In light of the major steps taken to achieve Vision 2030, which is focused on the three pillars of a vibrant society, a thriving economy and an ambitious nation, in early 2021 Crown Prince Mohammed bin Salman bin Abdulaziz Al Saud announced several profound legal reforms: the Personal Status Law, the Civil Transactions Law, the Penal Code of Discretionary Sanctions and the Law of Evidence. Each of these laws plays a role in enhancing and harmonising the legal ecosystem and reducing ambiguities. The Law of Evidence was the first to be issued, by Royal Decree No. (M/43) dated December 30, 2021. This was followed by the Personal Status Law, issued by Royal Decree No. (M/73) dated March 9, 2022. As of mid-2023 the Civil Transactions Law and the Penal Code of Discretionary Sanctions were in process and expected to be issued soon.
The Personal Status Law regulates family-related matters. It consists of eight main chapters covering topics related to marriage and engagement; the rights of spouses; the effects of marriage including alimony and pedigree; the separation of spouses including divorce and khul (divorce by a wife of her husband); annulment of marriage; the effects of separation including iddah (a period of time observed by a wife after separation from her husband or upon his death); and custody, tutorship and guardianship, including the tutor, the guardian appointed by the court, and the absent and missing persons; and wills, including their conditions and invalidators, inheritance and succession, including exiting the inherited rights.
The Law of Evidence regulates evidence-related matters. It consists of 11 main chapters covering topics related to the acknowledgment and interrogation of opponents; written evidence, including official documents and regular documents; requests obliging the opponent to submit evidence under their possession; evidence of accuracy of documents; denying handwriting or signature or seal or fingerprint and verifying handwriting; allegations of forgery; digital evidence; testimony, including its conditions and invalidators and procedures for evidence by testimony; expedited/ summary case for hearing a testimony; clues and res judicata; norms; oaths, including decisive oath and complementary oath; inspection; and expertise.
In support of digital evidence, the Use of Security Surveillance Cameras Law was issued by royal decree on October 3, 2022. It regulates the use of security cameras by several entities where the law applies at ministries, agencies/authorities and public institutions; petroleum and petrochemical facilities; power generation and water desalination facilities; tourist accommodation facilities; commercial complexes and shopping centres; financial institutions, banks, exchange and money transfer centres; residential buildings and complexes; the two holy mosques, holy sites and mosques; sport clubs, facilities and stadia; public and private cultural facilities and youth centres; public and private entertainment facilities; public and private health facilities including medical cities, hospitals and clinics; commercial warehouses; main roads and their intersections within cities; motorways connecting cities and provinces; refuelling stations and places to sell petrol; public and private educational facilities; entities that provide food services; public transport; venues for events and festivals; places of economic and commercial activities; public and private museums; and historical and heritage sites prepared to receive visitors. The law obliges those entities to first fulfil the installation of security camera requirements as a prerequisite to obtain or renew their licence.
New Judicial Scheme
The judicial system has developed a new scheme to avoid the build-up of numerous cases that take a lot of the court’s time and effort by issuing a new law that imposes costs for filing a case before the court. The Judicial Costs Law was issued by Royal Decree No. (M/16) dated September 7, 2021, which applies to all cases and claims submitted to the courts, excluding public criminal cases; disciplinary cases and their related claims/ requests; cases that are within the jurisdiction of the Personal Status Court, except for cassation claims and requests for reconsideration; cases that are within the jurisdiction of the Board of Grievances; division of inheritance cases, except for cassation claims and request for reconsideration; cases that arise from the application of the Bankruptcy Law and relevant requests; confirmation of finalising and its related requests. The law regulates the costs that are borne by the party against whose favour a judgment is ruled, or on all the parties to a dispute in cases where the dispute is resolved by reconciliation after it has been brought to the court. The judicial costs are in a form of a fixed cost for:
• Claims/requests, including appeal, cassation and reconsideration requests; interlocutory applications; entry requests from opponents; response requests; request to proceed with the case that is suspended by agreement prior to the end of the agreed period for terminating the dispute; correction or interpretation of a judgment request; and
• Cases whose value is unspecified, including private criminal cases; cases that are within the jurisdiction of the Commercial Court; expedited/summary cases that are heard by whichever court; cases that are within the jurisdiction of the General Court; enforcement disputes; cases that are within the jurisdiction of the Labour Court; or in a form of a capped percentage proportionate to the amount and value of the disputed rights that are subject of the claim. In a case claiming money, the judicial costs are determined based on the claimed amount by the claimant. In a case claiming the validity of a contract, rescinding or invalidating it, or obliging its implementation, the judicial costs are determined according to the value of the disputed matter specified in the contract. In a case claiming the ownership of real estate, the judicial costs are determined based on the value of the property relying on historical data documented with the Ministry of Justice of the value of the related real estate and neighbouring property.
