KINDS OF COMPANIES

•               General Partnership:

An association of two or more natural persons; with joint liability to the extent of their entire fortune for any legal actions or debts the Partnership may face.

v The liability of General Partners is an unlimited liability.

v The name of General Partnership should consist of the name of one or more of the partners only .

v A partner who joins the General Partnership after its formation shall be liable for debts incurred  by the General Partnership only after the date on which he joins the General Partnership.

v A partner may not, without the consent of his partners, engage for his own account nor for the account of others in a business similar to that of the General Partnership.

v  General Partnership shall be managed by one or more managers from the partners or from others.

v A partner who is not a manager cannot interfere in the management of the General Partnership.

v  The Articles of Association of the General Partnership may be amended only by the agreement of all of the Partners (consensus).

v  Resolutions of the partners shall be adopted by the numerical majority of the partners.

•             Limited Partnership:

v  Limited Partnership consists of two teams of partners:

•       One team should include at least one General Partner who is responsible for the Partnership’s debts to the extent of his entire fortune;

•       The other team should include at least one Limited Partner who is responsible for the Partnership’s debts to the extent of his shares in the capital only.

v The liability of Limited Partners is a limited liability.

v  The name of the Limited Partnership should consist of the name of one or more of the General Partners.

v  The name of the Limited Partnership may not include the name of any Limited Partner.

v  Otherwise he shall be considered a general partner for third parties, and becomes responsible for the Partnership’s debts to the extent of his entire fortune.

v   A Limited Partner may participate only in the internal affairs of the Limited Partnership, and as stipulated in the Articles of Association.

v   A Limited Partner may not participate in the external affairs of the Limited Partnership, otherwise he shall be held jointly responsible for the Partnership’s debts to the extent of his entire fortune.

•               Partnership Limited by Shares:

v  Partnership Limited by shares consists of two teams of partners:

•       one team should include at least one General Partner who is responsible for the Partnership’s debts to the extent of his entire fortune;

•       the other team should include at least (4) Shareholders who are responsible for the Partnership’s debts to the extent of their shares in the capital only.

v  The capital of a Partnership Limited by Shares shall not be less than one million Saudi Riyals.

v  The capital shall be divided into tradable shares of equal value.

v  Partnership Limited by Shares shall be managed by one or more of the General Partners.

•             Joint Venture

v  Joint Venture is a company which is:

Ø   not to be disclosed to third parties (between partners only);

Ø   not a legal person; and

Ø   not subject to any publication formalities.

v The Articles of Association of the Joint Venture shall specify among other things:

Ø its purpose;

Ø the capital;

Ø the rights and obligations of the partners; and

Ø the way of the division of profit and loss.

v  If the partners disclose the existence of the Joint Venture to a third party, it shall be considered a real general partnership for such third party.

v  A third party shall have recourse only against the partner with whom he has dealt.

•               No new partner may participate in the Joint Venture without the approval of all the partners unless the Articles of Association states otherwise.

•               Limited Liability Company

A company consists of two or more shareholders who are responsible for the debts of the company to the extent of their shares in the capital.

v  The number of shareholders shall not exceed (50).

v  L.L.C may not conduct insurance, banking or saving activity.

v  The name of L.L.C may consist of the name of one or more of the shareholders, or may be derived from its activity.

v The Capital

Ø  The capital of L.L.C shall be adequate for achieving its purposes.

Ø  The capital shall be divided into shares of equal value, which may not be tradable.

Ø  L.L.C may not resort to public subscription to raise or increase its capital.

v  Management

Ø   L.L.C may be managed by one or more managers from the shareholders or others.

Ø   The shareholders shall appoint the managers in the Articles of Association or in a separate contract.

Ø   The managers shall be jointly liable for damages suffered by the company, shareholder or third parties as a result of the managers’ :

§  violation of  the law;

§  violation of the company’s regulations; or

§  wrongful acts committed in the performance of their duties. 

v Voting

Ø   Every shareholder has the right to participate in voting.

Ø    A shareholder is entitled to a number of vote equal to the number of his shares.

Ø   Resolutions shall be valid only if approved by shareholders who own at least half of the capital or more        the Articles of Association.

v  Resolutions to: 1- change the L.L.C’s nationality or 2- its liability require the consent of all shareholders.

v   Other resolutions need the consent of shareholders owning ¾ (three quarters) of the capital or more, as stipulated in the Articles of Association.

•         Joint-stock Companies

Ø  There are two kind of Joint-stock Companies:

q    Public: offers shares to the public.

q    Closed: between founders only- no public offering.

v  Shareholders

Ø   The number of shareholders shall not be less than (5).

Ø   Shareholders shall be responsible only to the extent of the value of their shares.

v The capital:

Ø  The capital of a joint-stock company shall be divided into tradable shares of equal value.

Ø  The capital of a joint-stock company shall be:

q  not less than SR 2 Million,  if it is Closed.

q  not less than SR 10 Million, if it is Public.

Ø  The value of each share shall not be less than SR 10.

v  A founder of a joint-stock company is any person who:

Ø signs its Articles of Association;

Ø offers a contribution in-kind; or

Ø  participates in its incorporation.

v The name of a joint-stock company shall not include the name of a natural person.

v Except if the company acquires a commercial entity which bears the name of a natural person and adopts that name.

v Formalities

Ø   Joint-stock companies shall be formed only by a resolution issued by the Minister of Commerce.

Ø   Some joint-stock companies may be formed only by a Royal Decree such as:

q  companies with a concession;

q  companies in which the government is a shareholder;

q  Banks;

q   Insurance Co.

v Public Subscription

Ø  Invitation for public subscription must be made through a licensed brokerage company appointed by the founders.

Ø  The invitation for public subscription shall be set out in a Prospectus.

Ø  The prospectus shall be published in a daily newspaper.

Ø  The subscription period shall be fixed in the prospectus for a period of not less than 10 but not more than 90 days.

Ø  The company shall not be incorporated unless all the capital (shares) has been subscribed for.

v Management

Ø   A joint-stock company shall be managed by a board of directors of not less than (3).

Ø   A director may not, without authorization participate in any business competitive to that of the company.