Single Person Company in KSA: Saudi New Companies Laws provide an opportunity to establish a single shareholder company in Saudi Arabia as an LLC through Article 1/154 and 149 with many benefits for industrial and commercial progress of the Kingdom. In this article we have discussed all information related to a Single Person Company in KSA like required capital, documents, its establishment methods, management, owner’s liability, losses, dissolution or termination, conversion from LLC to JSC, etc.
Saudi New Company Law for Industrial & Commercial Progress
Saudi New Company Law formed under the Royal Decree No. (3/م), dated in 28/01/1437H, in order to form the new business investment policies that aim to facilitate commercial regulations and related procedures. The objective of this new Act is to remove all regular and legal barriers to cope with the industrial and commercial progress of the Kingdom through improving Saudi Arabia’s investment environment and diversifying economic activities in all sectors and fields aiming to achieve development.
What is Single Person Company (SPC) in Saudi Arabia
One of the key rules of Saudi New Companies Act 2022 for improving the Kingdom’s investment environment is to establish the Single Shareholder Company in KSA. Now a limited liability company (LLC) can be established by a single shareholder by holding the entire shares, and its liability towards the company’s debts within its capital limit. The owner of a single person company will have the rights and powers of the general manager (GM), board of directors and shareholders general assembly (SGA).
Accordingly, the Single Person Company in KSA can be defined as “the Company that consists of only one person, physically and legally, and the person has his or her own financial disclosure independent and separate from the company’s shareholder‘s financial disclosure.”
The introduction of single person companies especially LLCs presents an important opportunity to the flagship of businesses in Saudi Arabia including some of the largest family businesses to consider restructuring their holdings as corporate vehicles in the form of LLCs and JSCs with the help of New Company Law.
However, LLCs may be established in Saudi Arabia with a single shareholder, but presently the owner of a single person LLC is restricted to owning only one such company.
Required Capital for Single Person Company in KSA
The Companies regulation in KSA does not prescribe a minimum capital amount for the formation of a single person company as LLC. It simply needs the capital to be sufficient to achieve the company’s objective and be specified in the articles of association (AOA). While, depending on the type of business activity the company will be involved in, require a minimum capital set by the Ministry of Investment of Saudi Arabia (MISA), or the Capital Market Authority (CMA).
However, MISA usually needs a minimum of SAR 500,000 share capital for foreign investors to incorporate an LLC in Saudi Arabia. But for some different types of business activity MISA prescribes differing minimum capital as given below:
- LLC business in property investment projects – SAR30 million.
- Business in contracting – SAR500,000.
- LLC business in commercial activity – SAR30 million and a commitment to invest at least SAR200 million over the first 5 years in case of 100% foreign ownership.
- A limited Liability Company (LLC) must set aside at least 10% net profits each year until the statutory reserve reaches 30% of the company’s original share capital.
Management of Saudi Single Person Company (SPC)
A single shareholder company in Saudi Arabia in the form of an LLC can be managed by a single owner as a general manager (GM) and a director. He or she has all the managing rights and governing powers of the LLC including board of directors and shareholders general assembly (SGA).
A single person company in KSA as Saudi LLC is required to hold a minimum of one annual general/ shareholders meeting (AGM), within 4 months of the end of the financial year. At this meeting financial statements, operations reports, and proposals for appropriation of net profits of the company are prepared within 3 months from the end of the financial year. These are prepared to submit a report copy to the Saudi Ministry of Commerce and Industry (MOCI) within one month of preparation.
Establishment of Single Person Company in Saudi Arabia
A Single Shareholder Company in Saudi Arabia can be incorporated by one shareholder or if there are more than one shareholders in it then it can be transferred to be a company of Single Shareholder by holding all shares. The Single Person Company in KSA is based on private consideration and it can be established in 2 ways, directly and indirectly.
Methods of Single Shareholder Company Formation in KSA
Direct Establishment Method of Single Person Company in KSA
It is the first method of Single Person Company formation in Saudi Arabia where one person under his sole discretion incorporates a company for doing businesses in commercial activity. In this case the Single Person company in KSA is subject only to the instructions of the sole discretion of the single owner.
Indirect Establishment Method of Single Person Company in KSA
In the second method, indirect establishment of the Single Shareholder Company in Saudi Arabia is through transfer of all limited liability company’s shares to one shareholder. In this condition for any reason all company’s shares are in the possession of only one person. As a result this company is transferred to a Single Person Company in KSA till it gets terminated or liquidated.
New Company Laws for Single Person Company in KSA
The Saudi New Companies Laws provide several procedures and methods of establishing the Single Shareholder Company as given below:
- Article 1/154 of the New Company Act allows the establishment of a limited liability company (LLC) in Saudi Arabia by only a single person to whom all shares of the company belong.
- New Company Act’s Article 149 says that in case all shares of a limited liability company (LLC) has been transferred to a single shareholder that lacks conditions mentioned in Article (55), then the company’s that single shareholder will be liable alone for its liabilities and debts. Nevertheless, this shareholder should settle the company’s situation within a maximum of one year, otherwise, the company will be terminated by force of law.
- Article 2/154 of New Companies Laws prevents the person who has already established a Single Shareholder Company to establish another one or more than one Single Person Company in KSA.
