How to Establish a Simplified Joint-Stock Company

The Kingdom of Saudi Arabia consistently endeavors to enhance and innovate its legal framework to bolster investment, attract capital inflows, foster economic growth, and establish laws that align with the Kingdom's Vision 2030.

One of the most significant developments in the Saudi corporate laws is the discontinuation of the legal entity known as the Joint Partnership Company and the introduction of a modern legal entity, the Simplified Joint-Stock Company. This new form of company, established under Royal Decree No. (M/132) issued by the Saudi Royal Authority on 12/1/1443 AH, incorporates certain provisions similar to those of a joint-stock company. Below, we will delve into the explanation of the following:

•             Regulations governing Simplified Joint-Stock Companies and their capital.

•             Required documents for establishing a Simplified Joint-Stock Company.

•             Evaluation of in-kind contributions for the Simplified Joint-Stock Company.

•             Management of the Simplified Joint-Stock Company and the responsibilities of management.

•             Shareholders' meetings and the convocation of such meetings.

•             Issuance of shareholder decisions for approval.

•             Single-person Simplified Joint-Stock Company.

•             Handling of shareholders' shares in the company and the restrictions imposed on them.

The Simplified Joint-Stock Company is defined as a company that is similar to a regular joint-stock company, founded by one or more individuals without a minimum capital requirement. This makes it an ideal type of company for small and emerging businesses. The Simplified Joint-Stock Company stands out for its lower risk profile because the liability of shareholders is limited to the value of the shares they have subscribed to.

The differences between a Joint-Stock Company and a Simplified Joint-Stock Company in the Kingdom of Saudi Arabia are as follows:

•             The Simplified Joint-Stock Company stands out for its simple and quick establishment procedures, which can be accomplished through electronic steps via the "Tasseees" platform. In contrast, establishing a Joint-Stock Company involves more complex procedures, including obtaining approval from the Ministry of Commerce and Investment, providing a specified capital, and appointing auditors.

•             A Joint-Stock Company must have a minimum specified capital set by law, which is 500,000 Saudi Riyals. On the other hand, a Simplified Joint-Stock Company has no minimum capital requirement, making it suitable for startups and small businesses.

•             A Joint-Stock Company is managed by a board of directors elected by the general assembly of shareholders, whereas a Simplified Joint-Stock Company can be managed by a president, a manager, or a board of directors, without specific requirements for holding general assembly meetings. In general:

•             A Joint-Stock Company is a suitable option for large companies seeking to attract significant capital from multiple investors.

•             A Simplified Joint-Stock Company is an ideal choice for startups and small businesses looking for easy establishment, management, and cost-effectiveness.

The regulations for Simplified Joint-Stock Companies and capital are as follows:

•             Simplified Joint-Stock Companies align some of their provisions with Joint-Stock Companies. Shareholders in a Simplified Joint-Stock Company structure and operate the company according to its bylaws. Shareholders in a Simplified Joint-Stock Company replace the ordinary and extraordinary general assembly of a Joint-Stock Company based on the applicable provisions for Simplified Joint-Stock Companies. Shareholders specify who will undertake these responsibilities in the company's bylaws. The chairman of the board of directors or the manager of the Simplified Joint-Stock Company exercises all the functions prescribed for the chairman and members of the board of directors of the Joint-Stock Company, replacing them.

•             The issued and paid-up capital of the Simplified Joint-Stock Company is determined by its bylaws. The bylaws may state that the company has an authorized capital, but the minimum capital requirement imposed on Joint-Stock Companies does not apply to Simplified Joint-Stock Companies.

The required documents for establishing a Simplified Joint-Stock Company include the following:

•             The company's bylaws should include the following information: company name, headquarters location, purpose of the company, authorized, issued, and paid-up capital, number of shares, types and classes of shares (if applicable), nominal value, and associated rights for each type or class, company duration, company management and related provisions, share transfers, shareholders' meetings and the required quorum for valid assembly, shareholder resolutions and the necessary quorum for passing resolutions, start and end date of the company's financial year, any additional provisions, conditions, or data agreed upon by founders or shareholders to be included in the bylaws within the framework of the law.

