Origins of Commercial Companies in Saudi Arabia - Essay Example

Running Head; Commercial Companies in Saudi Arabia Name: College: Course Title: Tutor: Date: Origins of Commercial Companies in Saudi Arabia With the discovery of oil in Saudi Arabia 1936, there sprung up a commercial production of the precious commodity in the 1938 which additionally saw booming of commercial companies in the Kingdom of Saudi Arabia. Nevertheless, the very first company was from the house of Alireza which is also known as Beit Zaina. It is the oldest family business in the Kingdom of Saudi Arabia dating back to one and a half century. It began with Zainal Alizera beginning trading in 1845 from Jeddah importing food stuffs, textiles and other merchandise from both the Middle East and the Indian regions. This was later complimented by the company’s acquisition of shipping lines agencies helping in the carrying of those commodities. (Haji Abdullah Alireza & Co Ltd, 2008) With these activities in place, the company’s business prospered and showed continued development way into the twentieth century. This business was rebranded to the Haji Abdullah Alireza and Company in 1929. The Haji Abdullah Alireza and Company has the commercial registration number one. In the 1930s with emergence of a strong Kingdom of Saudi Arabia, doors were opening for the western trade and from this time the growth of the company parallels in multi-faceted progression the modern history of the Kingdom of Saudi Arabia. (Haji Abdullah Alireza & Co Ltd, 2008) Saudi Arabia has nonetheless various commercial companies such as banks, gold and Jewel shops, foreign exchange companies, import houses as well as having agencies of various international companies. It also play host to contracting and engineering firms not forgetting the automobile companies and the giant oil companies. Capital of the Haji Abdullah Alireza and Company The Haji Abdullah Alireza and Company saw the expansion of its capital base since 1960 reaching the SR130 million mark which translates to (US$101 million) by the year 2003. The Company diversified its business operations entering into areas such as real estate which has a lamp sum market value. The financial strength of the Company could make afford to launch any major project. It has other interest in other business operations which include telecommunications systems, travel and tours, maritime services and other major commercial affairs. (Haji Abdullah Alireza & Co Ltd, 2008) Companies that emerged in Saudi Arabia With the growth of companies and enterprises in Saudi Arabia, there emerged several types of companies that ranged from consumer to industrial companies. Most of the companies that emerged in the Kingdom of Saudi Arabia were state owned with the state having up to 65% stake of the operational companies such as the Saudi ARAMCO. Saudi Aramco is an oil corporation which is the largest in terms of production as well as oil reserves and a state owned corporation. The Saudi Aramco was incorporated on November 1988 but its operations dates back to 1933. The incorporation was done to remove the legal attachments it hard with the Arabian American Oil Company. The Saudi Aramco is a joint venture company. (Aalund, 1993) Another notable company that emerged in this period was the Savola Group. The Savola Group remains one of the Saudi Arabia’s leading companies in the industrial sector. This company has a strong presence that is felt throughout the MENA region and even beyond. Having been established in 1979, it had by this time an initial capital of SR 40 million which in the subsequent years grew significantly to surpass the SR 5 Billion mark. The company is a public listed company. (The Savola Group, 2010) The Savola Group main business operations were mainly in the edible oil industry. In the present years, the company is one of the most successful as well as one of the fastest growing in the Middle East and in the Gulf. (The Savola Group, 2010) Another company that is worth noting is the Saudi Cable Company which began its operations in 35 years ago. It was not only the first cable company in the Kingdom of Saudi Arabia but was the very first of its kind to have an operational base in the entire Middle East region. It had an initial capital of SR 3.50 million as it was being founded in Jeddah in 1975. It has been at its best since its start and was lately the only company in the Middle East that entered in the manufacture of Optic cables. It is today among the top ten companies that have successfully been doing the manufacture of the 400kV underground cable of extra high tension in the world. The Saudi Cable company is a Joint Stock company. (Sabri, 2001) Commercial companies law in Saudi Arabia Definition of commercial companies under Saudi Law The companies’ law that is promulgated by the Royal Decree No M/6 is the main regulator of the formation as well as the operations of any business firms and the companies. As under article one of the companies Law, a company’s definition is made as a contract pursuant which two or even more persons take in to participate in a form of a business formation or enterprise with an aim of making profit, they do this by offering a specie or a work share which they will use when it comes to the sharing of the profit returns from their business formation or even losses that are as a result of their enterprise. (Royal Decree No. M/6) Moreover under the company laws of Saudi Arabia, its regulations describe a company