Companies Law by the Experts Committee: Developing the Regulatory Environment

The Companies Law by the Experts Committee was enacted in Saudi Arabia as part of broad legislative updates aimed at aligning the legal environment with the requirements of Vision 2030. The Experts Committee of the Council of Ministers prepared the law in collaboration with relevant authorities, replacing the previous law issued in 2015. The new law addresses economic changes, strengthens the private sector, and keeps pace with global developments in corporate management and governance.

The law came into effect on January 19, 2023, following a Royal Decree, and its provisions cover all types of companies: joint-stock, limited liability, professional, and partnership companies, in addition to introducing the 'Simplified Joint-Stock Company' model. The law was designed to be more comprehensive and flexible than its predecessor, aiming to attract investments, facilitate business formation, and reduce bureaucratic constraints.

Legislatively, this law is a cornerstone in modernizing Saudi Arabia’s commercial legal system and is part of a suite of modern regulations such as the Foreign Investment Law, Capital Market Laws, Bankruptcy, and E-Commerce Laws, making the Saudi legal environment more attractive to both local and international investors.

The Companies Law by the Experts Committee is built on several strategic objectives to enhance the Kingdom's position as a regional and global investment hub. Key objectives include:

1. Facilitating Company Formation: By reducing bureaucratic requirements, simplifying administrative procedures, and enabling electronic company registration.
2. Supporting Entrepreneurship: Through introducing new models such as the simplified joint-stock company, lowering capital requirements, and easing the transition from sole proprietorships to limited liability companies.
3. Protecting Shareholder and Creditor Rights: By enhancing financial disclosure requirements, mandating modern governance standards, and activating internal and external control mechanisms.
4. Encouraging Foreign Investment: By allowing up to 100% foreign ownership in most activities and removing the Saudi partner requirement in many sectors.
5. Addressing Family Business Challenges: By establishing clear mechanisms for intra-family ownership transfer, protecting minority rights, and reducing inheritance and management disputes.

These objectives have been translated into practical legal provisions, resulting in the creation of thousands of new companies during 2024-2025 and an increase in invested capital in the Saudi market.

The Companies Law by the Experts Committee introduced substantial updates compared to the previous law, making it more suitable for the evolving economic landscape. Key differences include:

- Allowing full foreign ownership in most sectors, whereas the old law required a local partner in most cases.
- Introducing the simplified joint-stock company, which requires a very low minimum capital (only SAR 30,000), compared to hundreds of thousands under the previous law.
- Easing the conversion process between limited liability and joint-stock companies, and enabling small and medium-sized enterprises to list on the stock exchange more easily.
- Raising the maximum number of partners in a single company and simplifying share transfer procedures in family businesses.
- Enhancing financial disclosure requirements and tightening controls on internal and external audits.

These advantages have strengthened the Saudi business environment, improved the Kingdom’s ranking in global competitiveness indices, and attracted more foreign and local investment.

One of the key innovations of the Companies Law by the Experts Committee is the introduction of the simplified joint-stock company model, which provides a practical solution for entrepreneurs and startups. This type of company is designed as a bridge between the limited liability company and the traditional joint-stock company.

Features of the simplified joint-stock company:
- Minimum capital requirement: Only SAR 30,000.
- No need for a full board of directors in the early stages.
- Flexibility in capital structure and number of partners.
- Simplified accounting disclosure requirements.
- Easy transition to a traditional joint-stock company or listing on the capital market upon expansion.

This legislative model has encouraged hundreds of startups to formalize their businesses, facilitated their entry into the regulated business ecosystem, and opened doors to financing and venture investment.

A major transformation brought by the Companies Law by the Experts Committee is the expansion of full foreign ownership in Saudi companies. The law removed the requirement for a Saudi partner in most sectors, with limited exceptions subject to executive regulations.

This change has led to:
- A record increase in the number of foreign companies registered in the Kingdom during 2024-2025.
- Inflows of new capital, with a rise in foreign direct investment.
- Greater sectoral diversity, especially in technology, services, and finance.
- Improved Saudi Arabia’s ranking in global ease of doing business reports, such as those by the World Bank.

Foreign investors have also benefited from streamlined company registration, reduced fees, and expedited administrative procedures, making the Saudi market more competitive regionally and globally.

