Establishing a Joint Stock Company in Saudi Arabia plays a crucial role in in stimulating the economy and enhancing growth averages in different sectors. Additionally, the Joint Stock Company is one of the companies attracting capital and various investments. In investments, the Joint Stock Companies provide a robust platform for increasing capital and distributing risks among large number of shareholders due to their extinguished and outstanding legal structure that allows investors to participate in capital without being held responsible for the company’s debts. This paves the way for implementing large projects that contribute to economic development. Additionally, the Joint Stock Company contributes to achieving transparency by applying good governance rules and compliance with financial disclosure criteria, increasing investors’ trust, and achieving financial market stability. Accordingly, upon establishing a joint stock company, there is important information that investors shall know from the beginning, and through this article, you will be sufficiently aware of the information you need to know prior to establishing a Joint Stock Company according to the clauses stipulated in Companies Law.

What is a Joint Stock Company?

A Joint Stock Company is a company established by one or more people of the individuals or companies. Its capital is divided into tradable shares. Furthermore, the company is fully responsible for the debts and obligations incurred or arising out of its activity. The responsibility of the shareholder can only be restricted to paying the value of the shares he subscribed to.

Joint Stock Company Establishment Requirements in the Kingdom of Saudi Arabia

For establishing a Joint Stock Company in the Kingdom of Saudi Arabia, investors shall be aware of the following requirements:

- Writing an Article of Association for a Joint Stock Company

A Joint Stock Company is established under an article of association that shall be written in Arabic and may be accompanied by another language. This article of association shall include the provisions, conditions and data that conform to the company’s form, especially:

• Name of the Company
• Headquarters of the Company
• Purpose of the Company
• The authorized capital, source and the amounts paid, if any.
• Number, types, classes, if any, and nominal value of the shares, along with the rights related to each type and class.
• Company duration, if any.
• Management of the Company and identifying the members of the board.
• Start and end dates for the fiscal year.

- Identify the Joint Stock Company Name

Each Joint Stock Company in the Kingdom of Saudi Arabia shall have a trade name in Arabic or another language. The name may be derived from its purpose, a unique name, or the name of one or more of its current or former shareholders, or all of them together, provided that the name shall not violate the trademark names law and the other laws and regulations applicable in the Kingdom of Saudi Arabia. Furthermore, the trade name shall also be accompanied by something that indicates the form of the company.

- Identify the Joint Stock Company Capital

It is worth pointing out that the Joint Stock Company issued capital shall not be less than SAR 500,000, and upon establishment, the paid capital shall not be less than SAR 125,000. However, a Joint Stock Company shall have an issued capital, which represents the subscribed shares. The Article of Association may identify the authorized capital, and the issued capital may be increased within the limits of the authorized capital under a resolution issued by the board of directors of the company, provided that the issued capital shall be fully paid.

In other words, the share of the shareholder may be in the form of cash, in-kind contributions, or a combination of both. Founders or shareholders may transfer portions or shares of the capital to a person for services rendered to the company that benefit the company and achieve its objectives. Nevertheless, a share of a partner in the Joint Stack Company cannot be in the form of work in exchange for a percentage of the profits, nor can it be based solely on reputation or influence.

Unless the founders restrict subscribing shares to themselves, they shall offer the shares they did not subscribe for subscription according to the financial market law. It is worth mentioning that the Ministry and the Authority may develop controls and procedures and identify the documents and the authorizations required to establish a joint stock company that offers its shares for subscription during the establishing phase or list it in the financial market.

The capital paid for the subscribed shares shall be deposited in the name of the company under establishment in a licensed bank in the Kingdom of Saudi Arabia. The Board of Directors shall only dispose of the paid capital once the company is registered in the commercial register. In case the company was not registered in the commercial register, the subscribers may recover the amounts they paid, and the banks in which the subscriptions were made shall promptly refund each subscriber the amount it paid. Additionally, the founders shall be jointly liable for fulfilling this obligation and for any compensation due to the subscribers. Founders shall incur all the expenses paid for establishing the company and be jointly responsible for standing against third parties for any acts or actions they perform during the establishment period.

