Saudi Arabia, one of the largest economies in the Middle East, is actively striving to enhance its business environment and attract both national and international investments. In this context, Saudi Arabia has launched a series of reforms and structural changes to improve the business climate and support small, medium, and large enterprises. Among these reforms, the new Corporate Law was issued under Royal Decree No. (M/132) on 1/12/1443 AH, corresponding to 30/6/2022.

The primary goal of this law is to enhance the regulatory environment for corporations, simplify procedures and regulatory requirements to stimulate the business environment, support investment, balance the interests of stakeholders, provide an effective and fair framework for corporate governance, institutionalize operations, contribute to the sustainability of economic entities, attract local and foreign investments, provide sustainable financing sources, and meet the needs and requirements of the entrepreneurship sector, thus stimulating the growth of small and medium enterprises.

This amendment aligns with the developments of Vision 2030, aiming to advance all sectors, particularly the investment sector, due to its positive impact on other sectors. Elevating the economic environment effectively enhances all other fields, which is the approach adopted by Saudi Arabia in its Vision 2030 to create a modern, distinguished, and exemplary environment across all domains. It is evident that this development relies on newly updated legal systems that meet contemporary economic requirements, hastening the amendment of most systems, including the Corporate Law, which came into effect along with its executive regulations on January 19, 2023. This law serves as a catalyst for the commercial ecosystem, promoting its growth and flexibility to protect corporations, enabling the private sector to play a significant role in achieving the objectives of Vision 2030.

Key Features of the New Corporate Law in Saudi Arabia

The new Corporate Law came into force in Saudi Arabia on January 19, 2023, accompanied by executive regulations reflecting a new vision for developing the commercial sector, encouraging investment, and establishing an economic outlook that aligns with Vision 2030.

The law is a strong driver for developing commercial infrastructure, characterized by its flexibility in protecting corporate rights and empowering the private sector to play a key role in achieving the goals of Vision 2030. It facilitates the establishment of corporations, supports their continuity and growth, encourages bold investments that contribute to creating large-scale projects, opens avenues for job opportunities, and addresses the challenges faced by family businesses and entrepreneurship comprehensively and effectively.

Under the new law, corporations established according to its provisions can take the following forms: Limited Liability Company, Simplified Joint Stock Company, Simple Commandite Company, Joint Stock Company, and General Partnership.

The law exempts micro and small corporations from the requirement to appoint an auditor, considering their novelty and size. For joint-stock corporations, it stipulates that there will be no maximum limit on the remuneration of board members, granting the ordinary general assembly the authority to determine these remunerations based on fair and incentivizing standards proportional to the member’s and corporation’s performance.

Definition of a Corporation

According to Article 2 of the Corporate Law, a corporation is a legal entity established under the law based on a foundation contract or articles of association, whereby two or more persons commit to contributing to a profit-oriented project by providing a share of money or work, or both, to share the resulting profit or loss. Exceptionally, a corporation can be established by a single person and can also be set up as a non-profit organization under the provisions of Chapter Seven of the law.

Major Developments in the New Corporate Law

Content of the New Corporate Law

Saudi Arabia's interest in updating the regulatory framework for corporations is driven by its commitment to keeping pace with global developments and rapid changes in the financial and business sectors. Hence, the new Corporate Law was issued, adopting a contemporary vision encapsulated as follows:

Notable Amendments in Corporate Management

Conclusion

The new Corporate Law in Saudi Arabia aims to enhance and develop the commercial environment, protect corporations, and empower the private sector to play a significant role in achieving the objectives of Vision 2030. This comprehensive update to the legal framework governing corporations is designed to promote economic growth, encourage investment, and support the development of a robust and transparent business ecosystem in Saudi Arabia.