The Saudi Companies Law - Research Proposal Example

Introduction

Recently the Saudi Arabian government updated the Saudi Companies Law that had been in use since 1965 when it was enacted by the Royal Decree M/6 dated 22/3/1385. The law became effective 150 days after publication in the official gazette (Ul Al-Qura) and thus replaced the current company law. The new company’s law is a clear representation of modernization of Saudi company’s law to work in line with global trends. The new Saudi Arabian company’s law came into effect in 2nd May 2016 (Ballantyne, 2014).

The changes that occurred in the new Saudi company’s law were minimal, but most elements in the Saudi company’s law 2015 were incorporated. Also, the Joint Stock Company (JSC) and Limited Liability Company (LLC) were incorporated. The forms eliminated from the new company law are corporate companies, variable capital companies, and partnership limited by shares. The new company’s law on shareholders was changed, and two shareholder minimum requirement for a Limited Liability Company was removed. This paved the way for the formation of Limited Liability Company (LLC) by single shareholders. However, some restrictions were put forward; no single shareholder was allowed to establish more than one Limited Liability Company (LLC).

Key research questions

The Saudi Arabian company’s law 2015 has been the key instrument in the development of the new Saudi company’s law, but to proof, this statement a series of questions need to be answered

• Does the new Saudi company’s law fit the current global system of companies?
• Is the new Saudi company’s law better than the Saudi Arabian Companies Law 2015?
• Is the new Saudi companies law too harsh than the Saudi Arabian Companies Law 2015?
• Should any changes be made to the new Saudi company’s law?

Aim of the research

Our research aim at;

• Evaluation of the significance of the Saudi Arabian company’s law 2015 as an instrument in the development of the new Saudi companies law.
• Determining whether the new Saudi companies law developed are in line with the global system of companies.
• Propose the necessary changes to be made on the Saudi companies law

Objectives of our research

• To compare the new Saudi companies law with company’s law of other developed countries in the world.
• To check on the changes made to the new Saudi companies law by comparing it to the Saudi Arabian companies law 2015.
• To check on the benefits of new clauses added and old clauses removed.
• To check on the companies acceptance of the new Saudi companies law.

Literature review

The Saudi Arabia government had been using the old Saudi company’s law for quite long, but with the emergence of globalization, the government felt it was time to develop new Saudi company’s law, and this started in the year 2015. The new laws were developed to promote the establishment of small and medium business enterprises (Bhatty, 2011). The new laws are flexible, and most requirements are minimized encouraging more businesses to be formed in Saudi Arabia. The rules on corporate governance were introduced in line with the international practice on large enterprises. The growth of the stock market and the entry of foreign investments into the country have forced the Saudi government to change the company’s law to address the changes as far as modernization is concerned.

On the 9th November 2015, the Saudi Arabian government approved the new company’s regulations that governed the corporations within the Saudi Arabian kingdom. The effective date of use will be May 2016, and all companies will be required to comply with the new companies regulations by May 2017 that is a year after being enacted. The constitutional documents defining the type of companies and rules on regulations will be published by the Ministry of Commerce and Industry (MoCI) and the Capital Market Authority (CMA). The new Saudi company’s law is aimed at addressing the uncertainties brought by the previous company’s law. The MoCI will oversee the implementation of the new company’s law. The Capital Market Authority (CMA) will regulate the listing of the joint stock companies.

The creation of the new Saudi company’s law was necessitated by the Saudi Arabian economic evolution and the need for more compatible regulations to control the complex business environment (Niblock, 2015). What really hastened the development of the new regulations includes;

• The growth of the direct investment from foreign nations in Saudi Arabia after the Saudi government entered an agreement with the world trade organization in 2004.
• The development of the Sukuk market and the opening of Saudi Arabian stock market for foreign investment.
• The expansion of the Saudi Arabian economy from the old hydrocarbon based economy to an industrial economy.
• The business environment dominated by the small and the medium enterprises require a well-organized business environment to encourage the development of such enterprises.
• The emergence of the private sector in the economic development in the Saudi government.

All these needed a more effective company’s law to facilitate the success of the Saudi economy. Changes in the old Saudi company’s law needed to be enacted.

The new Saudi company’s law with respect to the limited liability company (LLC) has seen a number of changes; the Limited Liability Company can now be formed with one shareholder not two as the old Saudi company’s law. However, the shareholder is not allowed to form another limited liability company (Eyad, 2015). The statutory reserve for share capital was reduced to 30% from the current 50%. Protection of shareholders personal interest is introduced, and in case the company makes loss amounting to 50%; the company must be dissolved by law even if the shareholders fail to convene a meeting and decide on the dissolution. Share transfer in Limited Liability Company has been made simple; the share transfer is to be recorded on a share register held by the company. The old Saudi company’s law was tedious and required the shareholders to vote for shares to be transferred. Some shareholders made the transfer impossible by refusing to vote.

