Saudi Arabia: Professional Companies Law in the Kingdom of Saudi Arabia

Last Updated: 10 December 2010
Article by Glenn Lovell

Legal Framework

The principal law governing professional companies in Saudi Arabia is the Professional Companies Law which was approved by Royal Decree No. (4) on 18/2/1412H (corresponding to 26th August 1991) and is supplemented by the Executive Regulations, Ministerial Resolutions and an Explanatory Memorandum (collectively, the "Professional Companies Law"). In addition, the professional company is subject to the Companies Law 1965 in matters that do not contradict the Professional Companies Law.

Regulatory Approvals

The regulatory authority that is mandated to register and oversee professional companies is the Ministry of Commerce and Industry. Registration of a professional company is required and will be recorded in the 'Professional Companies Register' and maintained within the Companies General Directorate of the Ministry of Commerce and Industry. The approval process may also involve consent by other regulatory authorities.

Definition of a Professional Company

The Professional Companies Law does not include a definition of what constitutes a professional company, however, the Explanatory Memorandum does provide some insight. It states that a professional company is a juristic person established by agreement of several natural persons practicing as private professionals (the involvement of foreigners will be discussed later). Examples given of private professionals include doctors, engineers and "the like". While craftsmen are specifically excluded, it is logical to presume that professions such as legal, accounting and architecture will also fall within the intended definition of a professional company and Professional Companies Law.

Partner Liability

While the use of the word company would indicate the entity's status is in some manner of limited liability, the reality is that a professional company is more akin to a partnership. This means that partners are liable for company debts both personally and jointly. Sometimes partners may agree otherwise between themselves, but this will not apply in regard to third parties. A person may only participate in one professional company at a time, otherwise that person would be liable to account for any fees obtained to the original professional company. Unlike an individual establishment which can be converted into a limited liability company, or a limited liability company converting to a joint stock company (open or closed); a professional company cannot be converted or alter its legal form once established.

Partnership Agreement

A contract or partnership agreement must be drafted covering the following matters:

  • The company name and purpose. This must include at least one partner's name and the type of profession practiced;
  • The location of the head office;
  • The company duration;
  • The name and residency status of each partner;
  • The capital of the company and how it is allocated. This capital must be divided into equal shares following each partner's capital contribution (cash or 'in kind');
  • The start and end dates of the fiscal year;
  • Withdrawal or expulsion of a partner;
  • The method of company management; and
  • The manner in which profits and losses are to be distributed.


Unless stated otherwise in the partnership agreement, distribution of revenue is to be equal regardless of the partners' shareholding amount.

The partnership agreement must be signed before a competent notary public and a summary of the agreement published in a newspaper circulated in the area where the head office of the professional company is located.

Management of the Professional Company

The professional company agreement must designate a partner, or partners, in charge of the professional company's management, the scope of their authority, duration of their position and the method of their dismissal. The management authority cannot include a delegated authority from other partners where they agree to subordinate all their powers.

Any decision beyond the scope of management powers must be passed by resolution at a meeting attended by all partners. Quorums at such meetings must consist of at least half the partners and unless otherwise stated in the partnership agreement, decisions are by majority vote. Importantly, the partnership agreement can only be amended by unanimous decision. Each partner has only one vote regardless of the amount of shares they hold unless otherwise agreed.

A Withdrawing Partner

A partner intending to withdraw from the partnership can do so with or without compensation, depending of the terms contained in the partnership agreement. The partnership agreement should state the manner in which the partner may withdraw resulting in either a capital reduction, an increase in existing partners' shareholding or the introduction of a new partner.

The professional company has a period of six months to address the withdrawal of a partner in any one of the three methods previously described. Failure to do may result it the dissolution of the professional company. Should a partner find the need to withdraw from the company, or somehow otherwise be incapacitated (through death or illness), then the professional company can retain the particular name of that person if agreed to by him, or his heirs.

If a partner is barred or suspended by the Ministry of Commerce and Industry, that person must be automatically expelled from the partnership. The expelled partner is entitled to receive his share of the company assets, at a value determined by the most recent financial position (including its inventory).

Foreigners Participation in a Professional Company

A foreigner or a foreign entity engaged in similar professions in their home jurisdictions are able to participate in the partnership of a professional company in Saudi Arabia. Surprisingly, there is no foreign investment licence required from the Saudi Arabian General Investment Authority. The approval and registration process is handled through the Ministry of Commerce and Industry. As noted earlier, a consent from other authorities may also be required as part of the registration process. Requirements for a foreign shareholder to participate include:

  • No more than 75% of the share capital can be held by the foreigner; and
  • At least 25% of the share capital must be held by a Saudi national licensed in the particular profession.

Market Demand for Professionals in Saudi Arabia

The demand for professionals in the Saudi Arabian market is extremely high as the country continues to move forward on its massive development projects, which are being supported by professional sectors. This has led to extensive opportunities for foreign firms to capitalise on these activities. The regulators however, fully expect there to be knowledge transfer provided as part of the foreigners' business plan and activities in Saudi Arabia. This is in line with the desire to have Saudi Nationals trained in international standards and cutting edge technology.

Foreigners that are considering entry into the Saudi market, should obtain comprehensive legal and taxation advice as well as ensuring they select their Saudi partner carefully.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions