The Companies Law, issued by Royal Decree No. M/132 dated 1/12/1443 AH corresponding to 4/7/2022 CE, opens the door to only five forms of commercial companies in Saudi Arabia, which differ from one another in terms of liability, share capital, and method of management. Meanwhile, the Investment Law, issued by Royal Decree No. M/19 dated 5/2/1446 AH corresponding to 11/8/2024 CE, regulates the entry of the foreign investor into the Saudi market on equal footing with the domestic investor, after this Law abolished the requirement of obtaining a prior investment licence and replaced it with a simplified registration with the Ministry of Investment. With both Laws entering into force, the decision to incorporate a company in Saudi Arabia has become closer to a strategic decision in choosing the appropriate legal form, rather than a routine procedure, since this choice has a direct impact on the amount of capital required, the extent of the partner's or shareholder's liability for the company's debts, and the method of managing it and disposing of its shares in the future.
This article addresses the incorporation of companies in Saudi Arabia from a practical angle: the five company forms and what distinguishes each one, the incorporation and registration steps with the commercial register from choosing the commercial name to acquiring legal personality, then the path of registering the foreign investor under the new Investment Law, the share capital required for each form of company, and the most prominent obligations that follow the incorporation stage directly.
The preliminary answer can be summarised in a single sentence: a company in Saudi Arabia takes one of five forms: the general partnership, the limited partnership, the joint stock company, the simplified joint stock company, and the limited liability company. Its incorporation is completed by submitting an application, accompanied by the memorandum of association or the articles of association, to the commercial register to acquire legal personality upon registration. The foreign investor no longer needs a prior investment licence but is only required to register with the Ministry of Investment under the new Law, with the minimum paid-up capital requirement of five hundred thousand riyals continuing to apply to the joint stock company alone, and not to the other forms, as we detail in the following sections.
The Regulatory Framework for Incorporating Companies in Saudi Arabia
The incorporation of companies in Saudi Arabia derives its foundation from two main documents: the Companies Law, which regulates the legal form of the company, its memorandum or articles of association, its management, and its dissolution regardless of the partner's nationality, and the Investment Law, issued by Royal Decree No. M/19, which replaced the old Foreign Investment Law issued in 1421 AH and established the principle of equal treatment between the domestic and foreign investor in conducting economic activity, with the exception of a limited number of activities to be determined by a resolution of the Council of Ministers. The Introductory Chapter and the First Chapter of Part One of the Companies Law (Articles 1 to 15) set out the general provisions common to all forms of companies: the definition of the company and its Saudi nationality, the five permissible forms, the company's name, the application for its incorporation and its documents, and the share of the partner or shareholder therein.
The two documents must be read together, not separately: the Companies Law determines "how" the company is incorporated whoever its owner may be, while the Investment Law determines "who" is entitled to be an investor and by which procedure his activity is registered. This division between the two laws is what explains why a foreign partner today can choose any of the same five forms of companies available to a Saudi, after merely satisfying the requirement of registering with the Ministry of Investment, without a prior licence according to the activity.
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The Five Company Forms under the Saudi Companies Law
The First Chapter of Part One of the Companies Law (Incorporation of the Company) confines the company forms that may be incorporated under its provisions to five forms and no more: the general partnership, the limited partnership, the joint stock company, the simplified joint stock company, and the limited liability company. It is not permissible to incorporate a company in an innovative form outside this list.
General Partnership and Limited Partnership
The general partnership is based on partners who are personally and jointly and severally liable, in all their assets, for the company's debts and obligations, and each of them acquires the status of a merchant. This makes it a form rarely used commercially today despite the simplicity of its incorporation by a contract among the partners without a minimum share capital. The limited partnership approaches it with a fundamental difference: there is a group of general partners who are jointly and severally liable in all their assets, and another group of limited partners whose liability does not exceed their shares in the capital, without acquiring the status of a merchant or intervening in the external management of the company.
Joint Stock Company
It is the only legal form for which the Companies Law requires a minimum issued share capital of five hundred thousand riyals, provided that the amount paid in at the time of incorporation is not less than one-quarter of that value. Its capital is divided into tradable shares, and the shareholder's liability therein is limited to the value he has subscribed. It is managed by a board of directors of not fewer than three members. This form is the most suitable for projects that later plan to go public or to bring in a large number of investors and partners.
