Are you curious about starting a business in the kingdom and want to explore different types of companies in Saudi Arabia? Then this blog is for you. Here, we will discuss the various types of companies in Saudi Arabia along with key features, legal requirements, pros and cons of each, and many more.
With over a decade of expertise in the Saudi Arabian Business landscape, Analytix is here to help you understand and analyze different company types in Saudi Arabia.
Types of Companies Available for Investors in Saudi Arabia
While establishing businesses in Saudi Arabia, Investors and entrepreneurs have several company types to choose from. Each company type has its own legal rules, advantages, and drawbacks. After analyzing these in detail, investors can decide on a company type that suits their business field. Below are the different types of businesses/companies available for investors in Saudi Arabia:
- Joint-stock company
- Limited Liability Company
- Establishment/Sole Proprietorship
- Limited Partnership Company
- Joint Venture
Now, let’s take a closer look at each type of company form, break down what each one means, and discuss the pros and cons in detail.
1. Joint-stock company
A joint stock company is a type that enables a group of shareholders to come together and jointly establish and manage a business entity. It is a business type suitable for foreign investors interested in setting up large-scale business operations in the kingdom. Some of the main characteristics of a joint stock company are:
- Must have at least two shareholders.
- Must have at least three directors
- The shareholders are liable for the debts of the joint stock company only to the extent of their capital shares.
- There are nationality requirements for the shareholders.
The joint stock company can be fully owned by one or more natural persons or companies who can be foreigners. The Saudi Ministry of Commerce regulates joint stock companies and sets rules, regulations, and procedures for their establishment and operation in the Kingdom of Saudi Arabia. SAGIA (Saudi Arabian General Investment Authority) must approve the formation of a joint stock company in which a foreign party is to have an interest by granting a license authorizing the foreign party’s investment in the company.
The businesses must comply with the laws of joint stock companies and provide financial reports, disclosures, and other relevant documents regularly. Saudi joint stock companies should appoint an auditor and file audited financial statements every year.
Now let us have a look at the pros and cons of a joint stock company:
Pros:
- Increased ability to raise capital through the sale of shares.
- Clear separation between ownership and management
- Limited liability for shareholders.
Cons:
- Strict and Stringent regulatory requirements.
- Complex governance structure.
- Dilution of ownership control.
2. Limited Liability Company
A Limited Liability Company is one of the most common legal entities preferred for incorporation in the Kingdom of Saudi Arabia. An LLC can be registered by a single shareholder and one director. This type of company may have a maximum of 50 shareholders. There are no specific capital requirements for establishing this form of business, although the local authorities may impose a capital requirement based on the specific business activity.
Important features of an LLC are:
- Individuals or companies may form single-shareholder limited liability companies. In addition, a minimum of two (2) and a maximum of fifty (50) shareholders may form the company.
- Limited liability for shareholders (only to the extent of their capital shares).
- The company may be managed either by an individual manager or by a board of managers.
- There are minimum capitalization requirements set by SAGIA for specific business sectors.
Below given are the pros and cons of an LLC in Saudi Arabia:
Pros:
- Flexible distribution of profit.
- Limited liability protection for owners and shareholders.
- Easier transfer of ownership.
Cons:
- Might require complex and extensive documentation.
- Complex than sole proprietorship or partnership.
- Chances for conflicts among members
- Mostly suitable for businesses that desire a balance between liability protection and operational flexibility.
3. Establishment/Sole Proprietorship
Take a look at the pros and cons of a Sole Proprietorship company in KSA:
Pros:- Simple and cost-effective establishment
- Minimal regulatory requirements.
- Sole and Complete control over decision-making.
- Limited access to capital.
- Personal liability for business debts.
- Challenges in succession planning.
4. Limited Partnership Company
The Limited Partnership Company is one of the appropriate types of companies in Saudi Arabia for foreign/International entrepreneurs who are new to the kingdom and unfamiliar with the local business market. The structure requires at least two members and it is a great pathway towards residency.
It is an ideal business form for single investors looking to establish themselves here.
Some of the main features of a limited partnership in Saudi Arabia are:
- The entity requires at least one director.
- One of the partners must be a general member.
- The other partner should be a limited member.
The Pros and Cons of a limited partnership company are:
Pros:
- Higher Chances/ Potential for increased capital inflow from multiple partners.
- Flexibility in structuring profit distribution.
- Shared decision-making and responsibilities.
Cons:
- Chances for conflicts and disagreements.
- Shared liability among partners.
- Limited ability to attract investment compared to other forms of business.
Partnerships are best suited for businesses with multiple owners looking to pool resources and share responsibilities.
5. Joint Venture
A Joint venture company is a strategic alliance between two or more business parties to form partnerships to share the markets, properties, assets, overall profits, and losses too. A joint venture company in KSA differs from a merger as there is no transfer of ownership in such a deal.
Foreign partners in a joint venture company in Saudi Arabia may own 100% equity shares, although the ones having a Saudi local partner who owns 50% or more of the equity share have many advantages. Some of the most important features of joint venture company in Saudi Arabia are:
- The associated ventures will share their physical and human resources
- Joint ventures are of short duration to overcome certain issues.
- The co-parties mutually share the financial burden as well as the risk if it arises.
- Each party in a joint venture will have shared control over the venture’s activities.
- Business entities involved in the joint venture company setup are called co-ventures.
Let us now dive into the pros and cons of JVC:
Pros:
- Helps business firms to grow faster.
- Increased productivity
- Generate greater profits.
Cons:
- Has to mutually bear liabilities and debts
- Chances for potential conflicts and disputes between partners.
Setup Your Company in Saudi with Analytix
Beginning your business venture in Saudi Arabia involves a crucial decision-making process with the most important choice being the type of business to adopt. As all company types in Saudi Arabia come with their own set of pros and cons, it is imperative for investors and entrepreneurs to carefully analyze the options for selecting the best company structure for their ventures.
Hence, you need an on-ground partner to help you with this. As a trusted global management consulting firm, Analytix focuses on providing complete and holistic support for businesses entering the Saudi market. Our expert team of highly experienced company formation specialists and advisors will provide you with proper guidance and help you choose the appropriate company type, best suited for your business.
Analytix is here to deliver you high-quality business services, from business incorporation to accounting, tax, auditing, GRO/PRO services, and many more. We are your go-to friend for quality business services in Saudi Arabia.
Conclusion
So, have you enjoyed reading our blog?
We hope you did. Choosing the right business type/structure for your venture in Saudi Arabia is a crucial decision to be made with careful consideration.
Did you get a clear idea of different types of companies in Saudi Arabia with the key features and pros and cons of each?
And Is there anything you think we have missed?
If yes, please let us know in the comments.
Happy reading folks!
