A joint-stock company is formed by one or more individuals or entities and has shares that can be bought and sold. The company is solely responsible for its debts, and shareholders’ liability is limited to their share value.
The establishment of a Joint Stock Company (JSC) in the Kingdom of Saudi Arabia (KSA), therefore, follows different legal, financial, and administrative conditions. Herein, this blog will detail how a JSC company establishment ranges from capital share requirements to documents and tax obligations, among other necessary considerations.
Benefits of a Joint Stock Company in Saudi Arabia
A Saudi Arabian JSC provides the following business advantages:
- Shareholders are not liable for more than the value of their shares, thus offering limited liability. This will protect your personal assets in case there is a debt that your company needs to pay for.
- The shares can be transferred freely, which helps in raising capital or selling your share in the company.
- Even though the ownership changes, a JSC can exist beyond that.
- A board of directors can manage the JCSs, enabling professional and efficient governance.
- The JSC is allowed to enter the capital markets by listing its shares on the Saudi Stock Exchange, famously known as Tadawul.
- The structure of JSC gives them much credibility and hence attracts prospective investors, given that their liability is limited.
- JSCs may be entitled to some tax benefits or exemptions, depending on the nature of business or according to regulations governing such companies.
Share Capital Requirements for JSC in Saudi Arabia
According to the Ministry of Investment (MISA), previously called Saudi Arabian General Investment Authority (SAGIA), a foreign JSC has a minimum share capital of SAR 500,000. By default, that capital is not needed to be deposited in advance in a local bank but just needs to appear on the balance sheet of the company and be used as working capital. However, some activities have higher minimum capital requirements, and some of these include the following:
- Property investment projects: SAR 30 million.
- Contracting: SAR 500,000 (in addition, there are extra revenue and asset value requirements).
- Commercial activities: SAR 30 million, with the caveat of an absolute minimum investment requirement of SAR 200 million within the first five years to own 100 percent foreign.
Certain activities are reserved for a Saudi partner, while others are excluded entirely and only open to Saudi nationals. This list is issued by MISA and is subject to change.
Documents Required to Establish a KSA JSC
Formation of a JSC requires several documents and filings, including the following:
- Apply for company name approval to the Ministry of Commerce and Industry (MOCI)
- Annual renewal.
- Prepare and submit the Articles of Association, outlining the company’s objectives, structure, and governance.
- Open a bank account in Saudi Arabia.
- The company must provide the government with a local address (Wasel Registration). A physical office lease is required; a virtual office is not acceptable.
- Commercial Registration (CR) issued by MOCI.
- Registration with MLSD (Ministry of Labour and Social Development) for the issuance of visas and other labour regulations.
- General Organisation of Social Insurance (GOSI) Registration for salary processing and for keeping government records through Saudisation.
- Additional licensing for certain activities, like pharmaceuticals, are obtained from concerned departments, such as the Saudi Food and Drug Authority.
Other Considerations for Setting Up a JSC in Saudi Arabia
Forming a JSC takes a few months and involves certain requirements to operate and govern it. Some are as follows:
- Annual General Meeting (AGM): There shall be an annual general meeting held within six months at the end of every fiscal year to look into the financial statement operation reports.
- Shareholders: The company shall have at least two shareholders; however, in the case of a closed JSC, there may be only one shareholder in case it has any relation to the government or holds capital equivalent to SAR 5 million or more.
- Board of directors: A JSC is allowed to have a minimum number of 3 directors and a maximum of 11 directors. The board shall have a chairman and a vice chairman. The chairperson must not be an executive working in the company.
- Audit committee: The committee needs to be independent of the board and be actively involved in the scrutiny of financial reporting and its internal controls.
- Sponsoring employees: JSCs are allowed to sponsor employees for residency in Saudi Arabia.
- Lockup period: There is a two-year lockup period for the transfer of shares after incorporation.
- General assembly meeting: Must confirm full capital subscription and at least 25% paid-up capital. This meeting approves the company’s by-laws, appoints the first board of directors, and completes the incorporation process steps.
Conclusion
Setting up a JSC in Saudi Arabia involves a highly complex compliance procedure on both the legal and financial fronts, but it opens immense business growth and investment opportunities. Observing regulatory requirements, knowledge of tax obligations, and proper governance structures lie at the heart of the successful operation of any JSC.
The professional team at Gatestone Group is here to provide comprehensive support for all the minute details involved in setting up and managing a JSC. With our assistance, you can navigate the complex process with ease and confidence.
FAQs
A joint stock company arrangement allows investors to pool resources and assume joint risk when starting and running a business. It is established by selling shares representing equity interests to investors to raise capital.
JSCs and public limited companies are comparable. Specific business categories, such as banking, insurance, and finance, must be conducted through a JSC. JSCs are classified into two categories: “public” JSCs, which are listed as JSC-listed, and “closed” JSCs, which are unlisted.