Simplified Joint Stock Company
The Companies Law introduced it to be a lighter alternative to the traditional joint stock company. It is not subject to the minimum capital requirement prescribed for the joint stock company, and shareholders are given broad freedom to organise the company's structure and method of work within its articles of association, with the possibility of incorporating it from a single person. It is the option most often preferred by foreign investors and start-ups seeking governance flexibility without the burden of high capital.
Limited Liability Company
It is the form most commonly used in practice among small and medium-sized companies and foreign branches alike. It may be incorporated from one person or more, its financial estate is independent from the estates of the partners, and a partner is not liable for the company's debts except to the extent of his share in the capital, without a strict minimum capital requirement, with the capital instead proportionate to the nature of the activity itself. It is managed by one or more managers appointed by the partners in the memorandum of association or by a separate contract.
Steps of Incorporating the Company and Registering with the Commercial Register
The Articles 5 to 9 of the Companies Law determine the incorporation path from choosing the commercial name to acquiring legal personality:
- Choosing the commercial name: it may be derived from the company's purpose, or be a distinctive name, or be the name of one of the current or former partners, subject to his consent or the consent of his heirs, with the name accompanied by what indicates the form of the company.
- Preparing the memorandum of association or the articles of association: this varies according to the form of the company (a memorandum of association for the general partnership, the limited partnership, and the limited liability company, and articles of association for the joint stock company and the simplified joint stock company), and it must be written in Arabic, otherwise it is void.
- Submitting the incorporation application to the commercial register: accompanied by the necessary data and documents according to the form of the company. The commercial register is obliged to decide on a complete application, with the right to appeal before the Ministry of Commerce within sixty days in the event of refusal.
- Registration and acquisition of legal personality: the company acquires legal personality after its registration at the commercial register, and from that date all the contracts and acts concluded by the founders for its account during the incorporation period transfer to it.
- Obtaining the operating licences: the company carries out its purposes after registration and after obtaining the necessary licences from the competent authorities according to the nature of its activity, if any.
Incorporating Companies for Non-Saudis: Registration Instead of Licensing
The Investment Law, issued by Royal Decree No. M/19 on 5/2/1446 AH, fundamentally changed the rules of the game for the foreign investor: whereas previously establishing any foreign activity required obtaining a prior investment licence from the Investment Authority (later the Ministry of Investment) for each activity separately, the new Law replaced this licence with a single registration with the Ministry of Investment covering the investor's activities across more than one sector without the need for a separate licence for each activity. The Executive Bylaw of the Law established a "National Investors Registry" to document the data of registered investors. The Law is based on the principle of equal treatment between the domestic and foreign investor in practising economic activity, with the exception of a limited list of exempted activities to be specified by a resolution of the Council of Ministers based on objective criteria that take into account the protection of sensitive and strategic sectors.
From a practical standpoint, the foreign investor must still choose one of the same five forms for his company and satisfy the registration procedures with the commercial register according to the form chosen. However, the fundamental difference is that he no longer needs to wait for a separate investment licence before commencing these procedures; rather, he registers his activity with the Ministry of Investment and then completes the usual incorporation procedures, while remaining subject to periodic updates to his registration data in accordance with what is determined by the Executive Bylaw.
The Share Capital Required for Each Form of Company
The Companies Law does not impose a single uniform minimum share capital on all forms, but rather distinguishes clearly between them: Article 59 of the Companies Law requires that the issued capital of a joint stock company not be less than five hundred thousand riyals, and that the amount paid in at the time of incorporation not be less than one-quarter of that value, while the article specific to the simplified joint stock company expressly provides that this minimum does not apply to it, and the same applies to the limited liability company, the amount of whose capital the partners determine in the memorandum of association without a strict minimum requirement. This makes the choice of the legal form a direct tool for controlling the amount of capital required upon commencing activity.
The Obligations That Follow Incorporation Directly
The legal path of the company does not end with registration at the commercial register; rather, immediate obligations arise from it that many founders overlook: determining the company's fiscal year in the memorandum of association or the articles of association, not exceeding twelve months; preparing annual financial statements in accordance with the accounting standards approved in the Kingdom and depositing them within the legal deadline; appointing a licensed external auditor unless the company is among the micro or small companies exempted from this obligation; in addition to completing registration with the relevant authorities according to the company's activity (such as the Chamber of Commerce, the General Organisation for Social Insurance, and Zakat and Taxation), and obtaining the municipal or sectoral licences necessary for actually carrying out the activity.