The Companies Law by the Experts Committee pays special attention to family businesses, which constitute a significant portion of the Saudi economy. Legislative mechanisms have been established to:

- Facilitate share transfers among family members, whether by inheritance or sale.
- Protect minority rights within the family and prevent marginalization or exclusion.
- Set clear rules for internal governance and reduce administrative disputes.
- Encourage family businesses to convert to joint-stock companies or list on the capital market.

Similarly, the law supports entrepreneurs by simplifying procedures, enabling the conversion of sole proprietorships into formal companies, and lowering capital requirements for small and medium-sized businesses, resulting in a boom in entrepreneurship and new company registrations.

The Companies Law by the Experts Committee emphasizes achieving the highest levels of regulatory flexibility and applying global governance standards. Key features include:

- The ability to easily modify capital structures, whether increasing or decreasing.
- Facilitating mergers, acquisitions, and restructuring processes.
- Mandating internal governance systems, such as appointing external auditors and forming oversight committees.
- Enforcing periodic financial disclosure requirements and obligating companies to publish financial reports according to specific standards.

These measures have boosted investor confidence, increased transparency, reduced operational and financial risks, and made Saudi companies more disciplined and competitive in both local and international markets.

The Companies Law by the Experts Committee has had a direct impact on the performance of the Saudi capital market (Tadawul). The law has encouraged small and medium-sized companies to list and facilitated the public offering of family and startup companies.

Key impacts include:
- An increase in initial public offerings (IPOs) during 2024-2025.
- A rise in the market capitalization of listed shares to around SAR 10 trillion by early 2025.
- Easier restructuring of listed companies’ capital through new mechanisms for capital increases or reductions.
- Enhanced financial disclosure requirements and improved accounting report quality.

These developments have made the Saudi capital market more attractive to investors and enhanced its competitiveness with regional and global markets.

The Companies Law by the Experts Committee has contributed to the growth of the venture capital and startup sector in Saudi Arabia. The law allows for the rapid establishment of startups with low capital requirements and ease of attracting investment.

Results include:
- Venture capital funds invested over SAR 5 billion by the end of 2024, compared to about SAR 1.6 billion in 2021.
- Investors injected more than SAR 20 billion into startups during 2024.
- An increase in the number of startups securing major funding rounds, with simplified procedures for converting to joint-stock companies or listing on the stock exchange.

The law has thus created a conducive environment for innovation and investment in technology and knowledge sectors, contributing to the growth of the digital economy.

The Companies Law by the Experts Committee is part of the regulatory competition among Gulf and regional countries to attract investment. The law is designed to place the Kingdom among the most advanced economies legislatively, similar to recent company law updates in the UAE, Qatar, and Bahrain.

Competitive features include:
- Introducing modern legislation that reduces restrictions on establishing foreign companies.
- Providing unprecedented financial and administrative facilitations.
- Aligning regulations with global best practices in governance and disclosure.
- Cooperating with foreign capital markets to encourage Saudi companies to list internationally.

These changes have improved the Kingdom’s ranking in global competitiveness indices and increased international investor confidence in the Saudi legal environment.

Regulatory authorities in Saudi Arabia continued to develop the executive regulations for the Companies Law by the Experts Committee during 2024-2025. Key updates include:

- Issuing new guidelines for organizing the simplified limited liability company and clarifying its registration procedures.
- Updating instructions for share transfers in family businesses to provide greater legal guarantees.
- Publishing simplified guidelines through the General Authority for Small and Medium Enterprises to support entrepreneurs in applying the new law.
- Amending certain disclosure law provisions to enhance financial transparency, especially for startups.
- Offering additional incentives for foreign companies, such as reduced fees and expedited permits.

These executive regulations have facilitated the law’s implementation and ensured its alignment with modern economic and legislative developments.

The Companies Law by the Experts Committee forms the cornerstone for the future of Saudi Arabia’s business environment. As reforms continue, the Kingdom is expected to further improve its regulatory frameworks and attract more local and foreign investment.

Future outlook:
- An increase in the number of new companies, especially in technology, services, and innovation sectors.
- Continued growth in the venture capital and startup sector.
- Strengthening the Kingdom’s position as a regional center for finance and investment.
- Ongoing updates to related regulations (such as bankruptcy, finance, and capital market laws) to keep pace with global best practices.

All these factors enhance the flexibility of the Saudi economy, enable it to meet challenges, and position it competitively on the global stage within a modern and advanced business environment.