What are the Types of Business Entities in Saudi Arabia?

The climate of doing business in Saudi Arabia has taken a turn for good. After the announcement of Saudi Vision 2030, the government is heartedly supporting investors and businesses. The main agenda is shifting the primary focus of revenue generation from oil industries to various other fields.

The geographical location of Saudi Arabia also makes it a prime location for conducting business with different regions in an easy manner.

Registering a company in Saudi Arabia to conduct business seems like a perfect opportunity right now. Before commencing that, one must know about the different types of business vehicles that can be operated in the kingdom.

Types of Business Entities In Saudi Arabia

There are mainly 5 types of corporate entities that can be chosen to conduct business under the Companies Law of Saudi Arabia:

• joint liability companies (equivalent to general partnerships);
• limited partnership companies (equivalent to limited liability partnerships);
• joint ventures;
• joint-stock companies ("JSCs"); and
• limited liability companies ("LLCs").

Different types of business entities can provide varying benefits depending upon the need and functionality of the business you want to conduct. Registering a company in Saudi Arabia while choosing the correct type can prove to be an arduous task, and hence seeking the help of an advisor always comes in handy.

General Partnerships

Some Characteristics of General Partnerships or Joint liability companies are as follows:

• A general partnership is an enterprise of two or more partners who assume joint liability for the partnership's debts in all their entire funds.
• The general partnership's name should consist of the partners' name, indicating that a partnership exists. The name can include a foreigner's name with his consent, which will make him liable for the debts. The name can also include a retired or deceased partner's name if the retired partner or the heirs of the deceased partner agree to the same.
• A partner's share in the partnership may not be negotiable instruments. A partner can choose to waive their share upon all the partners' consent or as per the conditions outlined in the contract.
• Any person joining the partnership is jointly liable with all other partners to pay off the partnership's debts. If a partner withdraws from the partnership, they shall not be liable for the partnership's debts after one month from the withdrawal.
• Profit and loss sharing is decided according to the agreement made before the commencement of the partnership.

Limited Partnerships

Some Characteristics of Limited Partnerships or Limited Partnership Companies are as follows:

• A limited partnership includes two teams of partners, where one team should include at least one joint partner who shall be liable for the partnerships' debts. The other should consist of at least one dormant partner who shall be liable to the extent of his share in the capital.
• A dormant partner cannot exercise in the external acts of management even on the basis of power of attorney. Still, they can participate in the partnership's internal management according to whatever may be prescribed in the partnership agreement.

Apart from the differences mentioned above and a few other minor differences, limited partnerships follow similar guidelines stated for general partnerships. It is very important to maintain books and accounts in partnerships or any sort of business. Read about accounting and bookkeeping services in Saudi Arabia to understand the technicalities.

Joint Venture

Some Characteristics of a joint venture in Saudia Arabia:

• A joint venture is a type of company where two or more party combine their resources to attain a specific goal
• It may not issue negotiable instruments
• It does not have a separate legal entity
• Every contributor is liable to their undertaking in the venture unless the contract of the venture states otherwise.
• The contract of the venture should specify:

1. Rights and liabilities of partners
2. Way of dividing profits and losses

Joint-Stock Companies (JSC)

Some Characteristics of a joint-stock company in Saudia Arabia:

• The equivalent of Public Limited Companies
• Two types:

1. Closed: Unlisted Joint-stock companies on the Saudi Stock Exchange
2. Public: Joint-stock companies that are listed on the Saudi Stock Exchange

• Minimum of two shareholders. JSC with a single shareholder can be incorporated by some specific government entities or companies with capital greater than 5 million SAR.
• Shareholders' liability is limited to the value of their shares.
• There can be a minimum of three and a maximum of 11 directors.

Limited Liability Companies (LLC)

Some Characteristics of a limited liability company in Saudia Arabia:

• The equivalent of private limited companies and the most frequently opt company type
• There can be a minimum of one partner and a maximum of 50 partners
• No public listing is allowed; to list themselves on the Saudi Stock Exchange, they must first convert to a JSC
• Managed by a sole manager or a board of managers
• The liability of partners is limited to the share of the partners in the capital

These are the types of business vehicles that hold a legal standing in Saudi Arabia. You can choose a type which will help you conduct your business optimally. For any sort of company complying with the tax guidelines are necessary in Saudi Arabia. Read about Tax Services in Saudi Arabia here.

Choosing The Right Business Vehicle

Understanding the type of company that would be in coherence with your choice of business can be complicated. Our role here at Business Setup Worldwide is to guide you and provide advice to the best of our capabilities. Contact us; we would be more than happy to help.