•             The application for company incorporation should be accompanied by the following documents: names, addresses, and nationalities of founders, a statement of anticipated business activities and expenses for company establishment, founders' subscription to all company shares and the amount paid for them, certificate of deposit of the paid-up share capital in one of the licensed banks in the Kingdom of Saudi Arabia, founders' decision to appoint the company's president, manager, or board of directors including their names, nationalities, addresses, and dates of birth, founders' commitment to comply with all relevant legal requirements for company establishment, a statement or report prepared by one or more accredited appraisers detailing the fair value of any in-kind contributions (if applicable), and approval from the other founders on the specified consideration for the in-kind contributions.

Article 141 of the Saudi Companies Law stipulates the following regarding the evaluation of in-kind contributions for a Simplified Joint-Stock Company:

1.            If in-kind contributions are presented during the establishment or capital increase of a Simplified Joint-Stock Company and their value does not exceed half of the company's capital, they do not need to be evaluated by a certified appraiser unless otherwise agreed upon by the founders or shareholders.

2.            If the value of in-kind contributions exceeds half of the company's capital during the establishment or capital increase of a Simplified Joint-Stock Company, they must be evaluated by one or more certified appraisers. The evaluation report must specify the fair value of these contributions, and the report should be presented to the founders or shareholders for deliberation. The contributors of the in-kind contributions do not have the right to vote on the report prepared for them. If the founders or shareholders decide to reduce the specified consideration for the in-kind contributions, consent from the contributors for the reduction is required.

3.            The period between the issuance of the appraisal report for the fair value of in-kind contributions and the issuance of shares against those contributions should not exceed 15 days.

4.            If in-kind contributions are not evaluated by a certified appraiser or are not valued according to the designated appraiser, the shareholders or founders are personally liable for all their funds in case of discrepancies in the report on contributions' fairness and payment of the cash difference to the company. Claims in such cases cannot be heard after five years from the date of the company's registration in the commercial registry or its capital increase, depending on the circumstances.

Management of a Simplified Joint-Stock Company and management responsibilities are outlined as follows:

1.            The management style of a Simplified Joint-Stock Company is determined by its bylaws. The management can be undertaken by a president, a manager, a board of directors, or others, as specified in the company's bylaws regarding appointment, dismissal, limits of authority, powers, and operational methods. If the bylaws do not cover these aspects, shareholders are responsible for these decisions.

2.            The president, manager, or board of directors of the company holds all the powers necessary to manage the company to achieve its objectives, except for matters excluded by specific provisions in the Saudi law or the company's bylaws that fall within the shareholders' jurisdiction. The president or manager has the right to delegate tasks to others for specific actions, and the board of directors may delegate such authority as well.

3.            The chairman of the board, president of the company, or the company's manager represents the company in front of the judiciary, arbitration bodies, and others, with the right to delegate representation if allowed by the bylaws.

4.            The Simplified Joint-Stock Company is bound by all actions and transactions carried out by the president, manager, or chairman of the board in its name, even if they exceed their authority unless the counterparty is acting in bad faith and the actions are beyond their scope of authority.

5.            The specific provisions regarding the board of directors' liabilities apply to the president, manager, or chairman of the board of a Simplified Joint-Stock Company.

