in the bylaws to define shareholders' rights and decision-making mechanisms, including the possibility of different share classes as permitted by law.
- Its shares are not offered for public subscription in the way listed joint stock companies are.
Who is a simplified joint stock company suitable for?
- Tech startups planning successive funding rounds.
- Businesses that grant employees equity or ownership-linked incentive schemes.
- Founders who want to keep control while bringing in investors with different rights.
- Joint ventures between entities wanting a flexible and clear structure.
A small business with no plans to bring in investors may find the simplicity of an LLC sufficient. Likewise, a family business that prefers to keep ownership within a limited circle may not benefit much from the advantages of shares, while it needs clear rules for transferring shares between family members.
How does it differ from a limited liability company?
| Aspect | Simplified joint stock company | Limited liability company |
|---|---|---|
| Division of capital | Shares | Quotas |
| Bringing in investors | Easier and investment-ready | Possible but less flexible |
| Variety of ownership rights | Wider flexibility | Relatively limited |
| Best-suited stage | Growth and funding | Stability and operations |
What should you consider before choosing?
- Drafting the bylaws is at the heart of this company. The flexibility the law gives is worthless unless it is used to draft the rights of founders and investors precisely.
- A shareholders' agreement is essential to regulate matters such as right of first refusal, tag-along, drag-along and anti-dilution protection for investors.
- Activity requirements: some activities are subject to regulators that may require particular forms or requirements.
- Costs and fees are set by the competent authorities and may change, so check them on the Ministry of Commerce's official platforms.
- Intellectual property protection: much of a startup's value lies in its trademark, software and content, and investors will ask who owns these assets. Make sure the company itself, not the founder personally, owns the trademark and rights, and that contracts with developers and freelancers clearly transfer the rights to it.
In practice, a recurring scenario is founders who started with an LLC, only to find at their first investment round that they had to restructure and convert the company, a process that takes time and effort. So if your funding plan is clear from the outset, choosing a simplified joint stock company early may save you that.
Frequently Asked Questions
Q: Can an LLC be converted into a simplified joint stock company? A: Yes. The Companies Law allows a company to be converted from one form to another under the prescribed procedures and conditions, and this is a common route when preparing for an investment round.
Q: Can a simplified joint stock company be listed on the stock market? A: It is designed for companies not offered for public subscription; if it wants to go public, it must meet the requirements for joint stock companies and those of the market regulators.
Q: Is a board of directors required? A: The law allows flexibility in the management structure, which is set out in the company's bylaws.
How can we help?
FATIMA AL ASMARI Law & Intellectual Property Company in Jeddah helps entrepreneurs assess whether a simplified joint stock company is right for them, drafts bylaws and shareholders' agreements, and protects startups' intellectual property, serving all regions of the Kingdom. Explore our corporate consultation or book a consultation.
Legal sources
This article is for general awareness and is not legal advice.
