A new Professional Companies Law (following a Royal Degree issued in Sept 2019 and enforced April 2020) will have a direct effect on professional partnerships already in KSA as well as on new entrants to the market. In general, the Professional Companies Law shall form the regulatory framework of the professional sector and governs various regulated professions such as legal, engineering, architecture, audit and accounting, and other professional services which are performed by an individual and/or professional body in accordance with the applied codes of conduct, registration and licensing requirements by competent regulating authorities.
Traditionally, under the old law, professional companies could only be formed via one vehicle of incorporation, that being a general partnership with unlimited liability for their partners. Under the New Professional Companies Law Article 3, the vehicles of incorporation have been expanded and professional companies may now be formed as:
- Limited Liabilities Companies (LLCs) with two shareholders or more.
- Single shareholding LLCs, provided that the shareholder is licensed to undertake the relevant Profession(s) in the professional sector.
- Joint Stock Companies.
- GPCs and LPCs – (as provided in the old law)
Another major development under the New Professional Companies Law is the permissibility of professional companies to undertake more than one distinct profession (‘authorised activity’), i.e. one professional consultancy may provide, for example, engineering consultancy services as well as accounting services.
This new development may pave the way for strategic consortiums to be formed across different disciplines, which was not an option under the old law. That said, the New Professional Companies Law provides that the Ministry of Commerce (the “MOC”) has the discretion to stipulate for particular so-called “harmonious professions” that may be undertaken by one single professional company.
The New Professional Companies Law also allows for a natural person who is not a licensed professional or a juristic person to be a partner/shareholder in the professional company where the professional company is incorporated as a limited liability company or a joint stock company. Here, it seems the intention is to essentially permit unlicensed parties to potentially bring strategic benefits (such as business acumen, capital and liquidity, etc.) to the professional company and partake in its ownership. Whilst the New Professional Companies Law provides that the ownership of such non-licensed natural or juristic person may not exceed 30% of the professional company’s capital, it does provide that the Minister of Commerce has the discretion to change this 30% percentage threshold.
The New Professional Companies Law (as well as the old law) refers to the MOC as the regulator of professional companies. The New Professional Companies Law adds that the MOC’s regulation of professional companies is subject to the Foreign Investment Law. That said, as of today’s date MISA has not published guidance on the licensing of professional companies with foreign shareholding, the sole exception being licensing requirements for wholly owned foreign engineering consultancies, subject to the fulfilment of specific requirements, including ten-years’ experience in the engineering field and operations in at least four international markets outside the originating jurisdiction.
A minimum threshold of Saudi Arabian ownership in the professional company remains to be no less than 25% of the professional company’s capital. This threshold is a carry-over of the preceding regime.