Companies Law in Saudi Arabia: Key Changes and Company Forms

What does the new Companies Law in Saudi Arabia change for your company, and is the deadline to regularise over?

The Companies Law in Saudi Arabia today is the law issued by Royal Decree No. M/132 dated 1/12/1443H, in force since 19 January 2023. It replaced the 1437H Companies Law and the Professional Companies Law in one text.

Its main changes are a new legal form (the simplified joint stock company), written family charters and partners’ agreements, single-person companies across more forms, debt instruments for limited liability companies and an auditor exemption for most micro and small companies.

Companies that existed before 19 January 2023 had two years to bring their documents in line with the Law. That period has ended, so any company still working under old articles of association should review them now.

You can book a consultation on WhatsApp with the team at Al-Safwa Law Firm for Advocacy and Legal Consultations to review your documents and explain your legal options clearly.

What is the Companies Law in Saudi Arabia?

The Saudi Companies Law is the legal framework for forming, managing, converting, merging and ending commercial and non-profit companies in the Kingdom. A company formed under it is a Saudi company with its head office in the Kingdom (Article 3). The Ministry of Commerce is the competent authority, except for joint stock companies listed on the capital market, which fall under the Capital Market Authority (CMA) (Articles 1 and 274).

The official English translation by the Bureau of Experts at the Council of Ministers is published on the Ministry of Investment (MISA) website. The Arabic text is the one that governs. The key dates are:

The Implementing Regulations for companies supervised by the Ministry were approved by Minister of Commerce Decision No. 284, published in Umm Al-Qura. For listed companies, the CMA approved the Implementing Regulation of the Companies Law for Listed Joint Stock Companies, also effective on 19 January 2023.

Key changes in the new Companies Law in Saudi Arabia

The new Companies Law in Saudi Arabia gives partners more freedom to organise their relationship by contract and reduces the regulatory load on small businesses. The changes most owners ask about are these:

Company forms under the Saudi Companies Law

Article 4 lists five forms for a company formed under the Law: general partnership, limited partnership, joint stock company, simplified joint stock company and limited liability company. The main difference between them is how far the partners are personally liable for the company’s debts.

The Law also covers non-profit companies (Part Seven), professional companies for licensed professions (Part Eight), holding companies and subsidiaries (Part Nine) and foreign companies, which work in the Kingdom through a branch, a representative office or another legal form under the foreign investment rules (Article 236).

The simplified joint stock company (SJSC)

A simplified joint stock company is a share company introduced by the 2022 Companies Law in which the shareholders organise the structure and decision-making in the articles of association. It has no minimum capital, the shareholders take the place of the ordinary and extraordinary general assemblies, and it can be owned by one person.

The rules in Part Five of the Law give the founders wide room to design governance:

• Structure by contract: the shareholders organise the company’s structure and operation in the articles (Article 138).
• No traditional general assemblies: shareholders replace the ordinary and extraordinary general assembly, and the articles can say who exercises those powers (Article 138).
• Flexible management: a president, one or more managers or a board, with powers set in the articles (Article 142).
• Reserved matters: shareholders must still decide on capital increases or reductions, conversion, merger, split, dissolution, appointing an auditor, the financial statements, profit distribution and amending the articles (Article 145).
• Meetings and circulation: notice of at least 5 days, meetings on request of shareholders holding 10% of voting shares, online meetings and written resolutions by circulation if the articles allow (Articles 146 and 149).
• Investor clauses: the articles may lock share transfers for up to ten years, require approval before a transfer, force a shareholder to sell at fair value and send disputes to arbitration (Articles 151 to 153). These clauses need the unanimous consent of the shareholders (Article 154).

SJSC or limited liability company: how founders usually decide

The choice depends on the growth plan and the partners, not on habit. If the project expects several investment rounds, employee shares or investor protection clauses, the SJSC is often the closer fit because its shares and governance can be shaped in the articles. A family business or a company with a small, stable group of partners may find a limited liability company enough.

Both forms give limited liability, so the decision is mainly about governance and future funding. It is worth settling before incorporation, because converting later means another set of resolutions and amendments. Our page on company formation and registration in Saudi Arabia explains how the setup is handled.

Family companies: the family charter and partners’ agreements

Article 11 allows founders, partners or shareholders, during incorporation or at any time after it, to sign two types of document:

• A partners’ agreement that regulates their relationship with each other or with the company, including how legal heirs come in, directly or through a company the heirs set up for that purpose.
• A family charter that regulates the family’s ownership of the company, its governance and management, business policy, employment of family members, dividend distribution, transfer of shares or stakes and the dispute settlement mechanism.

The charter or agreement is binding, but it cannot include anything that conflicts with the Law or with the company’s memorandum or articles of association. In practice this means the charter and the company documents must be drafted together, or the charter may fail exactly where it is needed.

