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How the new Saudi Companies Law could affect your business

Clothing, Apparel, Bonnet LinkedIn/Talal Al Ajlan
Talal Al Ajlan, CEO of of the National Centre for Family Business

Saudi Arabia’s Council of Ministers recently approved a new Companies Law, which aims to enhance the growth of the kingdom’s commercial ecosystem. 

According to the Ministry of Commerce, the law aims to increase business sustainability and encourage investment in SMEs by facilitating procedures and regulatory requirements. 

It introduces new corporate entities, increasing the level of regulatory flexibility, protecting customer rights, preventing disputes and ensuring fair treatment of stakeholders, the ministry said.

The law aims to address all of the business sector’s challenges and allows for collaboration with numerous public or private sector organisations.

A new corporate structure, called a simple joint-stock company, has been introduced to satisfy the demands of entrepreneurship and venture capital growth. 

It will also serve as a potential investment arm for non-profit organisations and allow them to earn a profit and spend it on non-profit purposes.

Stephen Rees, head of family office sales, Apex Group, a global financial services provider, told AGBI that the new reform of the Companies Law – coming only seven years after its previous iteration – “underlines the current appetite within Saudi Arabia to continue the transformation of its business landscape”.

The Council of Ministers approved the new law on June 28 and the final approved version of the law was issued on July 4. 

According to Rees, it comes as part of a broader initiative to implement regulation at an internationally competitive level supporting the economic reform program of the kingdom’s Vision 2030

“We believe that this new law is far-reaching with significant opportunities for the family-owned business market as Saudi Arabia seeks to simplify its corporate code, increase flexibility and attract inward investment,” Rees said.

“Saudi Arabia remains one of the most compelling markets in the Middle East and we welcome the introduction of this sophisticated and fit for purpose new legal framework which removes certain perceived limitations compared with the structures and ecosystems commonly seen across global markets.”

Talal Al Ajlan, the CEO of the National Centre for Family Business (NCFB), and his committee have worked closely over the past three years with local businesses and advisors to understand and support the growing need for “transformation and transparency” for families and their business assets, Rees noted. 

“Ensuring the sustainability of family-owned businesses is complex, especially as a family grows, and succession events inevitably occur,” he added.

Most significantly, the new Companies Law allows for the introduction of a family charter in the articles of association to regulate ownership, governance, management, work policy, relatives’ employment, and dividends distribution in family-owned companies. 

This provides structure to succession planning and clarity to what is frequently a complex inheritance landscape with domestic assets and business being handled under Sharia law and international assets under foreign civil/common law. 

Walid S Chiniara, advisor to business families, said: “The new Saudi legislation offers families in business tools that will help them secure the sustainability and the security of their wealth in the hands of future generations.”

While many families have existing charters or their equivalent, and despite the fact that many charters are very detailed, family members have historically been sceptical about their legal veracity. 

Therefore, being able to make these documents part of the legal construct of the business is significant and should give the wider family the transparency and security both now and in the future, said Rees. 

“Clearly, all families and their businesses are different, and as such so are their needs, priorities and values,” he said.

“This framework provides flexibility which allows for the inclusion of these nuances, and as such should encourage more families to either revisit their existing documents or start afresh.”

Rees said at Apex Group its clients have welcomed the announcement of the new law. 

“It will give confidence to business owners and the next generation that their needs and wishes will be accommodated and have the support of lawmakers to make sure they are enacted,” he added.