In respect to Joint Stock Company (JSC) changes made include; formation where a minimum of two shareholders can now form the joint stock company as opposed to a minimum of five shareholders in the old Saudi companies law. One shareholder can now form a joint stock company as long as he/she has a capital exceeding SAR 5million equivalent to the US $1.3million. Capital requirement was reduced to a minimum of SAR 500,000 from SAR 2 million.

Minority interest is covered in the new company law; the audit committee is formed away from the board of directors. The nomination of board members must be by the total percentage of shareholders not just chosen few; every shareholder has a right to nominate a board member. Use of modern technology in convening meetings is necessitated by the new Saudi company’s law. Buying back of shares is allowed, and joint stock companies can buy back as they deemed so. The qualification shares for the board of directors are not mandatory as was the old Saudi company’s law (Kaczorowska, 2015).

Holding company is redefined in the new company’s law as a company that owns more than a half of the shares in a company and has a top mandate in the creation of the board of directors. The sharia compliance for depth securities still remains intact because of the culture of the Saudi people. The holding company was to include the word “holding” in naming the company and each financial year the company was to prepare a financial statement. The new law is still under observation, and necessary changes can be made if need be. All the changes made are necessary and important to the creation of a more friendly business environment.

Methodology

In our research we will employ the use of both qualitative and qualitative methods of research; snap survey software will also be used. Qualitative research is mainly used by researchers to understand the primary reason for the research. This method helps in the development of ideas and opinions and a further deep meaning of the issue. Qualitative research can employ the use of structured or unstructured techniques like discussions, interviews, and observation.

The quantitative research method is mainly used in quantifying the research problem numerically using given statistics. Attitudes, opinions, behavior of a given population can be quantified. Data can be collected through an online survey, paper survey, face-to-face interviews, and telephone interviews or through observations. Snap survey software is essential when tackling a large number of respondents and is important in gathering quantitative data.

Descriptive method was used when comparing the new Saudi company’s law and the old Saudi company’s law. Our main method we will use in the gathering of information will be library search and internet search. The information can be gathered from technical reports which are written to provide research results for research institutions, students and government (Shehata, 2015). Scholarly articles which contain research done by experts in the field can be studied, these articles are said to be accurate and relevant. Literature review articles review the original research on the given topic. The Saudi Arabia companies’ law will also be studied and comparisons obtained.

This is because most needed information is in the library sources on the internet. In case a field work is planned; interviews and use of questionnaires will be favorable for the research. The collected data will be analyzed through a meta-analysis which is most favorable for the published data. Code of ethics in research is paramount, and this applies to our general behavior towards individuals and the society at large (at et al., 2013). The codes of ethics are there to help researchers make decisions without hindrance to the cultural values of the given community.

Conclusion

The introduction of the new Saudi Arabian Companies Law will provide an opportunity to restructure. For instance, the establishment of the single shareholder companies provides a good opportunity for most businesses in Saudi Arabia. The new laws will attract largest business families of Saudi Arabia by considering restructuring their holdings as corporate vehicles thus benefiting from such restructuring opportunities.

Reference list

• Beblawi, H., & Luciani, G. (Eds.). (2015). The Rentier State. Routledge.
• Eyad Reda, (12 Nov 2015). New Saudi Arabian companies law. DLA Piper Publications. Print
• Leadership & Organization Development Journal, 14(2), 30-35.
• Kaczorowska-Ireland, A. (2015). Public international law. Routledge.
• Niblock, T. (Ed.). (2015). State, Society and Economy in Saudi Arabia (RLE Saudi Arabia) (Vol. 6). Routledge.
• Ballantyne, William Morris, (2014). Commercial Law in the Arab Middle East: The Gulf States. Vol. 30. Lloyd's of London Press, 2011
• Bhatty, A. (2011, September). The growing importance the Saudi Arabian Companies Law. In Session IV: (pp. 23-24).
• Shehata, N. F. (2015). Development of corporate governance codes in the GCC: an overview. Corporate Governance, 15(3), 315-338.
• García‐Rodríguez, F. J., García‐Rodríguez, J. L., Castilla‐Gutiérrez, C., & Major, S. A. (2013). Corporate social responsibility of oil companies in developing countries: from altruism to business strategy. Corporate Social Responsibility and Environmental Management, 20(6), 371-384.