A family charter deals early with the questions behind most family company disputes:

• the criteria for appointing family members to management;
• how stakes move between family members, and whether outsiders can join without consent;
• a way to settle disagreements before they reach the courts;
• the policy for distributing profits.

Its value shows most when a partner dies and the estate is divided. Note that a limited liability company does not end on the death of a partner unless its memorandum says otherwise (Article 184). If the company is part of an estate, see our page on inheritance and estate cases in Saudi Arabia.

Single-person companies

As an exception to the rule that a company has two or more partners, the Law allows a company to be formed by a single person (Article 2). This lets an entrepreneur or professional separate personal assets from business risk instead of trading as a sole proprietorship:

• One-person LLC: the owner holds the powers of the manager, the board and the general assembly, records decisions in a special register and may appoint managers (Article 157).
• One-person SJSC: the owner’s liability is limited to the capital allocated to the company, and decisions are written and recorded (Article 150).
• One-person JSC: specific rules apply when a joint stock company is formed by, or ends up owned by, one person (Article 98).

The protection only works if the company is run as a separate person. Keeping separate bank accounts and books, and not mixing company money with the owner’s money, matters as much as the legal form.

Partner and manager liability under the Companies Law

Limited liability protects partners and shareholders, not managers who break the rules. The Law sets out the duties of managers and board members and the consequences of breaching them.

Duties of care and loyalty

Under Article 26, a manager or board member must act within their powers, work in the company’s interest, decide independently, use reasonable care, avoid conflicts of interest, disclose any direct or indirect interest in company deals and refuse benefits from third parties linked to the position. Article 27 adds that, without approval of the partners, general assembly or shareholders, they may not have a personal interest in company contracts, compete with the company or use its assets, information or opportunities for themselves.

When managers and directors are liable

• Joint liability: managers and board members are jointly liable to the company, partners, shareholders or third parties for damage caused by breaching the Law or the company documents, or by negligence or fault. Any clause excluding this is void (Article 28).
• Dissent must be recorded: a member who opposed a majority decision escapes liability only if the objection is recorded in the minutes. Being absent is not an excuse unless the member did not know of the decision or could not object (Article 28).
• Insurance: the company may insure its managers or directors against liability arising from their role (Article 28).
• Who can sue: the company; partners or shareholders holding 5% of the capital on the company’s behalf if it does not act, after 14 days’ notice to management; and any partner whose own interests were harmed (Article 29).
• Time limit: except in fraud and forgery, the claim is not heard after five years from the end of the financial year of the act, or three years from the end of the manager’s service, whichever is later. A discharge by the partners does not block the claim (Article 30).
• Business judgement rule: a manager who decided in good faith, with no personal interest, reasonably informed and convinced the decision served the company, is treated as having met the duty. The claimant must prove otherwise (Article 31).

Liability can also arise before the company exists: people who act in the company’s name during incorporation are personally and jointly liable to third parties if incorporation is not completed as the Law requires (Article 9).

Losses of half the capital

A manager, board member or auditor who fails to call the assembly when losses reach these limits commits an offence under Article 261, punishable by imprisonment of up to one year and/or a fine of up to SAR 1,000,000. The most serious offences, such as knowingly falsifying financial statements or using company property against the company’s interest, carry up to three years and/or up to SAR 5,000,000 (Article 260). If losses lead towards dissolution, see our page on company liquidation in Saudi Arabia.

Auditor exemption for micro and small companies

Under the Companies Law in Saudi Arabia, every company must normally appoint a licensed auditor (Article 18). Article 19 exempts micro and small enterprises, except when:

1. the memorandum or articles of association require an auditor;
2. the company is listed on the capital market;
3. it issues debt instruments, negotiable sukuk, preferred or redeemable shares;
4. another law requires an auditor;
5. it is a foreign enterprise;
6. it is a holding company or a subsidiary, unless all companies in the group qualify as micro or small.

The company must be classified as micro or small in its first financial year after registration or for two consecutive financial years, under the criteria in the Implementing Regulations. Partners or shareholders holding at least 10% can still ask in writing for an auditor to be appointed. Even without an audit, the company must keep accounting records and prepare and submit its financial statements within six months of the year end (Article 17).

The transition period: regularising existing companies

Clause Third of Royal Decree No. M/132 required companies existing on 19 January 2023 to adjust their position to the Law within no more than two years from that date. That two-year period expired around January 2025, so it is no longer available.

The Ministry of Commerce and the CMA explained how this worked in a joint statement on implementing the new Companies Law dated 4 January 2023 (also published on the Ministry of Commerce website):

• New companies formed after 19 January 2023 were subject to the whole Law from day one.
• The grace period did not cover rules carried over from the 1437H law, offences and penalties, or procedural obligations on the company and its management. These applied immediately.
• Examples of rules that did get the grace period are Articles 36, 52, 61 and 158 (the required contents of the memorandum or articles for each form). Article 68(1) on boards applied at the end of the current board term or after two years, whichever came first.
• Rules applying from 19 January 2023 include accounting records, auditor independence, duties of care and loyalty, conflicts of interest, board and general assembly meetings, losses (Articles 132 and 182), dismissal of LLC managers, holding companies and liquidation.
• During the period, an existing company could not create any new legal position that contradicted the Law. If it amended its documents, it had to align every provision that needed changing.