•              The agenda to be presented to shareholders for decision-making in a Simplified Joint-Stock Company is determined by the company’s bylaws, specifying the conditions set forth by the bylaws.
•             Shareholders are responsible for decisions that fall within the purview of the ordinary or extraordinary general assembly of the Simplified Joint-Stock Company regarding matters such as capital increase or decrease, company transformation, merger or division, dissolution, appointment of auditors, financial statement discussion, profit distribution, or amendment of the bylaws.
•              The necessary quorum for the validity of shareholders' meetings and decision-making, along with the possibility of setting different quorums for specific matters, is determined in the company’s bylaws. Matters requiring a unanimous decision from the shareholders must be agreed upon by consensus.
•              Shareholders' meetings in a Simplified Joint-Stock Company are convened by the president, manager, or board of directors in line with the company’s bylaws. Additionally, the meeting may be called upon by the external auditor, one or more shareholders representing at least 10% of the company's voting rights.
•             Shareholders must be notified at least five days before the meeting, specifying the location, date, time, agenda items, and a secondary meeting location and date in case of a lack of quorum at the initial meeting.
•              Shareholders receive notice via registered mail to their registered addresses or through modern technological means unless the bylaws stipulate otherwise.
•              Shareholders have the right to access all relevant information and documents related to matters being discussed at the meeting at least five days before the meeting unless specified otherwise in the bylaws.
•              Shareholders' meetings are held at the company's headquarters or another specified location, and virtual meetings are permissible through modern technological means.
•              Shareholders representing all shares with voting rights in the company may hold meetings without adhering to formalities or the specified notification period.
•              Financial statements, financial position, and activity reports for each financial year are prepared by the president, manager, or board of directors within six months from the end of the financial year, including profit distribution methods, and presented to the auditor and shareholders.
•              Decisions made at shareholders' meetings and minutes are recorded in the company's registry book, signed by the president, manager, or board of directors as applicable, with the option to use modern technological means for documentation.
•              The company’s president, manager, or board of directors must register shareholders' decisions in the commercial registry within 15 days of issuance.

•              The possibility of issuing shareholder meeting resolutions by written consent is permitted if specified in the company's bylaws, allowing decisions to be made without the need for physical assembly. The proposed resolutions and the required actions for approval are sent to shareholders by the company's president, manager, or board of directors. The bylaws must outline the necessary quorum for the validity of resolutions by written consent.
•              If the bylaws provide alternative means of notification to shareholders, the proposed resolution and related documents can be sent via registered mail, handed personally to the shareholders or their representatives, emailed, or through other modern technological means.

Article 150 of the Saudi Companies Law stipulates the following regarding a Single-Person Simplified Joint-Stock Company: In the case of establishing a Single-Person Simplified Joint-Stock Company, or if all its shares are owned by a single individual, the following implications arise:

•             The liability of this individual is limited to the amount of capital designated and allocated for the company.

•             The individual has the rights and authorities of shareholders as prescribed by law. Their decisions are made in writing and recorded in the company's registry book.

1- According to the company's bylaws, it may be specified that the disposal of shareholders' shares is not allowed within 10 years from their issuance date. The period can be extended with the unanimous agreement of the shareholders. Prior approval from the company or shareholders is required before any transaction, and any disposal made in contravention of these rules is considered null and void. 2- The company's bylaws may stipulate that shareholders are obliged to relinquish their shares, with the value estimated according to the fair market value. It may also specify the suspension of accompanying rights to the shares, except for financial rights, until the transfer occurs, unless the bylaws state otherwise. 3- The company's bylaws may provide for arbitration or other alternative dispute resolution mechanisms in case of conflicts between the shareholders and the company, excluding criminal actions.

Conclusively, we find that the developments in the Saudi Companies Law work continuously and innovatively to achieve the Kingdom's Vision 2030, whether through the complete independence of the legal entity established for the Simplified Joint-Stock Company and its shareholders, or through the flexibility of its provisions. This emphasis underscores the ongoing growth of the economy in the Kingdom of Saudi Arabia. We, as a legal institution with expertise in the Saudi legal laws and its provisions, are dedicated to facilitating all matters related to the establishment of Simplified Joint-Stock Companies within the Kingdom, catering to both Arab and foreign investors. Thus, the Al-Saadani & Khalifa Legal Consultancy is delighted to be your partners in success and perpetual development. Please feel free to reach out with any inquiries at your convenience.