Why Investors Choose Novalegal to Incorporate Their Companies in Saudi Arabia
Most founders, whether Saudis or foreign investors, face the same moment of hesitation: which of the five forms serves the project's real growth plan after three or five years, not only at incorporation? Is the additional capital in the joint stock company worth the trouble of providing it now in exchange for less flexibility, or does the simplified joint stock company or the limited liability company achieve the purpose with lighter cost and governance? At Novalegal for Legal Consultancy and Advisory Services, we treat this decision as a strategic consultation before being a paper procedure: we review with you the nature of the activity, the partners' plan, and the amount of available capital to recommend the most suitable legal form, then we undertake the drafting of the memorandum of association or the articles of association, follow up the registration at the commercial register, and complete the registration of the foreign investor with the Ministry of Investment when the partner is non-Saudi, up to obtaining the necessary operating licences to actually commence the activity without a procedural delay that postpones the project's launch.
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Official Sources and References
This article is based on the following official legal sources, which are the reliable reference for the provisions set out above, and it is always advisable to refer to them for the complete texts and the latest updates:
- Companies Law issued by Royal Decree No. M/132 dated 1/12/1443 AH – Official Gazette (Umm Al-Qura)
- New Companies Law – Ministry of Commerce (Regulatory overview and practical applications)
- Saudi Ministry of Investment (MISA) – Investor registration portal and investor guide
Methodological note: The provisions set out in this article are presented in a clarifying wording derived from the official texts cited above. It is always advisable to refer to these sources directly or to consult the Novalegal team before taking any decision related to incorporating a company, to verify any subsequent updates to the texts and their effect on the resulting obligations.
Frequently Asked Questions about Incorporating Companies in Saudi Arabia
How many company forms are permissible under the Saudi law?
The Saudi Companies Law confines the company forms to only five forms: the general partnership, the limited partnership, the joint stock company, the simplified joint stock company, and the limited liability company. It is not permissible to incorporate a company in a form outside this list.
What is the minimum share capital required to incorporate a company in Saudi Arabia?
There is no single uniform minimum; the Companies Law requires a minimum of five hundred thousand riyals for the joint stock company only, while this minimum does not apply to the simplified joint stock company or to the limited liability company, since the partners determine the capital in a manner appropriate to the nature of the activity.
Does the foreign investor need an investment licence to incorporate a company in Saudi Arabia?
That is no longer required; the Investment Law, issued by Royal Decree No. M/19, abolished the requirement of the prior investment licence and replaced it with the registration of the foreign investor with the Ministry of Investment, a single registration that covers his activities without the need for a separate licence for each sector, with the exception of a limited list of exempted activities by a resolution of the Council of Ministers.
When does a company acquire legal personality in Saudi Arabia?
A company acquires legal personality after its registration at the commercial register, and from that date all the contracts and acts concluded by the founders for its account during the incorporation period transfer to it, along with its bearing of the expenses they incurred in the course of this incorporation.
What is the difference between the joint stock company and the simplified joint stock company?
The two companies share the division of capital into shares and the shareholder's limited liability to the value he has subscribed. However, the joint stock company is subject to a minimum share capital of five hundred thousand riyals and to more detailed governance (a board of directors and general assemblies), while the simplified joint stock company is exempted from this minimum and grants shareholders broader freedom in organising their structure within the articles of association, and may be incorporated from a single person.
Can a company be incorporated in Saudi Arabia with only one partner?
Yes; the Companies Law permits the incorporation of the joint stock company, the simplified joint stock company, and the limited liability company from a single person. This person then holds the powers and authorities of the general assembly or shareholders prescribed for each form, and his decisions are issued in writing without the need to convene a general assembly.
Conclusion: Correct Incorporation Is the Foundation of Safe Growth
The path of incorporating companies in Saudi Arabia can be summarised in three interconnected stages: choosing the legal form from among the five available forms in a manner appropriate to the amount of available capital, the acceptable degree of liability, and the future growth plan; then completing the registration procedures with the commercial register from the commercial name and the memorandum of association up to acquiring legal personality; and finally registering the foreign investment when one of the partners or shareholders is non-Saudi, after this registration has become simpler and faster than the previous licensing system. At Novalegal for Legal Consultancy and Advisory Services, we accompany entrepreneurs and domestic and foreign investors at every one of these stages, from choosing the optimal legal form and drafting the memorandum of association, up to completing registration and obtaining the operating licences, so that your company launches on a sound legal foundation from day one.