KSA Overview: The New Companies Law

The New Professional Companies Law of Saudi Arabia

The New Professional Companies Law (PCL) that has been enforced on 26 March 2020 has successfully replaced the former 1991 Professional Companies Law in the Kingdom of Saudi Arabia, and all regulations/provisions that are in contradiction to the new Professional Companies Law shall be deemed to be invalid and inconsistent. The PCL forms the regulatory framework for the professional sector by regulating professions which are executed by an individual or a professional body on account of achieving educational qualifications for such a profession, skills or any experiences in consonance with the applied codes of conduct along with the licensing requirements and provided that the registration is done by the competent authorities. The new professional companies law defines professional companies being established by individuals who are licensed to undertake one or more professions or with the aim of providing specific professions in professional companies. 

Scope of Professional Companies Law

All registered general partnership companies (GPCs) that fall under the ambit of 1991 PCL shall be subject to the applicability of the new PCL. Any Saudi natural person that is licensed to an undertaking profession shall be governed under this PCL. This law also extends to Saudi natural persons/juristic entities participating as investors/shareholders in the professional companies excluding the GPC’s and limited partnership companies (LPC’s) partaking in professional companies as the general partner shareholders with a joint liability which extends to the non-licensed investors of Saudi Arabia. The scope of the new PCL also extends to juristic foreign investors that includes the non-Saudi juristic entities providing specialized services being classified under the professional sector engaging in professional companies as shareholders/investors. 

In the 1991 PCL, professional companies were limited to one corporate form being the GPC’s in which shareholders are fully and jointly liable for the liabilities and debts are borne by the company without entailing any other protection. However, under the new PCL, the PCL can take any corporate form which includes General Partnership Companies and Limited Partnerships Companies. It can also take the corporate form of a joint-stock company (inclusive of single shareholder joint-stock companies), limited liabilities companies (with two or more shareholders) and single shareholding LLC’s provided that the shareholder is licensed to undertake the relevant profession in the professional sector. 

Features of the New PCL

The companies under the PCL can provide more than one professional service as classified under different sectors of business activities provided that such required licenses are obtained from the competent government authorities in the domain of Saudi Arabia and after each sector has been satisfied. There is also the formation of a compliance committee that introduces the formation of a specialized committee which shall be convened on the decision of the Minister of Commerce and Investment. It shall contain three members or more with one minimum member being specialized in the pertinent laws of Saudi Arabia. The guidelines in the committee, along with remuneration, shall be determined by a resolution issued by the Minister of the Ministry of Commerce and Investment. 

The professional companies are now allowed to undertake more than one profession under its applicability that implies providing more than one kind of professional service at a time in one company. It was earlier prohibited from engaging in more than one profession. Even a natural person that is not a licensed professional or a juristic person has the permissibility to be a shareholder/partner in the professional company which has taken the form of a limited liability company or a joint-stock company. The new PCL has referred to the Ministry of Commerce in Saudi Arabia as the regulator of the professional companies. A minimum threshold of 25 percent for Saudi Arabian ownership in the professional company has to be present and has to be adhered to. The professional companies could select any of the corporate forms, and specified guidelines in the PCL shall have to be followed.