The Benefits of Establishing a Limited Liability Company in KSA

The Limited Liability Company "LLC" is a company which is formed of no more than fifty partners and the company’s financial liability is independent of its owners’ liability. The LLC can be established in the Kingdom of Saudi Arabia and can be formed of 100% of foreign management except for some of the activities which are listed by the Saudi regulator.

Such activities may obligate the company to acquire a certain percentage of Saudization and its different from one case to another, some activities require 25% some requires 30% such as communication activities and transportation. The requirements of establishing an LLC according to SAGIA (the Saudi Arabian General Investment Authority) must be fulfilled in order to either establish a 100% foreign entity or a foreign entity with Saudi partnership in the kingdom.

These requirements are determined by the Saudi regulator by providing a minimum amount of capital money and other documents which are different according to the activity of the established company such as transport, communications, services, trading, consultation services…etc.

Also, the regulator gave investors who have an already established company outside the Kingdom the choice to operate a branch office instead of operating an LLC within the Kingdom. In such a case, there is no need to register a new Commercial Registration "CR" within SAGIA since they can provide the original CR of the mother company.

Also, in general, there are plenty of reasons to establish an LLC either in Saudi Arabia or abroad and such reasons explain why most investors choose to establish LLC instead of any other company type:

You Avoid Double Taxation

Depending on how the company is established and how many employees/investors there will be, a small business startup often creates an LLC because this helps it avoid double taxation and can still support multiple classes of stock if needed.

Double taxation usually occurs when an entrepreneur chooses a C-Corp business structure, so the company and the owner are both taxed separately in April. An LLC prevents this, as it is taxed more like a sole proprietorship. Especially in Saudi Arabia, taxes are different between VAT, zakah and direct taxes of the companies.

You Can Do Changes Easily

Another benefit of the LLC structure to a startup is that once you have set it up, there's no need for a lot of continual maintenance, and perhaps more importantly, it's easy to add new partners or sell shares in the entity to someone else.

This is more relaxed than the C-Corp business structure, in which minutes are required for making board decisions. Generally, LLCs have fewer restrictions on many administrative items compared to other business structures.

You Can Protect Your Personal Assets and Property

This is, in my opinion, is the most important reason why a businessman or a group of businessmen may establish LLC since many startups create the LLC structure to protect their personal assets against lawsuits directed at the company. A sole proprietorship can be a risky entity to start. More risky is a general partnership.

After a period of expansion and growth, many founders convert their LLCs to an S-Corp or C-Corp. This is because an LLC is limited in what it can do when it comes to acquisitions and mergers. LLCs tend to be adequate for businesses that are more in their beginning stages.

These are the main reasons why I would advise any of my clients to establish LLC in Saudi Arabia and will discuss the jurisdiction of commercial disputes and its issues within my next article.

Written by:

Shehab Alsaleh | Shehab Alsaleh Law Firm​