New Companies Law
Laws and regulations are constantly being updated, including the former Companies Law and the Professional Companies Law, which were recently replaced by a new Companies Law issued by Royal Decree No. (M/132) dated July 22, 2022. It consists of 14 main chapters covering topics related to the incorporation of a company, its finances and management. It also introduces new types of companies to be incorporated that were not included in the previous law.
Legal Forms of Companies
The legal forms of companies are as follows.
• General partnership: A company incorporated by two or more natural or legal persons who are jointly and personally liable for its debts and liabilities.
• Limited partnership: A company that consists of two groups of partners, a group that includes one or more natural or legal partner(s) who shall be jointly and personally liable for the debts and liabilities of the company, and a group that includes one or more natural or legal limited partner who shall only be liable for the debts and liabilities of the company to the extent of their interest in its capital.
• Joint-stock company: A company incorporated by one or more natural or legal persons whose capital is divided into tradeable shares. The liability for the debts and liabilities arising from the company’s activities is limited to the company, and the liability of the shareholders is limited to paying the value of the subscribed shares.
• Simplified joint-stock company: While not explicitly defined by the law, its characteristics are specified. It is similar to a joint-stock company but with fewer restrictions, such as waiving the minimum capital requirement during the incorporation period, and reducing requirements that are related to the management of the company in terms of restrictions that are normally imposed on the board of directors. These include disclosure of interest in transactions and contracts; conclusion of loans and disposition and sale of assets of the company; and determining, specifying and assigning the powers and authorities of the board of directors and issuing the relevant resolutions, as in this type of company the management can be invested in its president, one or more manager(s) or board of directors. Furthermore, the shareholders are invested with the capacity of both regular and extraordinary general assemblies, which can be assigned to a designated person specified in the articles of association of the company. The relevant chapter introduces two topics: the obligatory assignment of the shares by a shareholder upon the occurrence of certain events as specified in the articles of association of the company, and settlement of disputes as the shareholders may specify in the articles of association of the company to resort their disputes to arbitration.
• Limited liability company: The most popular form for many local and international investors, this is a company incorporated by one or more natural or legal person(s) where the liability for the incurred debts and liabilities, including liabilities arising from the activities of the company, is limited to the company, whereas the liability of the owner(s) is limited and proportionate to their interest in its capital.
Limited Liability Company
A limited liability company is heavily regulated in the new law as it permits issuance of debt instruments and financing sukuk (Islamic bonds). It also introduces solutions to frequently disputed matters by the shareholders, including the sale and transfer of shares in the absence of agreed criteria in the articles of incorporation of the company. In the event of disagreement by the shareholders, the value of the shares shall be determined by a certified appraiser who shall determine the fair value of the shares subject to the sale.
It also lays out drag-along and tag-along rights that may be embodied in the articles of incorporation, where the minority have the right to oblige the majority to guarantee the sale of the shares of the minority in the event of the sale of the shares of the majority at the same terms and conditions and under the same purchase price. It also covers the right of the majority to oblige the minority to accept an offer to sell their shares to an investor who is purchasing the shares of the majority at the same terms and conditions and under the same purchase price.
Non-profit companies are regulated by the new law as public non-profit companies. They can only take the form of a joint-stock company whose profits shall be spent exclusively on the community, as specified in the articles of association; or as a private non-profit company that can take the form of a limited liability company, joint-stock company or simplified joint-stock company, whose profits shall be spent on non-profit items and services, as may be specified in the articles of association or articles of incorporation, as the case may be. The new law also regulates the membership of non-profit companies.
A professional company, which is a company incorporated by one or more licensed person(s), either on their own or with others, can take the form of any type prescribed in the law. It is only allowed to practise the profession through its licensed shareholder(s) and shall not engage in commercial activities. The licensed shareholder shall be liable to the company and the other shareholders for their malpractice, and the company shall be liable to the others for incurred damages as a result of the malpractice of its shareholder(s) or employees.
Holding & Subsidiary Companies
The enhancements of the new law include specifying the characteristics of holding and subsidiary companies. More specifically, criteria were set to evaluate when a company is considered a subsidiary of a holding company by considering four elements:
• Whether the holding company is granted the majority of voting rights;
• Whether the holding company is solely controlling the appointment or dismissal of either the manager or the majority of the board members;
• Whether the holding company is controlling the majority of the voting rights based on a shareholders’ agreement; and
• Whether the subsidiary is affiliated with a subsidiary of the holding company. The new law also includes a new section related to the conversion of companies, which is focused on the division of a company, where a company may be divided into two or more companies even if the company is currently under liquidation.