Joint Stock Company Establishment Procedures in the Kingdom of Saudi Arabia

In order to establish a Joint Stock Company in the Kingdom of Saudi Arabia, the founder and the people who participated in establishing the company and contributed to its capital either in cash or kind shall submit an establishment application and the commercial register of the company, accompanied by the article of association and the documents required according to the legal form. The required documents are:

• The founders’ names, addresses and nationalities.
• The statement of work and expected expenses for establishing a company.
• Acknowledgment issued by the founders of the issued shares subscription and the paid shares value.
• The deposit certificate of the paid amounts of the issued capital in one of the licensed banks in the Kingdom of Saudi Arabia.
• A resolution issued by the founders to appoint the members of the first Board of Directors, including their names, nationalities, addresses, and dates of birth, and to appoint the first auditor in cases where this is required according to the provisions of the law unless they were appointed in the company's articles of association.
• Acknowledgment issued by the founders of compliance with the law requirements to the establishment of the company.
• A report prepared by one or more authorized appraisers showcasing the fair value of the in-kind shares, if any, and an acknowledgement issued by the remaining founders consenting to the valuation specified to such contributions.

Therefore, the commercial registry shall decide on the application that includes all the necessary data and documents. Founders are entitled to grieve before the Ministry within sixty days as of the date of the application rejection. In case the Ministry rejects the grievance, or if it was not decided within sixty days of its submission, founders are entitled to grieve before a competent judicial authority.

Joint Stock Company Establishment Outcomes in the Kingdom of Saudi Arabia

A company shall be considered duly established upon its registration in the commercial registry. Subsequently, no procedure may cause to invalidate the company on the grounds of any violation of the laws or the company's articles of association. Moreover, a Joint Stock Company is considered an establishment upon the date of the commercial registry. Nevertheless, during the duration of establishment, the company shall have the legal personality necessary for its establishment, provided that the incorporation process is completed.

Accordingly, upon registering the company in the commercial registry, all the contracts and works done on its behalf by the founders shall be transferred to the company’s account, and the company shall also incur all the expenses spent for the establishment of the company. Furthermore, it shall be noted that in case the company establishment procedures were not completed, the persons who have dealt with or acted on behalf of or for the account of the company shall be held responsible against the third parties for the acts and actions performed by them during the establishment duration.

In conclusion, after clarifying all the Joint Stock Company establishment requirements in the Kingdom of Saudi Arabia, it becomes clear that the establishment process is no longer as complicated as it appeared. Moreover, thanks to the great efforts exerted by the Kingdom of Saudi Arabia in order to simplify the companies’ establishment requirements, investors are able to establish their Joint Stock Companies quickly and conveniently. These facilitations not only accelerate the establishment of the companies but also foster the investment environment in the Kingdom of Saudi Arabia, enhancing economic growth and encouraging innovation and expansion in various sectors.

Joint Stock Company Establishment Services in the Kingdom of Saudi Arabia

The Joint Stock Company establishment services in the Kingdom of Saudi Arabia require performing various procedures, starting from the formulation of the article of association to the share subscription and registration in the commercial registry. Therefore, Dr. Fahad Alrefaei & Partners Consulting & Law Firm provides an integrated set of legal services in order to facilitate the establishment process and to ensure compliance with the applicable laws and regulations. The most prominent legal services provided by the company are:

• Formulation of the Articles of Association for a Joint Stock Company.
• Obtain the approval of the Ministry of Commerce, Ministry of Investment and Capital Market Authority.
• Register the Company at the Commercial Registration.
• Regulate the subscription process in accordance with the laws and regulations.
• Prepare the General Assembly meeting minutes
• Appoint an authorized auditor to ensure financial compliance.
• Comply with the Capital Market Authority regulations.
• Ensure the protection of the rights of the shareholders.
• Conduct procedures for modifying capital or organizational structure.
• Tax registration and ensuring compliance with the Zakat and tax laws.

For seeking companies establishment services, feel free to contact us on Dr. Fahad Alrefaei & Partners Consulting & Law Firm on 920012753 or via E-mail: [email protected]. We are always very pleased to receive your consultations.