Suspension of Companies Law Provisions – Saudi Arabia

On Wednesday the 2^nd of December 2020 the Ministry of Commerce (“MOC”) announced the issuance of a ministerial resolution (no. 348) and two circulars to suspend some of the provisions of the Companies Law [1], pursuant to an earlier a royal decree [2].

This royal decree was among several initiatives designed to ease economic difficulties facing companies, as a result of the COVID-19 pandemic, by giving authority to the Minister of Commerce to suspend Companies Law provisions that had become difficult to comply with.

The suspended provisions affect limited liability companies and closed joint stock companies, as they are the most regulated entity types and those most adopted by both local and foreign investors.

Summary of the of the suspended articles:

1. Limited Liability Companies

• Article 167 (2) – Limited liability companies must hold general assembly meetings within twelve (12) months from the end of company’s fiscal year. Previously a general assembly had to be held within four months.
• Article 175 (2) – Limited liability companies must within twelve (12) months from the end of the company’s fiscal year submit to MOC and every shareholder a copy of the following documents:
  • Auditor’s report.
  • Financial statements.
  • Business report.
  • Financial position.
  • The proposed dividend.
  • Copy of the supervisory board’s report (if any).

The provisions above will last until 31 December 2020.

• Article 168 (1) – Effective from 2 November 2020 and lasting until 21st October 2021, limited liability companies with more than twenty (20) shareholders may pass resolutions by circulation.
• Articles 181 (1) and (3) – Effective from 25 March, 2020, and for two (2) after that, directors of limited liability companies suffering losses over 50% of the company’s capital must call a general assembly meeting within one hundred and eighty (180) days from the date of becoming aware of the losses.

However, the director(s) or the board of directors of the limited liability company must comply with the following:

• • There must be disclosure to MOC for publication on MOC’s website of the amount of the losses, the amount as a percentage of the company’s capital, and the reasons which led to the losses.
  • A quarterly report must be submitted to MOC within fifteen (15) days of the end of each quarter on the development of the company’s financial position and the same must be published on MOC’s website.
  • The directors must inform MOC as soon as they are aware of the losses becoming less than 50% of the company’s share capital and publish an announcement to that effect on the MOC’s website.
• Article 166 – Effective from 25 March 2020, and for two (2) years after that, limited liability companies, which had previously been permitted to re-appoint auditors for terms of up to five continuous years, are now able to re-appoint for an additional two years, (i.e. so that the total permitted period of the appointment does not exceed seven continuous years for the audit firm). However, a supervising partner of the audit firm who is in charge of the audit process for the company cannot remain in that position longer than five (5) continuous years.

2. Unlisted Joint Stock Companies

• Article 150 (1)
  • Effective from 25 March 2020, and for two (2) years after that, the board of directors of unlisted joint stock company must call an extraordinary general assembly within sixty (60) days of the board of directors becoming aware of losses reaching 50% of the company’s capital.
  • Effective from 25 March 2020, and for two (2) years after that, an extraordinary general assembly of an unlisted joint stock company must be held within one hundred eighty (180) days from the date that the board of directors has become aware of the losses.

• Article 150 (2) – Effective from 25 March 2020, and for two (2) after that, the chairman of an unlisted joint stock company that has incurred losses of more than 50% of its capital, must comply with the following:
  • There must be disclosure to MOC for publication on MOC’s website of the amount of the losses, the amount as a percentage of the company’s capital, and the reasons which led to the losses.
  • A quarterly report must be submitted to MOC within fifteen (15) days of the end of each quarter on the development of the company’s financial position and the same must be published on MOC’s website.
  • The chairman must inform MOC as soon as he becomes aware of the losses becoming less than 50% of the company’s share capital and publish an announcement to that effect on the MOC’s website.

• Article 133 (1)- Effective from 25 March 2020, and for two (2) years after that, unlisted joint stock companies which had previously been permitted to re-appoint auditors for terms of up to five continuous years, are now able to re-appoint for an additional two years, (i.e. so that the total permitted period of the appointment does not exceed seven continuous years for the audit firm). However, a supervising partner of the audit firm who is in charge of the audit process for the company cannot remain in that position longer than five (5) continuous years.

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Al Tamimi & Company’s specialist Corporate Structuring and Corporate Commercial teams are experienced in providing bespoke, creative solutions and strategies for our clients on all aspects related to corporate law and in particular, advising on business structures available to foreign companies in the Kingdom of Saudi Arabia.

[1] Royal Decree (M/3) Dated 28/01/1437 (corresponding to 12/11/2015G)

[2] Royal Decree no. 15016 dated 2 November 2020