Regularisation checklist for a company with old documents

1. Compare the memorandum or articles of association with the contents required for your form (Articles 36, 52, 61, 140 or 158).
2. Check management provisions against Articles 26 to 31 and, for an LLC, the manager rules in Articles 160 to 164.
3. Review clauses on share transfers, pre-emption and exits (for example Articles 178 and 181 for LLCs).
4. Decide whether to add a partners’ agreement or family charter under Article 11, drafted to match the new documents.
5. Pass the amendment resolution with the required majority, which for an LLC is at least three quarters of the capital unless the memorandum requires more (Article 172).
6. Register the amended documents in the commercial register. Amendments take effect against third parties only after registration (Article 8).

A company still running on unaligned documents risks disputes over the validity of its decisions and problems with banks and government bodies. Drafting the amendments and any shareholder agreements together reduces that risk; see our page on corporate contracts in Saudi Arabia.

The Companies Law and the new Commercial Register Law

A company acquires legal personality once it is registered in the commercial register (Article 9). Since 3 April 2025 that register is governed by the Commercial Register Law issued by Royal Decree No. M/83 dated 19/3/1446H, together with the Law of Tradenames.

For the full procedure, see our guide to commercial registration in Saudi Arabia.

Practical scenarios

A start-up planning investment rounds

Three founders of a tech app plan two investment rounds within two years. An SJSC lets them set share classes, transfer restrictions and decision rules for incoming investors in the articles, without the formalities of traditional general assemblies. The investor clauses under Articles 151 to 153 need every shareholder’s consent, so they are easier to agree at the start.

A two-generation family company

A father and four children own a company and worry about disputes when management passes to the next generation. A family charter under Article 11 can set the criteria for management roles, how stakes pass between family members and how disagreements are settled, with the company documents amended to match.

A suspended commercial registration

A business owner did not complete the annual confirmation of the commercial registration. After 90 days and a warning, the registration was suspended. Lifting the suspension within the year, by confirming the data and paying what is due, avoids strike-off or the dissolution route.

Common mistakes under the new Companies Law

• Assuming the old memorandum or articles are still valid without checking them against the Law.
• Choosing the legal form out of habit rather than the funding and growth plan.
• Waiting for a family dispute before writing a family charter.
• Writing a family charter or partners’ agreement that conflicts with the company’s own documents.
• Mixing a one-person company’s money with the owner’s personal money.
• Managers voting against a decision without recording the objection in the minutes.
• Ignoring losses that reach half the capital and missing the 60-day deadline.
• Neglecting the annual confirmation of the commercial registration until it is suspended.

Frequently Asked Questions about the Companies Law in Saudi Arabia

The Companies Law in Saudi Arabia gives owners more choice of legal form, more freedom to set rules by contract and lighter obligations for small companies, but it also makes managers clearly accountable for their decisions. The transition period has ended, so any company with older documents should check them against the Law now.

The practical next step is to compare your memorandum or articles of association with the requirements for your company form and to decide whether a partners’ agreement or family charter is needed. Al Safwa Law Firm in Jeddah helps clients choose the legal form, draft articles, family charters and partners’ agreements and review regularisation, including remotely; learn more about our corporate lawyer service.

To get a legal consultation from our team, contact us via the WhatsApp button at the bottom of the screen.

Read also:

• Corporate lawyer in Jeddah

Sources:

• Companies Law, Royal Decree No. M/132 dated 1/12/1443H (official translation, Bureau of Experts at the Council of Ministers, hosted by MISA): Articles 1 to 4, 8, 9, 11, 17 to 19, 26 to 31, 35, 51, 58, 59, 98, 132, 138 to 160, 172, 179, 182, 184, 236, 260, 261 and 277 to 281.
• Ministry of Commerce and Capital Market Authority: mechanism of implementing the new Companies Law (4 January 2023).
• Ministry of Commerce news: how the new Companies Law will be implemented (4 January 2023).
• Umm Al-Qura: Minister of Commerce Decision No. 284 approving the Implementing Regulations of the Companies Law.
• CMA: Implementing Regulations of the new Companies Law for listed joint stock companies (18 January 2023).
• Commercial Register Law, Royal Decree No. M/83 (official translation).

Legal Consultant Mostafa Diab

A legal advisor holding a Bachelor’s degree in Law from the prestigious Cairo University. He possesses extensive experience spanning over 25 years in criminal, civil, and family law, during which he has achieved notable accomplishments that have solidified his reputation as a valuable asset to any legal team