Saudi Arabia’s New Companies Law enters into force today

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The new Companies Law and its implementing regulations come into force as of today, Jan. 19, in Saudi Arabia.

Following the law's entry into force, existing companies must adjust their positions in accordance with its provisions within a period not exceeding two years starting from enforcement date, according to Ministry of Commerce and the Capital Market Authority (CMA).

As an exception, the ministry and CMA, each in its own jurisdiction, shall determine the provisions contained therein to which these companies are subject during that period.

The Companies Law includes all provisions related to commercial, non-profit, and professional companies, and ensures that these provisions are available in a single legislative document.

The law approved that corporate entities in the Kingdom take one of five forms: limited liability company (LLC), simple joint stock company (SAS), limited partnership (LP) company, joint-stock company, and limited partnership (GP) company.

Article 11 of the new Companies Law stipulates the partners and family charters agreement, which includes the following:

First: Founders, partners, or shareholders, whether during or after the company establishment, shall conclude one or more agreements that regulate the relationship between them and the company.

They also may conclude a family charter that includes the organization of family ownership, its governance, management, policy of work and employing family members, dividends, disposal of shares, mechanism for settling disputes, and others.

Second: Family charter’s agreement is binding and may be part of the company’s articles of incorporation or association, provided that it does not violate the company’s articles of incorporation or association.

The new Companies Law determined ways to reduce joint-stock company’s capital, as the following:

- Writing off a number of shares equivalent to reduced amount.

- Reducing the nominal value by canceling part of it equivalent to the loss incurred.

- Reducing the nominal value by either returning part of it or clearing all or part of the unpaid amount of the share value.

- The company’s purchase of a number of its shares equivalent to reduced amount and then writing off them.

The reduction by purchasing company shares included the following:

- If the capital is reduced by purchasing a number of the company's shares for writing off, the shareholders must be invited to sell their shares.

- If the number of shares offered for sale exceeded the number that the company decided to purchase, selling orders must be reduced in proportion to this increase.

- The purchase price of shares in unlisted joint-stock companies is estimated according to the fair value, while shares of those listed are purchased according to Capital Market Law.

The CMA’s board of directors ratified yesterday, Jan. 18, the implementing regulations of the new Companies Law for listed joint-stock companies, to be effective as of today, Jan. 19.

The board issued its resolution approving the amendment of six implementing regulations issued by the Authority, namely:

- The implementing regulations of the Companies Law for listed joint stock companies.

- Corporate Governance Regulations.

- Merger and Acquisition Regulations.

- Rules on the offer of securities and continuing obligations.

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