The new Saudi corporate law as a shuttle for change in Riyadh
The new Saudi legal draft on corporate law represents an adaptive challenge for companies located in the country and an opportunity to modernize the Saudi business structure.
Last May Saudi Arabia enacted a new Companies Act that will have an enormous impact on the business, financial and investment structure of the country. In fact, this new law is accompanied by numerous legal regulations for its implementation; most of which are still under consultation.
This whole series of structural and legal changes are being monitored by the Saudi Ministry of Commerce and Investment (MOCI) and the Saudi Arabia General Investment Authority (SAGIA), under the project of economy diversification and attracting foreign investment. This project has been designed by the Saudi government through plans, such as the National Transformation Plan 2020 and the Saudi Vision 2030, in anticipation of an economic future characterized by low oil prices.
But, what does this new law implies? With a set transition period of twelve-months (Art. 224), in which national and foreign companies will have to adapt to the new legal framework, the effects of this rule could be broken up into three fields:
Firstly, in the constitutional and business management itself (both, Limited Liability Companies -LLC-, as well as joint stock companies -JSCs) because, although the presentation of the statutes is not compulsory, getting MOCI’s approval will be highly recommended.
With regard to management, the new law modifies the deadline for financial statements filing, introduces changes in the statutory pre-emption process, determines that the statutory reserve will be suspended when reaching 30% of the capital, and includes new procedures in case of losses (Art. 121).
Other business management aspects will be regulated as well, such as shareholders meetings (Art. 90), the cumulative voting for board elections (Art. 95), remunerations (Art. 76) and audits (Arts. 101-104).
Secondly, finance and foreign investments. This new law will encourage the establishment in the country of up to 100% of trading business that established companies currently own abroad, as well as to regulate aspects such as the use of technology by companies, buy-back shares, and preferred shares.
Thirdly and last, in the field of corporate governance this law introduces changes based on the regulations of good practice. In this way, both, joint stock companies, as well as those companies staked by the Saudi Royal Family will have to adapt themselves.
The new Saudi Corporate Law represents a modernization of the corporate structure of Saudi Arabia, as well as an organizational and regulatory challenge for all companies based in the country, that will undoubtedly facilitate the arrival of new investments and put an end to the ballast of traditional Saudi state administrative obstacles.
If you have legal questions about your investments in Saudi Arabia and other Persian Gulf countries such as Qatar, please do not hesitate to contact us at email@example.com.
Del Canto Chambers’ Editorial Board