Why did the Saudi Companies Law introduce the Simplified Joint Stock Company?
Articles (138 – 155) of the new Saudi Companies Law were introduced to bridge the historical gap between the rigidity of the Limited Liability Company (LLC) and the complexity and requirements of the traditional Joint Stock Company (JSC). The Simplified Joint Stock Company was designed specifically to meet the needs of the startup ecosystem, venture capital funds (VCs) and foreign entrepreneurs.
The 6 most important exclusive features of the Simplified Joint Stock Company
- No minimum capital: The law sets no minimum like the traditional joint stock company (which requires SAR 500,000); it can be established with any capital the shareholders decide in the articles of association (even SAR 1).
- Flexible management structure: The law does not oblige the company to appoint a complex board of directors or audit committees; it can be managed by a CEO, a sole manager or a small board of directors with complete freedom as set out in the articles of association.
- Multiple share classes (Multi-Class Shares): Founders and investors can issue:
- Preferred Shares: Grant priority in profit distribution or liquidation surplus without voting rights.
- Ordinary Shares: With equal voting rights.
- Redeemable Shares: Redeemed by the company under specified conditions.
- Employee Stock Option Plans (ESOP): Shares allocated to employees to attract and retain talent.
- Explicit recognition of Shareholders’ Agreements: Exit clauses and protection of minority and majority rights, such as:
- Drag-Along Rights.
- Tag-Along Rights.
- Share transfer restrictions and Pre-emption Rights.
- Can be established by a single shareholder: A natural or legal person may establish it alone.
- Fast decision-making: No requirement for the complexities of traditional general assemblies, and shareholder resolutions can be passed by circulation or through modern technology.