With the rapid development of the business sector in the Kingdom of Saudi Arabia and the economic transformations aimed at achieving Vision 2030, limited liability companies are facing challenges in expansion and financing. For this reason, converting a limited liability company into a closed joint-stock company has become a strategic option for many entrepreneurs.
This transformation opens the door to new opportunities for financing, expansion, and achieving greater sustainability while taking advantage of the modern organizational structure of joint-stock companies. In this article, I will review the benefits and procedures required by this transformation, highlighting the challenges and how to overcome them.
One of the most common forms of companies in Saudi Arabia, it consists of one or more persons, and is characterized by limited liability, as each partner is responsible to the extent of his share of the company's capital, which protects his private funds and does not expose them to risk. This company has an independent legal personality, and its provisions are subject to the Saudi Companies Law issued by the Ministry of Commerce.
A limited liability company has many characteristics that make it an ideal choice for small businesses and entrepreneurs because it has:
Each person is responsible to the extent of his share of the company's capital, which protects his funds from exposure to risks.
The company may include one partner or several partners, the number of which may reach a maximum of 50 partners.
There is no minimum capital requirement, which makes it a flexible option for entrepreneurs, and the capital is determined in the company's articles of association and is divided into equal shares.
The company is managed by one or more partners or a manager is appointed from outside the company, and the management is obligated to follow the decisions of the general assembly of partners.
This company is characterized by having a legal personality independent of the partners, which allows it to deal independently as a legal entity.
The company may not issue any shares or trade them in public markets, which makes it unsuitable for large projects that require large-scale financing.
Some restrictions limit the flexibility of the company and its ability to grow and expand, the most prominent of which are:
1- Difficulty in increasing the company's capital as this procedure requires the approval of all partners, and some disagreement rarely occurs between partners.
2- Priority right to shares and the partner must pay the value of the share in full or resort to transferring the share to others after notification.
3- It cannot obtain financing through public subscription, and it is not allowed to issue debt instruments either.
4- If any decision is taken, the approval of all partners is required, which causes delay and slow performance.
5- If the company wishes to extend the term of the company, any partner can object, and to resolve this matter, the objecting partner must withdraw and sell his share.
Converting a limited liability company into a closed joint stock company is one of the most strategic options for many entrepreneurs in Saudi Arabia who seek to achieve various goals, for several reasons, most notably:
1- The ability to easily increase the company's capital and financing is collected through issuing shares or private subscriptions without the need for the approval of all partners.
2- You can obtain large financing and participate in large projects and develop their products, through financing by subscription or issuing debt instruments.
3- Ease and flexibility in trading shares with a specific number of investors or partners.
4- It is managed in a professional and organized manner, which enhances and improves the company's performance, as it is managed by an elected board of directors, which separates ownership and management.
5- It is characterized by its structure that is resistant to changes, which gives it more strength and sustainability than limited liability companies.
6- Ease of expansion, growth, and flexibility that works to attract many investors to enhance expansion.
7- Liability is limited to the value of the person's share of the basic capital, so the person is not personally responsible for paying financial obligations.
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To carry out the process of converting a limited liability company into a closed joint-stock company legally and correctly, some steps must be followed, the most prominent of which are:
1- Verify that all legal conditions required to complete the process are met.
2- Prepare the articles of association and bylaws that are consistent with the structure of the closed joint-stock company.
3- Evaluate the capital of the limited liability company and all its assets to determine the total value of the company, and find out whether it is equal to the capital required for the closed joint-stock company or not.
4- Obtain the approval of all partners and contributing members.
5- Document the official decision regarding the conversion and then initiate the executive procedures to convert a limited liability company into a closed joint-stock company.
6- Submit an official conversion request to the Ministry of Commerce or the government agency, and attach the request to all the documents required for this process.
7- Hire a specialized company to carry out all procedures legally in a faster time.
8- Submit a request to update the commercial register to comply with the new company system.
9- After full approval, a new commercial register is issued in the name of the joint-stock company.
Among the most prominent challenges facing companies during the conversion process:
1- Complex procedures that require compliance with many legal procedures, so it is always recommended to seek the help of a company specialized in providing conversion services such as "Emtmam" Company.
2- High costs, which include legal costs, evaluation fees, and registration fees. To reduce these costs, it is recommended to seek the help of a company that can carry out all administrative and legal procedures and consultations such as Emtmam.
3- Restructuring the company, which may cause some partners to lose direct control over daily decisions.
4- Failure to choose an efficient board of directors may cause the company to fall into violations and penalties, and the cost of disclosure and financial commitment may also represent a burden on many medium and small companies.
Despite all the challenges mentioned, companies can overcome all of this through good planning, employing the appropriate competencies, and using the specialized and experienced "Etmam" company to achieve all the desired benefits from the conversion process.
There is no maximum number of shareholders, but trading is limited to a specific range between a specific group of partners and investors or specific familymembersr, because the company's shares are not offered for public trading but are traded between a specific group of individuals.
The partners' shares are converted into shares whose value reflects the proportion of each partner in this company, and the partners' rights remain preserved, but changes may occur in the company's management and decision-making system.
Contact us now to convert your organization into a joint-stock company 0554799222
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December 22, 2024
- BY Sultan Al-Qahtani