as being a joint undertaking participating in a business enterprise with a view of making profit. This means that a registered company is seen as a commercial entity regardless of its objectives where upon its registration it (company) acquires legal personality. (Saudi Arabia Legal Information) According to the financial times Lexicon, a commercial company is a company that follows the normal and accepted business practices and above all operates in order to make profit. (Longman Business English Dictionary) Commercial companies law in Saudi Arabia Regulations under the companies Law promulgated by the Royal Decree, there are some important provisions such as the requirement that every commercial or industrial establishment be registered in the commercial register. For the Saudis who wish to be participants in foreign companies, they are needed to obtain the Foreign Investments Committee consent prior to being registered. ( Info-Prod Research (Middle East) Ltd, 1999) Under the article 2 of the company law, it provides that a company can take various forms these being: Limited partnership General Partnerships Corporations Joint Ventures Limited Liability Partnerships Partnerships Limited by Shares Variable Capital Companies Cooperative Companies The regulations for the various forms of companies are as follows; Joint Stock Companies This is a company by five or more persons or entities. The apportioning of the shares is done in negotiable shares that are of equal amounts with the shareholders being liable to the value of their holdings in the company. Two million Saudi Riyals is the minimum capital required for the company to float its shares to the public. On the other hand, the value per each of the offered shares cannot be less SR 50. This form of company is composed of a director’s board which is appointed by its shareholders and it is a requirement that the directors own 200 shares of the Joint Stock Company. ( Info-Prod Research (Middle East) Ltd, 1999) Limited Liability Company This is a general term given to a privately owned company setting up agricultural, industrial or contracting services projects and ids made up of both Saudi and Foreign partners. Companies of this kind have no permission whatsoever to conduct banking, savings or insurance operations. No subscriptions from these entities to the public are allowed in order to raise capital. Partnership Partnerships take various forms as from the Saudi Arabian company Laws provides. These forms are Limited partnerships, Professional partnerships and General partnerships. A distinguishes about the general partnership is that it is an association of two or more persons who are liable for the company debts. Limited partnerships are made up of partners who are general and liable for the partnership debts and also limited partners liable for partnership’s debts to the extent of only what they have invested. On the other hand, professional partnerships are made up of foreign free professionals; they come together and acquire a local license for their operations. Their existence on the other hand requires an approval from the Commerce Ministry. ( Info-Prod Research (Middle East) Ltd, 1999) A company will be considered to be null and void if it does not take any of the above forms as it is indicated in the article 2 of the Saudi Arabian Company laws. It further provides that the partner’s contribution may be of a certain amount of contribution in either cash, asset or can involve services unless the provision of the Companies’ regulation otherwise states. Moreover, a company’s memorandum of association as well as other amendments thereto must be made in writing in the presence of the registrar. Without meeting this, the amendment or such a memorandum remain invalid vis-à-vis third parties. (Saudia Online, 2004) The Company Laws also provides that except for joint ventures, any one company should establish its head office in the Saudi Arabian Kingdom as long as it is incorporated in accordance with the Company regulations. By so doing, the company will be considered to be of Saudi nationality but not necessarily enjoy the rights of being restricted to the Saudis only. (Saudia Online, 2004) Bibliography Info-Prod Research (Middle East) Ltd. (1999). Saudi Arabia; Business Forms and Structures. Retrieved August 09, 2010, from Info-Prod Research : http://www.infoprod.co.il/country/saudia2b.htm Ali & Partners. (2004). Middle Eastern Laws - Saudi Arabia. Retrieved August 08, 2010, from Ali & Partners: http://www.mideastlaw.com/middle_eastern_laws_saudi_arabia.html Haji Abdullah Alireza & Co Ltd. (2008, December). The House of Alireza . Retrieved August 09, 2010, from Haji Abdullah Alireza & Co Ltd: http://www.alireza.com/history.htm Saudi Arabia Trade and Business Directory. (2004). Commercial Regulations; SAUDI ARABIA COMMERCIAL REGULATIONS. Retrieved August 07, 2010, from Saudi Arabia Trade and Business Directory: http://www.the-saudi.net/business-center/regulation-commercial.htm Saudia Online. (2004). REGULATIONS FOR COMPANIES. Retrieved August 09, 2010, from Saudia Online: http://www.saudia-online.com/regulations%20for%20companies.htm Sabri, S. (2001). The house of Saud in commerce: a study of royal entrepreneurship in Saudi Arabia. New Delhi: I.S. Publications Pvt. Lmt. The Savola Group. (2010, January 11). Savola Group. Companies of Saudi Arabia . Aalund, L. (1993, August 16). Saudi Arabia. The Oil and Gas Journal , 38-44. 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