According to Section (3), Article (6) of the Executives Rules of the Foreign
Investment Act, foreign investors may conduct business in Saudi Arabia in one
of the following forms:
Foreign investors can establish an office and conduct business in Saudi Arabia
in one of the following forms:
1. Limited Liability Company (LLC)
This is the most common form for entering into joint ventures with Saudi
partners. The minimum capital investment required to establish an LLC is SR
500,000. An LLC must have between 2 and 50 shareholders and is managed and
represented by one or more managers. There is no Board of Directors, although
shareholders often provide for a Board and other management arrangements in the
Memorandum of Association. The LLC must also have an auditor and, where it has
more than twenty (20) partners, it must establish a Board of Controllers.
2. Partnerships
The limited partnership is a separate business entity comprised of several
individuals or companies. The general partners are liable for partnership debts
to the full extent of their personal assets while the limited partners are
liable only to the extent of their capital contributions. Foreign companies may
enter into a limited partnership.
3. Branch Offices
Foreign companies may register a wholly foreign-owned Saudi branch office,
provided that they obtain the requisite license. The branch office may engage
in any government contract or private sector work within the scope of its
license. Branch offices are subject to the requirements of the Government
Tenders Regulations, where applicable. Branch office registration follows the
same general procedure as for the registration of an LLC.
4. Commercial Agencies
The Commercial Agencies Regulations and the related Implementing Rules (Royal
Decree No. M/11, as amended by Royal decree No. M/32; Ministry of Commerce
Decision No. 1897), governs the agencies and distributorships. The rules and
regulations reserve a monopoly for Saudi nationals and wholly owned Saudi
entities on 'trading' activities. Trading activities include the import and
local purchase of goods for resale. Therefore, foreign companies engaging in
such activities must use Saudi commercial agents and distributors, who must
register their Agency Agreements with the MOC Agency Register. The agent must
hold a valid Saudi commercial registration permitting him to act as an agent or
distributor and the directors and authorized representatives of the agent must
be Saudi nationals.
Both the arbitration and the Grievance Board apply Shari'a law.
5. Franchising
Franchising is becoming popular and growing day by day. It helps establish
consumer-oriented businesses in Saudi Arabia.