Legal Developments

Announcement of New Companies Law

The Regulations for Companies, enacted by Royal Decree no. M/6 dated 22/3/1385H. corresponding to 22/7/1965G., is the main source of codified legislation governing the establishment, operation and liquidation of corporate vehicles under Saudi Arabian law. 

Enactment and effective date

Earlier this year, the Council of Ministers and the Shoura Council approved the adoption of a new Companies Law that would completely replace the existing Regulations for Companies.

This month, the Saudi Arabian authorities announced that the new Companies Law would soon be adopted pursuant to a Royal Decree to be issued by the Custodian of the Two Holy Mosques, King Salman.

The Ministry of Commerce and Industry promptly published a draft of the new Companies Law on its website. The draft of the new Companies Law states that its provisions will come into effect 150 days after its publication in the Official Gazette. At the time of writing, a Royal Decree approving the new Companies Law has not been issued and, thus, the new law has not been published in the Official Gazette yet either.

Brief overview of key provisions

The draft of the new Companies Law provides for the following key changes from the existing Regulations for Companies:

  1. Approval of "One Person" companies

    Under the existing Regulations for Companies, the corporate forms that are available for incorporation must be owned by a minimum of two partners, owners, or shareholders. Nonetheless, Saudi Arabian sole proprietors may obtain registration as an “establishment,” while foreign investors can set up a wholly owned “branch” office as a matter of policy. However, establishments and branches are not officially recognised corporate forms under the Regulations for Companies.

    Under the new Companies Law, companies wholly owned by a single shareholder will be a recognised corporate form.
  2. Joint stock companies – minimum number of required shareholders and paid up capital amount reduced

    Under the existing Regulations for Companies, JSCs must be established with a minimum SAR 2,000,000 paid up capital and may not be owned by less than five shareholders.

    Under the new Companies Law, JSCs must be established with a minimum SAR 500,000 paid up capital and may not be owned by less than two shareholders. However, a JSC may be wholly owned by a single shareholder if the paid up capital amount is no less than SAR 5,000,000, or if the single shareholder is the government, a company wholly owned by the government, or any other public entities.

Wage Protection System – ninth and tenth stages; fines for delaying wages

As we have described in previous Updates, under Saudi Arabia’s Wage Protection System (WPS) implemented by the Ministry of Labor (MoL), private sector businesses in Saudi Arabia are required to electronically submit employee wage information to a database maintained by the MoL and, further, to deposit and pay employee salaries solely through in - Kingdom banks.

The WPS has been implemented in phases, beginning with the largest firms with 3,000 employees or more. On 1 November, the WPS entered its ninth stage to cover all businesses with 100 employees or more. 

The MoL announced this month that the WPS will enter a tenth stage on 1 February 2016 to cover all businesses with 11 employees or more.

The MoL warned that companies that do not pay salaries to their employees according to the requirements of the WPS will be fined SAR 3,000 per each unpaid employee, in addition to termination of services. Further, expatriate employees of non-compliant employers will be able to transfer their sponsorship to another company without their existing sponsor’s approval.

Saudi Gazette – 25 October 2015

Fines for stating incorrect reason for dismissal

The General Organization of Social Insurance (GOSI) announced a fine of SAR 10,000 for any employer who causes a former employee to lose access to his / her entitlements by stating incorrect reasons for the employee’s dismissal. This announcement was made to ensure that employees can access their insurance and payment for damages once they leave their job.

Arab News – 25 October 2015

Solution to reduce litigation time

In order to improve the judicial system in Saudi Arabia, the Board of Grievances (BoG) has announced that it has formed a task committee to help reduce the duration of litigation in the local courts. The responsibilities of the task committee include preparing a strategic plan for an office management system as well as inspecting the council of the judiciary, the local courts, the Administrative Court of Justice and advising on areas for improvement.

Arab News – 4 November 2015

Nazaha monitoring bank accounts

Earlier this month, a recommendation for the National Anti-Corruption Commission (Nazaha) to monitor the bank accounts of people suspected of corruption was put to vote by the Shoura Council. However, the recommendation was rejected by the Shoura Council for several reasons, including that the proposed surveillance would require several amendments to Saudi Arabia’s existing banking regime. 

Arab News – 5 November 2015

Banking and finance developments

No material developments this month.