How to Establish a Limited partnership company in the Kingdom of Saudi Arabia

In light of the Royal Commission in the Kingdom of Saudi Arabia's endeavors to enhance the investment environment and provide all necessary facilities to attract numerous investments to the Kingdom, while working towards integrating personal and financial considerations within a unified legal entity, one of the most favorable legal entities in this regard is the Limited partnership company. This company was established in accordance with Royal Decree No. (M/132) dated 1-12-1443 AH. The following are the guidelines for establishing a Limited partnership company:

• The concept of a Limited partnership company.

• Authorities of the dormant partner in the Limited partnership company.

• Partner decisions and share transfer.

• Dissolution of the Limited partnership company .

The concept of the Limited partnership company:

It is a company composed of two teams of partners. One team includes a natural or juridical partner who is liable for all their funds and jointly liable for the company's debts and obligations. The other team includes a natural or juridical partner who recommends and is not liable for the company's debts and obligations except to the extent of their share in the company's capital.

- The dormant partner does not acquire the status of a merchant.

- The joint partners in the Limited partnership company are subject to the provisions governing partners in a partnership company.

- The provisions of a partnership company apply to the Limited partnership company in the absence of specific provisions.

Powers of the dormant partner in the Limited partnership company:

1. The dormant partner, or their delegate, has the right to review the company's operations twice during the fiscal year, examine its records and documents, and prepare a concise statement regarding the company's financial position based on these records and documents.

2. The dormant partner is not permitted to intervene in external management affairs, even with power of attorney. Any such intervention renders them personally liable for all their funds and jointly liable for the company's debts and obligations resulting from their actions.

However, the dormant partner may intervene in the company's internal management affairs as stipulated in the founding contract. This intervention does not create any personal obligations unless the actions taken lead third parties to believe they are a full partner, in which case they are considered personally liable for all their funds and jointly liable for the company's debts and obligations in relation to those third parties.

- The joint partners and  dormant partners may agree in the company's founding contract for the company to have a general assembly, define its powers, and establish its meeting procedures.

Partner Resolutions and Transfer of Shares:

Except as provided in the company's founding contract, company resolutions are made as follows:

1. Regarding decisions relating to amending the founding contract, decisions are made unanimously by the joint partners and with the consent of the owners of the majority of the capital owned by the dormant partners.

2. For other decisions, decisions are made by the numerical majority of the joint partners.

3. The dormant partner is not allowed to request the dissolution of the company or participate in voting on matters related to the appointment or removal of its director.

4. The dormant partner can transfer all or part of their shares to other partners in the company, or transfer them to third parties after obtaining the consent of all joint partners and the owners of the majority of the capital owned by the dormant partners.

5. The joint partner can transfer all or part of their shares in favor of a dormant partner or to third parties after obtaining the consent of all joint partners and the owners of the majority of the capital owned by the dormant partners.

6. If the dormant partner does not present their share in the company's capital by the due date before transferring it, the transferee becomes responsible for providing it.

7. It is permissible for new joint partners or  dormant partners to enter the company with the consent of all joint partners without the need to obtain the consent of the  dormant partners.

Termination of the Limited partnership company:

The Limited partnership company does not terminate upon the death, incapacitation, insolvency, withdrawal of any of the  dormant partners, or the commencement of liquidation proceedings in accordance with the insolvency regulations, unless specified in the company's founding contract.

In conclusion, limited partnership Companies remain the optimal choice for the dormant partner to alleviate the burden of legal and financial responsibility within the company compared to joint partners, whose liability is absolute. This is in line with the Kingdom of Saudi Arabia's efforts to address this through the provisions and regulations of the Saudi Companies Law.

We, as a legal institution with expertise in Saudi law and its provisions, continuously strive to facilitate all aspects related to the establishment of limited partnership Companies within the Kingdom of Saudi Arabia for both Arab and foreign investors.

Therefore, Sadany & Khalifa Law Firm is delighted to be your partners in success and ongoing development.