Pre-emption Rights in KSA Single Person Company
Saudi New Company Law retains pre-emption rights for limited liability company (LLC) shareholders. If a shareholder of an LLC wants to transfer his/her shares to a third party, then it needs to notify the other shareholders of the company and give them the opportunity to purchase the shares at a fair price within 30 days. But the New Law makes it clear that shareholders are allowed to stipulate a different valuation methodology and time period in the article of association (AoA).
Documents Required in Saudi LLC Single Person Company
There are various documents required for the incorporation of LLC Single Person Company in Saudi Arabia, for example:
- Certificate of registration (CR) from Ministry of Commerce and Industry (MOCI) to conduct LLC business activities in the KSA.
- Foreign investment license from Ministry of Investment of Saudi Arabia (MISA).
- Registration with chamber of commerce.
- An approved Articles of Association (AoA) by MOCI and signed in presence of a notary.
- A local Saudi bank account.
- Local physical office lease and address registered with Wasel because a virtual office is not sufficient.
- Registration certificate with the Ministry of Labour and Social Development (MLSD) for the visa issuing authority to labour in-country.
- Registration certificate from the General Organisation of Social Insurance (GOSI) as it is mandatory for processing salaries monthly and maintains government record for Saudization quota system.
- Some other types of business activity require particular licensing from relevant government departments such as pharmaceutical companies that require a Saudi Food and Drug Association license.
Personal Liability in Single Person Company in Saudi Arabia
The New Company Law does not fix any minimum share capital for a Single Shareholder LLC Company in general. For this the principle of “capital sufficiency” has been introduced by the New Law along without personal liability of the owner to establish a Single Person Company in KSA.
No Personal Liability in Single Shareholder LLC Company KSA
Under the Current Company Law unlimited liability was an issue that caused a great deal of concern for limited liability company (LLC) shareholders. As per New Law the liabilities of owner of a single person company are:
- The shareholder’s liability in the Single Shareholder Company, is limited to his/her shares value in capital, which does not include his personal capital or money.
- In case of all shares of a company to be transferred to convert it to a single person company in KSA, then the liabilities of this one person are limited to his/her paid money in capital.
The Saudi New Company Law has also made it clear that a shareholder of a Single Person Company in KSA as LLC will not be personally liable for the debts of the company. However, the person owning a limited liability company (LLC) is liable by his own personal money against third parties under the name of the company, only in the following cases:
- If he or she performs liquidation of the company with bad intentions or suspends activities before expiry date, or before fulfilling the realization of its object,
- If he or she doesn’t differentiate and separate a company’s business from his own business,
- In case, he or she runs business on behalf of the company’s account before granting the company its legal entity (which becomes legal upon registration in the Commercial Register).
Dissolution or Termination of Single Person Company in KSA
A Single Shareholder Company in Saudi Arabia is terminated udder the general causes of companies’ termination rules, in addition to the death of the owner, unless heirs agree otherwise, the other conditions are as follows:
- Expiry of company’s duration,
- Loss of money to run it,
- Bankruptcy of the company, and
- Expiry of purposes established for,
However, in case of the owner’s death there is more than one heir and they agree to continue the company, then the company’s structure will be transferred to another type of company. But when the heir of the owner is only one person, and he keeps running the company as it is, then the company continues practicing its business and activities.
Losses and Dissolution of Saudi Single Shareholder LLC
Saudi New Law sets out a procedure to be followed by a limited liability company (LLC) where the company’s losses reach an amount equal to 50% of its capital. In such cases:
- The directors of the LLC must publish the company’s losses in the Commercial Register within 90 days of such losses coming out. In this case the MOCI will provide further guidance in respect of how this situation is to be tackled.
- A shareholders meeting of the company must be called and held within 90 days of loss awareness and a resolution must be passed to either continue or dissolve the company.
The resolution passed in the shareholder meeting must be published on the MOCI website.
In other cases the company shall also be dissolved if:
- The directors of the company fail to call a shareholder meeting, or
- The shareholders don’t pass a resolution at meeting to continue or dissolve the company.
MOCI’s Clarity is Required on LLC’s Loss
In the case of a JSC, if its losses have reached the 50% threshold, then as per New Law the EGM resolution must provide for an increase or decrease of the JSC’s capital to bring the losses below the 50% threshold. But this clarity in the New Law is missing from the provisions for LLC, so it raises an interesting question:
- What would be if the LLC’s shareholders passed a shareholder resolution to continue the company without increasing or decreasing the capital?
- It is hoped that MOCI will provide further clarity on this matter in the forthcoming implementing regulations related to LLC loss.
Restructuring of Businesses in KSA as One Person LLC
The introduction of single shareholder companies, especially LLCs, through New Company Law provides an excellent opportunity for many business houses in Saudi Arabia to restructure in different business entities. It is the golden provision for the largest family businesses in the KSA to consider restructuring their holdings as corporate vehicles and thereby benefiting from this. Because the New Law offers better protection to the shareholders of limited liability companies (LLCs) in Saudi Arabia.
Conversion of Single Person LLC into JSC
Saudi New Company Law provides a provision to convert a Single Shareholder Company (LLC) into a Joint Stock Company (JSC) after a request by shareholders of the LLC holding more than 50% of the LLC’s capital, unless the article of association (AoA) sets a lower threshold. For this conversion of the legal form of an LLC requires the amendment of the AoA and approval of shareholders.