Setting up a limited liability company (LLC) has become an attractive option for local and foreign entrepreneurs alike. In this article, we will explain the steps and conditions for setting up a limited liability company.
First: What is a limited liability company?
Before delving into the steps and conditions, it is important to understand the nature of this type of company. A limited liability company is an organization established by two or more people, and the responsibilities of each partner are limited to the amount of his share in the capital, and he is not bound by debts or obligations beyond it. After his death, the partner's share passes to his heirs or those to whom he bequeaths it, and the number of partners must not exceed fifty.
II: Conditions for setting up a limited liability company
According to Company formation guide from the Saudi Ministry of CommerceThere are a set of basic conditions that must be met before registering an LLC. These conditions include the following:
1. The existence of a legal title for government entities, associations or endowments
One of the most important conditions for establishing a limited liability company is that the government entity, NGO, charity or endowment must have an official document that legally authorizes it to establish or participate in a company. This document proves that the entity has the authority to invest or enter into commercial partnerships in accordance with the regulations.
2. Obtain a license or approval from the Saudi Central Bank (if needed)
If the company's proposed activity is regulated by the Central Bank - such as finance or insurance - a license or preliminary approval is required before starting the incorporation process to ensure that the activity is compliant with regulatory standards.
3. The integrity of the legal partner's commercial register
One of the most important conditions for setting up an LLC is that if one of the partners is a legal person (company or organization), its commercial register must not be expunged or suspended. This requirement ensures that the partner is legally established and practicing its activity legally.
4. Partner must be 18 years of age or older
The partner must have reached the age of legal majority, which is 18 years old.
If the partner is a minor under the age of puberty, a guardianship deed must be submitted, which proves the guardian's right to manage his/her assets and participate on his/her behalf in the establishment of the company.
5. None of the partners should be a government employee
A government employee is prohibited from forming a limited liability company, but is allowed to be an investor in an existing company, i.e. an equity partner only.
6. Adherence to the requirements for professional firms
If the company is professional (e.g. law, accounting, engineering, etc.), a number of special requirements must be met:
- Valid professional licenses for partners who are qualified to practice that profession.
In the case of mixed (Saudi + foreign) companies, the ratio of the Saudi licensed partner must be at least 25% to ensure the presence of a qualified local partner. - Licensed partners in total must have at least 70% of ownership in the firm, confirming that the management of the firm is in the hands of certified practitioners.
III: Steps to Create a Limited Liability Company
According to Saudi Business Center، The following steps outline the statutory procedures for establishing a limited liability company, to ensure that the incorporation process is completed easily and in accordance with the official requirements.
1. Login to the business platform
The incorporation process begins by accessing the business platform through the unified account to access the e-services of the Ministry of Commerce and the Saudi Business Center.
2. Select the service «Establishing a Limited Liability Company»
From the «Start a Business» menu, select «Ministry of Commerce», then go to the «Establish a Limited Liability Company» service to start the application.
3. Agree to the terms
Before filling in the data, you must agree to the terms and conditions of service, which is an essential step to complete the online application.
4. Determine the number of partners and the status of the company
Choose the number of partners involved in the company, whether the company is professional or non-professional (depending on the project), and click «Continue».
5. Determine the company's duration and domicile
You enter the duration of the company's validity, specify the address of its headquarters, and click «Save» to confirm the data.
6. Fill in the business activities and company purpose statements
List the business activities under which the company will operate, type in the purposes of incorporation, as well as the online activity data, if any, and click «Save».
7. Adding a partner
Click on «Add Partner» to start entering partners' data one by one.
8. Filling in partner data
Enter each partner's details: ID or passport, address, contact information, and share type. When you're done, click “Save”.
9. Adding business name data
You choose a suitable business name or add the data of a previously reserved name, then save the information.
10. Entering fiscal year data
Specify the start and end date of the company's fiscal year according to the approved accounting system, then click «Save».
11. Enter the authorized business address and contact information
Enter the authorized business address and official company contacts such as email and phone number, then save.
12. Determine the auditor's exemption statements and capital mobilization
Select whether the company is exempt from appointing an auditor according to the conditions, enter the company's capital information in detail, and click «Save».
13. Dividends, Profits and Losses
You distribute the capital shares among the partners, specify the profit and loss distribution method, the set-aside percentage (if any), and click «Save».
14. Fill in the company's management information
In this step, you select the type of management structure (single director - board of directors - multiple directors), type the definition of the department, and click «Save».
15. Adding managers and assigning permissions
Enter the data of the manager(s), define their administrative and financial powers, and save the information.
16. Adding beneficiaries
This step involves entering the data of the company's real beneficiaries, which are the people who have a financial interest or actual power within the company.
17. Determine the mechanism for amending the memorandum of association and previewing the partners' decisions
It chooses the mechanism by which the Memorandum of Association will be amended in the future, reviews the partners' decisions with the possibility of amending them, determines the means of sending official notifications, and is then filed.
18. Preview the list of text materials
The platform displays the text nodes, and you can add new ones or edit existing ones, then click «Save».
19. Preview the application summary and approve the acknowledgment
All company data is displayed in a single summary.
After revision:
- If the data is correct, click «Submit Request».
- Or you can choose «Create Draft Contract» for later review.
20. If a draft contract is created
If you choose to create a draft contract:
- You will receive a text message with the draft tracking number.
- You can print or edit the draft.
- Once you're done, click «Submit Order» to complete the rest of the process
IV: The importance of obtaining legal advice when setting up an LLC
1. Choosing the right legal structure
Consultation helps determine whether a limited liability company is the best option for your business, or whether it is better to set up a professional, joint stock or sole proprietorship.
2. Avoiding mistakes in the Articles of Incorporation
The Memorandum of Association contains important clauses such as:
- Powers of managers
- Distribution of quotas
- Right to vote
- Decision-making mechanism
- How to exit or surrender shares
A small mistake here could lead to disputes with partners or disruptions in the future.
3. Ensure compliance with Ministry of Commerce regulations
The law is constantly changing, and the lawyer ensures:
- All conditions are met
- The business is compliant with the requirements
- The incorporation is done «legally» without irregularities or obstacles.
4. Protecting partners from excessive liabilities
Although this type of company is intended to limit liability, some decisions may make a partner more liable than he or she expected. Consultation clarifies anything that could expose partners to legal or financial liability.
5. Understanding tax and zakat liabilities
Companies are obliged to pay zakat, taxes and social contributions.
Consultation ensures that these obligations are understood from the outset and that fines and penalties are avoided.
6. Speed up procedures and avoid delays
Many incorporation applications are returned because of a simple error in:
- Activities
- Trade name
- Data
- Systemic materials
Legal counsel speeds up the process and helps you avoid repetitive amendments.
7. Protecting your interests when introducing new partners
A lawyer shows you how it's done:
- Capital Increase
- Entering a new partner
- Assignment of a share
- Partner Share Valuation
and document it in a way that protects your rights. For legal advice, contact Turki Bin Yousef for Lawyers and Legal Consultants، Click here.
Read more:
The difference between a joint stock company and a limited liability company
The role of the lawyer in protecting companies from fines and penalties