Features of the new corporate system-Vision 2030

Is investing in the kingdom one of your future goals You should familiarize yourself with the features of the new corporate system. The Saudi government has launched a new corporate law that will come into force in 2023, marking an exceptional shift in the kingdom's investment world. One of the most prominent features of the new corporate system is the advanced vision that aims to encourage new investors to enter the Saudi market, in addition to providing modern legal frameworks that support the growth and expansion of existing investment entities.

This new direction represents a qualitative shift in the investment environment of the kingdom, which strengthens its position as an attractive destination for local and international capital. In this article, HERE's everything you need to know about the most important features of the new corporate system.

Table of contentswhich is the purpose of issuing the new corporate systemWhat are the main features of the new corporate systemWhat are the most important features of the new corporate systemWhat did the new corporate system provide for investment entitiesHow to distribute interim profits according to the new corporate systemThe most common questionsconclusion

What is the purpose of issuing the new corporate system

The kingdom has issued many new laws such as the new registry system, and the new companies system. The new companies law and the executive regulations have been issued as of January 2023, and the system serves as a major catalyst for the commercial system in the kingdom, as it works to strengthen it in line with the developments of the national economy. The system is characterized by a clear flexibility aimed at protecting companies and institutions, and supporting the private sector to have a key role in achieving the goals of the kingdom's Vision 2030. The new corporate system facilitates the establishment of companies, expands their scope, ensures their sustainability, encourages bold investment, and addresses the problems and obstacles that family businesses may face.

What are the most notable amendments to the new corporate system

The new corporate system has provided many features that improve the commercial environment and keep pace with the economic development in the kingdom. Here are the highlights:

• Companies with a family system: The system allowed family businesses to include in the articles of association clauses regulating family ownership, labor policies, profit distribution, and the appointment of relatives.
• Long-term investment support: The system removed the restrictions that existed in the old law, both at the stages of establishing companies and trading their shares.
• Facilitating the business environmentThe system developed the processes of transformation and mergers between enterprises, and also allowed the division of enterprises into more than one.
• Appoint an auditor: The system obliged companies to appoint an auditor, with the exception of small and micro enterprises.
• Increased freedom of stock trading: The system made it possible to divide or merge shares, facilitating their free circulation.
• Encouraging the attraction of competencies: The system granted companies the possibility of issuing shares dedicated to employees to encourage and motivate them.
• Facilitating financing opportunities: The system allowed small and medium-sized enterprises to distribute profits in stages, and also allowed them to issue tradable debt instruments.
• Elimination of bureaucracyThe system made it possible to perform actions electronically, which saves time and effort.
• Improvement of liquidation and bankruptcy procedures: The system has developed liquidation and bankruptcy provisions in line with the provisions of the bankruptcy system.
• Encouraging the creation of new investment entities: The system allowed the creation of a new type of company “simplified joint-stock companies” to increase the attraction of venture capital.
  Which companies are recognized in the new corporate system

After the issuance of the new corporate law, some business entities such as solidarity companies were abolished, and the recognized entities became:

• Simple recommendation company
• Joint Stock Company
• Simplified Joint Stock Company
• Limited liability company

What are the most important features of the new corporate system

Compared to the old law, the new corporate system has provided many advantages that contribute to various types of companies such as:

• Allow the company to be named in any language, or in the name of one of the partners.
• Generalize the condition of the memorandum of association to all companies except for some types.
• Allow family-owned enterprises to conclude a legal charter regulating ownership, exit and appointments between family members.
• Oblige companies to include their name, form, address, and email in all their contracts.
• He granted the partners the right to control the company, having been limited to shareholders in the old system.
• Allow unequal distribution of profits and losses between partners if this is stipulated in the memorandum of association.
• The possibility of providing insurance coverage to the general director or members of the board of directors.

What did the new corporate system provide for investment entities

The system provided specific tariffs for companies such as:

1. For-profit companies: The system explained the mechanism of forming profitable companies and practicing any activity that enables them to achieve their goals.
2. Foreign companies: The system made it possible to appoint an auditor based on the decision of the director of the company's branch in the kingdom.
3. Family business: The system granted family businesses the possibility of concluding a legal charter regulating the mechanism of work within the company.
4. Micro-enterprises: The system removed the auditor requirement for some small companies, provided that their annual profits are less than 10 million riyals.

How to distribute interim profits according to the new corporate system

The phased distribution of profits is one of the most notable amendments in the new corporate system. It is a powerful tool for attracting capital to the stock market. However, the phased distribution of profits is subject to several controls, such as:

• The memorandum of association must include a clause specifying how the profits will be distributed in stages.
• Authorizing the board of directors and the general director to distribute profits.
• Ensuring that the company makes distributable profits.