Mr. Rashed Al Khaldi
“Legal capacity in one-man company”
The Royal Decree No. M/3 dated 28/1/1437H was issued in conformity with the policy and vision of Saudi Ministry of Trade to re-organized amend, cancel and enhance the current status of the already established companies based and on the above re-organization, we now have four (4) types of companies as follow:
- Joint stock company
- Limited liability company
- Tawsia Basita company
- One-man company
It is confirmed by the Saudi legislator that the word limited liability in the companies means that the shareholder in the company shall solely be liable for the shares he has obtained in the said company and such liability will not extend or goes to his private / own money, in other words in case of insolvency or liquidation of the company, the shareholder will be liable only to pay the money of its already allotted shares.
The above limited liability has encouraged the shareholders as well as the public at large to go for establishment of limited liability companies, the new amended (the new Saudi company law) has gone furthermore by specifically declaring such limited liability by creating one-man company under Article 154 – 155 (Saudi Co. Law)
The nature of my legal works has led me to enter and peruse the website of the Saudi Minister of Trade, to check the formation of the new companies their types and the most desirous one, I have noticed that 99 companies were formed within 4 days and 63 of these formed companies were limited liability companies, mainly 33 companies were one man company.
The formation of these 33 one man company reflected the willingness of the Saudi Public Sector to go for such type of companies because it is more safety and flexible in relation to its formation plus the easiness of performing its business, furthermore the lawyers and the legal firms have started to advise their clients to proceed establishing such one man company.
In spite of the legal existence of the one man company and its unique and distinguish position it had taken among the Saudi companies, but nevertheless a question poses itself to its impact in the legal field and what is the difference between one man company and the limited liability company although both companies are considered in the eyes of the law as similar and with limited liability
Let me specify some difference in relation to the above two types of companies:
- The limited liability company should contain at least two shareholders up to 50 partners, while the one-man company should be with one shareholder (to be confined to one partner) (see Article 151 – 154)
- The appointment of the manager in limited liability company shall be made by the consent of all the shareholders, while in the one-man company, the manager is to be appointed by the said one person (partner)
- The appointment of the manager and its removal shall be as stated in point No. 2 above.
- The shareholder in the limited liability companies is free to be a shareholder on many other limited liability companies whereas, the shareholder in one-man company can not be a shareholder in another one-man company (see Article 154)
- Again, the General Assembly (Article 176) is totally different in the two types of the companies
- If the number of the shareholders exceed 50, in such case, the limited liability will be converted by force to a joint stock company, while in one-man company and in case the numbers of the shareholder exceed (one) then the company will be converted to a limited liability company
- Any amendment to the MUO and Articles of Association of the limited liability company should require 3/4 of the shareholders, while in the one-man company, such amcrdment can be done by this partner alone.
- The death of any shareholder in the limited liability company will not lead to the liquidation/expiry of the company, unless otherwise specified in its MOU and Article of Association (Article 179) while in one-man company, the death or withdrawal of the partner means automatically the termination of the company
The above is a rapid survey and study to two types of limited liability companies in Saudi Law and their legal impact in the private sector due to the fact that such type of companies represent 99% of the Saudi market as specified and mentioned by Saudi authority for small and medium sectors.