The Saudi Arabian Ministry of Commerce and the Capital Market Authority (CMA) showed how the new Companies’ Law, which was approved by the Council of Ministers on June 28, 2022, will be put into place on Wednesday.
The Saudi Press Agency said that the new law will go into effect on January 19, 2023. It was published in the official Umm Al-Qura Gazette on July 4, 2022.
The mechanism is an extension of the work that the ministry and the authority have been doing together to make sure that the new law is being put into place in a way that helps reach its goals.
The ministry and the CMA said that the new law was approved based on the Royal Decree issued on Dhul Hijjah 1, 1443, which is written in item three of the law as follows: “About the companies that already exist when the law goes into effect, as mentioned in item 1 of this decree, its conditions will be changed in accordance with its provisions within a period not longer than two years from the date it goes into effect. As an exception to this, the Ministry of Commerce and the Capital Market Authority can, in their own areas of responsibility, decide which parts of the law are applicable to these companies during that time.
New companies that start up after the law goes into effect are not included in the time frame for making changes to the conditions mentioned above. From that date on, it will have to follow all the rules of the law.
Also, this time period doesn’t include the provisions of the Companies Law, which was issued by a royal decree on Muharram 28, 1437. It also doesn’t include the crimes and violations that are mentioned in this law or the punishments for those crimes that are mentioned in the law.
Articles 36, 52, 61, and 158 of the law explain how companies are given a certain amount of time to change their status. Paragraph 1 of Article 68 of the law says that companies must follow this rule at the end of the current Board of Directors’ term and during the election of a new Board of Directors, or after two years have passed since the law went into effect, whichever comes first.
After the law goes into effect, the ministry and CMA said that the existing companies do not have the right to do anything or set up or make a new legal center that goes against the law. As soon as the law goes into effect, companies, partners, and shareholders can use all the rights it gives them, taking into account any changes to the basic laws of companies and their articles of incorporation.
By putting the new mechanism into place, the ministry and CMA hope to help it reach its goals, which include strengthening the regulatory environment for companies and making it easier for companies to follow procedures and regulations in order to boost the business environment and attract investment. It also aims to find a balance between stakeholders and provide an effective and fair framework for corporate governance, institutional work, contributing to the sustainability of economic entities, attracting local and foreign investments, providing sustainable financing sources, meeting the needs and requirements of the entrepreneurship sector, and encouraging the growth of small and medium enterprises.
The new law will help to keep the commercial system of the Kingdom growing and improving. The law’s most important parts are its high flexibility to protect companies and give the private sector more power in a way that keeps up with the best practices around the world. The new law lowers the legal requirements and procedures for small, medium, and micro companies. It also makes it easier to set up a company by making the requirements and procedures easier.
The law gets rid of many restrictions at all stages, like when a company is set up when it starts doing business, and when it leaves the market. It also gets rid of restrictions on company names and lets a limited liability company issue debt instruments or negotiable financing instruments. The law changed the rules about how companies can change and merge. Now, a company can be split into two or more companies, and the owners of separate entities can give their assets to any kind of company.