The company that results from the division can take any of the forms prescribed by the law, and the liability of its debts and obligations before the division becomes the responsibility of the divided company as a successor of the former company, according to the extent resolved in the division resolution.
Further general advancements were reflected, including permitting the trade name of a company to be in any other language than Arabic; and recognising the shareholders’ agreement and the family charter as binding and complementary documents to the articles of association or articles of incorporation, as the case may be.
SAUDI INVESTMENT MARKETING AUTHORITY: The focus on foreign investment is optimised by each adopted legal reform, and for that purpose a new authority has been formed under the name of the Saudi Investment Marketing Authority. It is dedicated to supporting the activities of marketing investment and managing the designated platform for supporting investment, known as Invest Saudi. It is also tasked with developing plans and programmes for local and international marketing that supports investment.
Foreign Law Firms
In view of supporting foreign investment in the legal sector in the Kingdom, the Implementing Regulations for Licensing Foreign Law Firms issued by Ministerial Resolution No. 186 are complementary to the Code of Law Practice issued by Royal Decree No. (M/38).
The implementing regulations prescribe the requirements for licensing foreign law firms and licensed foreign law firms’ obligations, including fulfilling Saudiisation requirements, which are related to employing Saudi nationals, transferring knowledge and committing to training employees. They also clarify the restrictions on licensed foreign law firms’ practice of the profession, including not exceeding the specified percentage of the total referred work outside Saudi Arabia, and limiting the representation in court hearings and before judicial and quasi-judicial tribunals to qualified Saudi nationals only. A foreign law firm can practise the profession in the Kingdom through a professional company with a licensed Saudi shareholder, or by opening a branch office directly owned by the foreign law firm in its country of incorporation.
As part of focused efforts to develop a supportive ecosystem for foreign investment, a co-initiative has been established between the Royal Commission for Riyadh City and the Ministry of Investment in order to position Saudi Arabia as the regional headquarters for multinational firms. Known as the Regional Headquarters Programme, it is oriented towards multinationals, meaning foreign companies present in more than one jurisdiction through their branches, affiliates or subsidiaries.
The objective is to incentivise them to obtain a regional headquarters licence and establish their presence in Saudi Arabia through an entity that provides support and helps to manage and provide strategic direction to its branches, affiliates and subsidiaries in the MENA region. A multinational group with a regional headquarters in Saudi Arabia is at liberty to provide management support to its entities in other regions. A regional headquarters licence enables the entity to be involved in activities that are classified as:
• Mandatory activities, including developing and monitoring regional strategy; coordinating strategic alignment; managing the provision of products or services in the region; supporting acquisitions, mergers and divestments; monitoring financial performance as strategic direction functions; and business planning, setting budgets, business coordination, identifying new market opportunities, monitoring the regional market, developing a marketing plan for the region, developing operational and financial reports as management functions; and
• Optional activities, including sales and marketing support; human resources and employee management; training; financial management; foreign exchange and Treasury centre; compliance and internal control; accounting, legal and audit; research, analysis and development; advisory; operations’ control; logistics and supply chain management; international trading; technical support and engineering assistance; network operation for IT systems; intellectual property rights management; production management; and sourcing any raw materials and parts. All the activities are to be provided as support and management to the branches, subsidiaries or affiliates, as the regional headquarters’ entity can only be involved in management and monitoring and shall not be involved in any commercial activities itself.
Remedies in Foreign Trade
The public interest must be protected, and the support of foreign investment shall not negatively impact the public interest. Therefore, the Law of Trade Remedies in Foreign Trade issued by Royal Decree No. (M/60) dated November 23, 2022, and its Implementing Regulations issued by the resolution of the Saudi General Authority of Foreign Trade No. 55 dated March 1, 2023, cover topics related to anti-dumping agreements and subsidies agreements; countervailing measures; and the safeguards agreement, which is a mechanism ensured by the World Trade Organisation (WTO) protecting the domestic industry from serious injury or threat.
The law further regulates the procedure for anti-dumping investigations and countervailing and preventive measures; the confidential treatment of information; the determination of dumping; the specification of the amount of the allocated support; the definition of injury; the determination of the excess of imports; the serious injury or the threat of a serious injury; anti-dumping and countervailing measures and price undertakings; preventive measures and the review of those measures; the public interest; monitoring field visits; consultations on the preventive measures’ investigation and the notices of the Safeguard Committee of the WTO.
In summary, Saudi Arabia is witnessing a great deal of meaningful developments and reforms within the legal field that require awareness and the ability to foresee future developments with confidence.