1. Limited Liability Companies ("LLC")
The minimum number of shareholders required to establish an LLC has been reduced from two to one, provided that: (1) an individual may only directly or indirectly own one single shareholder LLC; and (2) a single shareholder LLC may not be a single shareholder in another LLC.
Contributions from profits to the statutory reserve must continue to be made, but only until they have reached 30% of the share capital, rather than the previous 50%.
An LLC must be converted into a joint stock company within one year if the number of shareholders exceeds 50; otherwise the LLC will be deemed dissolved by operation of law (unless the increase in shareholders result from an inheritance or the provisions of a will).
Article 180 of the old law imposed joint and several liability on the shareholders of an LLC if the company's debts exceeded 50% of the share capital and the shareholders failed to take action to dissolve the company or inject new capital; third party creditors were also entitled to request the dissolution of the LLC. Under the New Law, if the shareholders fail to take appropriate actions prescribed in the law within a certain time, either to dissolve or continue the LLC, the company will be automatically dissolved.
2. Joint Stock Companies ("JSC")
The minimum number of shareholders has been reduced from five to two, although single shareholder companies may be established by government-related entities or if the share capital of the JSC is not less than SAR 5 million.
The minimum share capital required for a JSC has been reduced from SAR 2 million to SAR 500,000.
The minimum number of members of the board of directors of the JSC is three, with the maximum being 11. The requirement for directors to own a specified minimum number of shares of the JSC has been removed. It is no longer possible to combine the position of chairman with any other executive position in the JSC.
JSCs may issue sukuks and other debt instruments, which may be converted into negotiable shares provided they comply with certain conditions.
JSCs are now allowed to purchase their own shares and mortgage their shares.
The New Law permits the use of modern communication methods (via electronic means) to convene meetings of the general assembly.
Shareholders must establish an audit committee to supervise the financial and audit policies and procedures of the JSC. Executive directors may not be members of the audit committee.
3. Holding Companies
Holding companies have been specifically provided for in the New Law, and both LLCs and JSCs may operate as such, provided they have "holding" in their corporate name and their subsidiaries do not hold shares in the parent holding company. This is of particular interest to family companies, with the possibility of creating a holding company which exercises control over affiliated LLCs and/or JSCs and their respective boards of directors, as well as the ability to issue consolidated accounts.
4. Implementing Regulations under the New Law
Implementing regulations are expected to be issued by the Ministry of Commerce and Industry and the Capital Market Authority, and we will update you on material issues in due course.
The Ministry of Commerce and Industry has supervisory authority over all companies with the exception of listed joint stock companies, which are overseen and regulated by the Saudi Capital Market Authority[No text in field]
