Most Common Formation Types
LLCs, JSCs and branches are the most common vehicles used by foreign investors in the Kingdom, although investors’ choices are generally driven by factors such as shareholder numbers, management structure and the business activities permitted. In practice, foreign companies usually establish LLCs. LLCs are a well-regarded corporate vehicle among foreign investors in Saudi Arabia because once they are set up there is little need for a lot of continual maintenance and the personal liability of each of the partners is limited to the individual partner’s contribution to the company’s share capital. The disadvantages of a partnership company and limited partnership company, in comparison to the LLC and JSC, make them rarely used or attractive for investors. The major disadvantages of the partnership company are:
- The partners in a partnership company (or general partners in a limited partnership company) are jointly and severally liable to third parties for the obligations and debts of the company.
- Partnerships can only be formed by individuals and cannot be formed by corporate entities.
- The trade name of the company must include all or one of the partners’ names.
- The partners are subject to statutory non-compete covenants.
- The partners in a partnership company cannot exit the company without a court order or if the company or, if the company has no limited duration, at a time that is appropriate for other partners.
* Amended 2018,2020