Summary
A practical guide to the new Saudi Companies Law: the SJSC, share classes, director liability, and what founders and investors must do now.
What Changed Under the New Saudi Companies Law?
The new Companies Law was issued under Royal Decree No. M/132 dated 1 Dhul Hijjah 1443H (30 June 2022) and entered into force on 19 January 2023, replacing both the 2015 Companies Law and the Professional Companies Law. Its declared purpose is to attract investment, modernize governance and align the commercial framework with Vision 2030.
For founders and investors, the changes that matter most fall into four areas: the introduction of the Simplified Joint Stock Company as a flexible vehicle for startups and venture capital; statutory permission to issue multiple classes of shares with differing rights; the removal of the mandatory statutory reserve that used to be deducted from profits; and a clearer, stricter codification of the duties owed by managers and board members.
Faisal Siddiqui examined these reforms in greater depth in his article on the Global Law Experts platform. This piece distills the practical conclusions from the perspective of what a founder or foreign investor actually needs when deciding how to structure a Saudi entity.
What Is the Simplified Joint Stock Company and Who Should Use It?
The Simplified Joint Stock Company (SJSC) is the reform with the greatest impact on the startup ecosystem. It can be formed by one or more persons, has no minimum capital requirement, and its articles of association enjoy wide freedom in designing governance: it may be run by a single president, a single manager or a board, without the rigid structure imposed on traditional joint stock companies.
The core advantage for founders raising capital is the ability to issue multiple classes of shares: preference shares, shares with enhanced or restricted voting rights, and shares tied to performance conditions. This brings Saudi structures close to what global venture funds expect and removes a long-standing reason to route funding rounds through offshore holding companies.
Before converting an LLC into an SJSC, we recommend a full legal review that precedes the decision and covers the existing articles, shareholder agreements, and every employment contract and equity incentive plan, since conversion reshapes all of these documents. See our company formation services for the conversion pathway.
How Did the Law Change Capital Rules and Share Classes?
Across all entity types, the law modernized capital rules. LLCs gained more flexibility in partner contributions and may now issue sukuk and debt instruments, while JSCs and SJSCs received statutory authority to issue share classes with differing voting and dividend rights. The law also clarified valuation procedures for in-kind contributions, reducing disputes at the formation stage.
The practical result for founders is that employee stock option plans, co-founder vesting schedules, and tag-along and drag-along rights can now be structured precisely within Saudi law rather than through contractual workarounds that were historically hard to enforce.
The law also abolished the obligation to set aside a percentage of net profit as a statutory reserve, leaving the matter to each company's articles. This gives investors more flexibility over distributions but places greater responsibility on the board for managing liquidity.
What Liability Does a Founder-Director Carry?
The new law expressly codifies the duties of care and loyalty owed by board members and managers, with clear obligations on conflicts of interest, related-party transactions and acting in the company's best interest. This matters to founders in particular because most combine ownership with executive management.
The intersection many overlook is with the Labor Law. A founder who decides on terminations or collective redundancies, or who delays end-of-service payments, without a documented board mandate and a written rationale may face a personal claim from shareholders alongside the employee's claim. In our practice we see a growing number of cases combining a labor dispute with a director-liability action.
The practical recommendation: every material workforce decision should rest on a written board resolution or an approved delegation-of-authority matrix, with a documented business rationale and evidence of compliance with Labor Law procedures. The law also tightened audited financial statement requirements, so omitting accrued employment liabilities exposes the director to claims from both shareholders and employees.
What Does the Law Mean for Foreign Investors?
The Companies Law applies to founders and shareholders of every nationality, but a foreign investor operates within an additional layer: a Ministry of Investment license under the new Investment Law in force since February 2025, Saudization and work permit requirements at the Ministry of Human Resources, and the beneficial ownership register at the Ministry of Commerce.
The law also strengthened minority protections: the right to request appointment of an auditor, the right to challenge related-party transactions, and stronger withdrawal rights for LLC partners. Tag-along and drag-along provisions in shareholder agreements must therefore be drafted to respect these mandatory safeguards, since a clause that forces out a minority partner without meeting the statutory conditions is exposed to annulment, which can unwind an entire transaction.
For those planning a listing or a secondary sale, the Capital Market Authority's rules impose a mandatory offer once ownership crosses set thresholds, and this must be modeled into the deal timeline early. See our foreign investment services for details.
What Should Founders Do Now?
The transition period granted to existing companies to bring themselves into compliance ended in January 2025, so any company that has not yet amended its articles is operating outside the framework. We suggest three phases.
Within 30 days: audit board delegations for workforce decisions, brief every director on the new duties and record the briefing in board minutes, and compile a register of all employment contracts flagging change-of-control and equity incentive clauses.
Within 180 days: amend the articles of association, align HR policies with the Labor Law and its implementing regulations, and confirm the beneficial ownership register is current.
Within 6 to 24 months: set a disclosure calendar so employment liabilities appear in audited statements, and update shareholder agreements to cover restructuring approvals and director indemnification for employment-related claims.
Faisal Siddiqui Law Firm, from its offices in Jeddah and Riyadh, conducts gap reviews between your current position and both the Companies Law and the Labor Law, and prepares the documents you need before a funding round, a conversion or an exit. Contact us to assess your company's position.