Today (Tuesday), the Council of Ministers, headed by the Custodian of the Two Holy Mosques, King Salman bin Abdulaziz, approved the new corporate system, which contributes to stimulating and developing the commercial system.
The new system carries with it high flexibility to protect companies and empower the private sector, which enhances the sustainability of companies, supports investment in small and medium companies by facilitating procedures and regulatory requirements, and achieves greater diversity in the market by adding new corporate entities.
The system shall be effective 180 days following its publication in the Umm Al-Qura Official Gazette, and it also cancels the current Companies Law and the Professional Companies Law.
System goals
The new corporate regulation was prepared in light of international best practices; It addresses all the challenges facing the business sector, in partnership with many parties from the public or private sectors, and seeking the opinions of professional bodies, international organizations and specialized consulting offices.
The new Companies Law regulates all provisions relating to companies, whether commercial, non-profit or professional; This is to ensure that these provisions are available in a single legislative document, and by taking one of the forms of a joint liability company, a simple partnership company, a joint stock company, a simple joint stock company, or a limited liability company.
The system enables the conclusion of a family charter that regulates family ownership in the family business, its governance and management, work policy, employment of family members, distribution of profits, exit, and others. To ensure the sustainability of these companies, in addition to exempting micro or small companies from the auditor requirement.
facilitation of procedures
The new system reduced the statutory requirements and procedures for small, medium and micro companies. It also simplified the requirements and procedures for establishing companies, and gave flexibility to include special terms and conditions in the incorporation contracts of companies or their articles of association, and created possible mechanisms for entrepreneurs, venture capitalists, and private ownership.
The system removed many restrictions at all stages of establishment, practice and exit, as well as restrictions on company names, and allowed the limited liability company to issue debt instruments or negotiable financing instruments.
A new form of company was created called the “Simplified Joint Stock Company”, to meet the needs and requirements of entrepreneurship and venture capital growth.
It will also serve as an investment arm that enables non-profit companies to advance the third sector, stimulate social responsibility, and allow them to generate a return on their business and spend it on non-profit purposes.
More flexibility
The system developed the provisions of transformation and merger between companies, allowed the company to be divided into two or more companies, and allowed the owners of individual institutions to transfer their assets to any of the forms of companies.
To attract investment, the system allowed the issuance of different types of shares with varying categories and rights, privileges or restrictions, and the possibility of issuing shares allocated to employees to attract and motivate talent. It also allowed the distribution of profits temporarily or annually with governance that ensures that the company’s creditors obtain their rights.
The system also made it possible to implement procedures electronically through modern means of “remotely” communication, including submitting incorporation applications, attending general assemblies of shareholders or partners, and voting on decisions.
Conflict Resolution
The new system, which comes 6 years following the adoption of the previous system, provides means for resolving disputes and disputes by resorting to arbitration or other alternative means to settle them, in addition to developing provisions for the liquidation of the company and facilitating its procedures, in line with the provisions of the bankruptcy system.
Advantages of the system for professional companies
The system ensures that “non-professional investors” are allowed to participate in the company, to enable it to obtain financing and expand its business, and it also allows the company to practice more than one free profession according to regulated controls.
The partner or shareholder is also allowed to participate in another professional company practicing the same profession, and the company is allowed to own real estate assets and invest in securities.
Family companies
In addition to the possibility of concluding a family pact, the system included the possibility of including restrictions in the company’s articles of association for the disposal of shares for a certain period or requiring the approval of the company or shareholders before disposing of them.
The system stimulates family businesses to transform into a joint stock company by deciding that the shares are those who are related to them by kinship or lineage, in order to achieve sustainability and sound governance.
non-profit companies
The system guarantees several advantages for non-profit companies, as it has allocated a special section for them to activate their role, enable them, govern them, and control their banks.
It stipulated spending the profits of non-profit companies in banks and the areas stipulated in their articles of incorporation or articles of association, with the possibility of paying bonuses or any other benefits to the company’s employees.
