Financial commitment, compliance with regulations, liability protection, human resources, intellectual property, and taxes are common but sometimes there are complex concerns that must be addressed when starting a business in Saudi Arabia. The success of a business depends on more than just satisfying clients; it also requires a well-thought-out corporate structure and all types of compliant contracts and agreements to ensure that your company complies with local regulations. There are an unlimited number of contracts and agreements that need to be considered. Some of the most important of these for new businesses (particularly startups) are, non-disclosure agreements, employment agreements, offer letters, termination letters, memorandum of understanding, services contracts, novation agreements, co founders’ agreements, shareholders agreements, joint venture agreements and powers of attorney. Having each of these contracts prepared correctly will ensure that your company is more adequately protected.
We set out below the basics of starting a business in Saudi Arabia.
To What Extent Can Foreigners Do Business in Saudi Arabia?
The Kingdom of Saudi Arabia does allow for the opening of businesses by foreigners. However, generally there is a lot of red tape when doing so. One route that entrepreneurs may want to embark on is technology startups. To open a technology startup in KSA, companies will need to have some core documents before even setting up. These initial documents for technology startups include a memorandum of understanding or letter of intent, a co-founder’s agreement, shareholders agreement and then a vesting agreement. These agreements should all be entered into at the outset of the company set up.
The process then includes the cofounders or shareholders signing various powers of attorney, and in the case of a company that has already been established overseas outside of Saudi Arabia, including either a shareholder resolution or a board resolution approving the establishment of the company. Following the execution of these documents, they will all need to be sent to a company in Saudi Arabia to apply to the Ministry of Investment to obtain a Foreign Investment Licence and an Articles of Association and Certificate of Commercial Registration from the Ministry of Commerce. The Commercial Registration will come either in the form of a services license or a trading license. Issuance of this license will then allow the company to formally be established in KSA and have corporate presence.
Following the establishment of a company presence in Saudi Arabia, the co-founders or shareholders should then enter each of their various commercial agreements. This will ultimately depend on the type of company activities that they will be undertaking in Saudi Arabia. These documents include all types of corporate and commercial documents and are generally standard templates that get amended. For technology companies these will typically include various types of licensing agreements (including technology licensing agreements), website terms and conditions, various services contracts and can include commercial agency agreements. Apart from the commercial template agreements mentioned above, regular employment agreements and offer letters will need to be issued in accordance with contract and other document templates that follow Saudi Arabian laws and Shari’ah principles.
There are still certain areas where foreign investment is restricted in Saudi Arabia, although laws are gradually being relaxed to make these areas more accessible by removing them from the Ministry of Investment’s negative list. Foreigners can start a business in fields including insurance, telecommunications, construction, and retail. However, a key sector that the government is focusing on developing is the technology and communications sector.
Following the establishment of a commercial presence (in any sector), secondary registrations will need to be entered into to allow for the new company to open its government files. This will include obtaining a municipality license from the Ministry of Municipality, Rural Affairs and Housing and will include entering into a lease agreement. There will also need to be registration at the General Authority for Zakat, Customs and Tax to register for tax and VAT, registrations will need to be made at the Chamber of Commerce, trademarks will need to be registered by entering into trademark licencing agreements, patents should be filed along with any copyrights and files will need to be opened with the Ministry of Human Resources and Social Development so that employees can be onboarded. In addition to all the above, a General Manager will need to enter an employment contract and have his signature registered at the chamber of commerce.
For those asking, “How to start a business in Saudi Arabia?” know that the regulatory hoops to jump through now are much more straightforward than in recent years.
- Business Activities in Saudi Arabia.
The first thing that a company will need to do to establish a company in KSA is confirm which company activities it desires to undertake. These activities have been distilled into a defined list known as ISIC4 and are published by the General Authority for Statistics and by the Ministry of Investment (also known as MISA). The activities that can be undertaken by investors can only be taken from this specific ISIC4 list, so it is imperative that investors get this correct at the outset.
In addition to the above, there may also be government licenses that may be required by companies depending upon the various types of activities that they desire to undertake. For example, a technology company may require additional licenses from the technology commission, a finance company may need approvals from the capital markets authority and so forth.
Approvals & Certifications to Obtain a Foreign Investment Licence
Certification of the company’s commercial registration by the Saudi Embassy previous year’s financial statements/records from the previous year, certified by the Saudi Embassy in its home jurisdiction.
This is typically undertaken by lawyers in Riyadh, lawyers in Jeddah or lawyers in Khobar. However, many companies should know that a lot of this can be done online. This can save money on legal fees particularly for startups in the technology sector.
- Formalize The Articles of Association.
The Articles of Association sets out the obligations of the parties and is registered with the Ministry of Commerce prior to the Commercial Registration Certificate being issued. In Saudi Arabia the Articles of Association is generally defined as the company (although the certificate of commercial registration is issued following the Articles of Association).
The Articles of Association sets out the legal rights of the parties, who owns which shares but typically does not reference any other legal documents that are often referenced in the shareholders agreement or co-founders’ agreement.
The Articles of Association also set out the obligations of the General Manager and the Board of Directors
- Post Commercial Registration Issuance
Following issuance of the Commercial Registration, additional contracts will need to be entered into by the company and by its employees. These include employment agreements, offer letters and other commercial contracts. These are typically based on general contract templates. Many of these legal documents and legal contracts are free of charge while lawyers charge people high fees to complete them. Typically, we suggest that companies (local or foreign) generate their own legal forms and contracts before visiting with a lawyer to save money on fees. In Saudi Arabia, this has been quite limited, and companies have been using foreign examples such as LegalZoom, Rocket Lawyer, Lexyom or Clara to be able to complete such forms. For the first time, Itmam LLC in KSA provides all types of standard contract templates and lawyer forms for everyone.
- Secondary Registrations
Following issuance of the Certificate of Commercial Registration, various secondary registrations must be completed so that the new company can be properly registered with the following government authorities:
- Ministry of Commerce
- Ministry of Investment
- Ministry of Municipality, Rural Affairs and Housing
- Civil Defense
- General Organization for Social Insurance
- General Authority for Zakat and Tax
- Ministry of Human Resources and Social Development
Other Helpful Information
The Saudi Arabian legal framework for corporations is, in many ways, like that of the West. In other respects, it is very different because of its historical base on Islamic Shari’ah principles. A corporation may be operated in various ways, such as a private entity or some other kind. While you have much leeway in determining the specifics of your business’s launch, you should take your time with its legal foundation. The regulatory hurdles may be overcome with the aid of skilled legal counsel.
Itmam Platform & Doing Business in Saudi Arabia
Itmam assists both Saudi based and foreign companies across all industries in creating business documents, contracts, and forms in Saudi Arabia. Whether you need a share purchase agreement, employment agreement, promissory note, or any other type of startup document, Itmam has you covered. We tailor our services to each customer’s individual needs since we know that no two businesses in the same industry are the same. Try using our automated contracts and forms today to assist your startup/small and medium sized enterprise. Hope you enjoyed reading our post on how to start a business in Saudi Arabia