REGULATIONS FOR COMPANIES
Formation and operation of business firms and companies is regulated by companies Law
promulgated by Royal Decree No. M/6 dated 22 Rabi I 1385 H., (1965). Royal Decree No. M/5
dated 12 Safar 1387 H. (1967) and Royal Decree No. M/23 dated 28 Jumada II 1402 H. (1982)
amended the regulations for companies. Under Article 1 of the Companies Law, a company has
been defined as a contract pursuant to which each of two or more persons undertake to
participate, in an enterprise aiming at profit, by offering in specie or as work a share,
for sharing in the profits or losses resulting from such enterprise.
Following are some of its important provisions:
- Under article 2, companies can take any of the following forms:
- General Partnerships.
- Limited partnerships.
- Joint Ventures.
- Partnerships Limited by Shares.
- Limited Liability Partnerships.
- Variable Capital Companies.
- Cooperative Companies.
- Without prejudice to the companies acknowledged by the Islamic "Shariah"
Law, any company not having any of the legal forms as given in Article 2 of the Companies
Law shall be null and void.
- Partner's contribution may consist of a certain sum of money (a contribution in cash),
or of a capital asset (a contribution in kind). It may also comprise services except in
the cases where the provisions of the Companies' Regulations imply otherwise, but it may
not consist (solely) of the partner's reputation or influence.
- Every partner shall be considered indebted to the company for the contribution he has
undertaken to make. If he fails to surrender it on the date set therefore, he shall be
liable to the company for any damages arising from such delay.
- Save in the case of a joint venture, a company's memorandum of association and any
amendment thereto must be recorded in writing in the presence of a registrar. Otherwise,
such memorandum or amendment shall not be valid vis-à-vis third parties.
- With the exception of joint ventures, any company incorporated in accordance with these
Regulations shall establish its head office in the Kingdom. It shall be deemed to have
Saudi nationality, but this shall not necessarily entail its enjoyment of such rights as
may be restricted to Saudis.
For details pertaining to formation and operation of companies, please contact
Companies Department, Ministry of Commerce (see appendix I for address).