In light of the rapid growth witnessed by the business sector in the Kingdom of Saudi Arabia, many entrepreneurs after Business Setup and registering trademark are looking for how to convert from an establishment to a more organized and powerful company to expand the scope of their business and enhance its sustainability, as this step allows them to increase capital, expand the management team, and improve the chances of success and profitability.
With the issuance of the new companies system, the process of converting from an establishment to a company has become easier and clearer, as this system covers all aspects related to companies, from establishment to dissolution, while ensuring transparency and protecting the rights of all parties concerned.
The difference between an establishment and a company
It is important to be aware of the difference between and In terms of financing and borrowing
● The establishment does not have any independent financial entity, which means that any financing or loan granted is in the name of the owner of the establishment personally, which makes him obligated to repay this loan in full and personally.
● The company's possession of an independent financial entity contributes to enhancing its opportunity to obtain financing and loans easily, as it relies on its financial record and assets, and not on the financial capacity of its owners personally.
Financial Statements
● establishments are not obligated to deposit any financial statements.
● Companies are obligated to submit financial statements while taking into account their compliance with the accounting standards agreed upon in the Kingdom.
The most important conditions for transferring from an establishment to a company in Saudi Arabia
, an establishment and a company, before embarking on the conversion process. Below we explain the most prominent differences between them:
In terms of establishment
● The establishment is owned by one person who is responsible for managing all its affairs and bearing all responsibilities and obligations.
● The company may be owned by two or more people who are jointly responsible for bearing management matters and financial obligations.
Financial Obligations
● Establishments do not have a financial entity independent of their owner, as all financial obligations are the personal responsibility of the owner and include his assets.
● The company is distinguished by being a legal entity separate from its owners, as it has an independent financial entity, and may include partners or shareholders who own specific shares, which means that their responsibilities are limited to the percentage they own in this company
The process of transferring from an establishment to a company requires the fulfillment of some important conditions, the most prominent of which are:
1- The commercial records of the establishment must be valid.
2- Submitting a waiver decision from the establishment, certified and approved by the Chamber of Commerce.
3- The necessity of submitting an official decision regarding the opening of the branch, certified and approved by the Chamber of Commerce.
4- Paying all dues related to this establishment.
5- Issuing the incorporation contract or the company's articles of association electronically.
6- Choosing a specialized and good company to assign it to work on the procedures correctly and properly, and document the contract for establishing the company.
The most prominent types of companies that an establishment can transfer to?
Before taking any action to convert your establishment into a company, you must be aware of the types of companies available for transfer to choose the most appropriate for you, and the most important of these companies are:
The sole proprietorship
A company that is affiliated with and owned by one person who is personally responsible for all its financial and legal obligations.
Joint stock companies
A company comprises several shareholder partners, each of whom is responsible for the amount of his share of the company's capital.
A general partnership company
A company made up of two or more persons, and each partner is jointly liable to bear and pay any debts of the company from his own money, and no partner can waive or sell his share in the company without obtaining the approval of all partners.
Simple partnership
It is a company consisting of two partners, but their responsibilities are different. One of them is jointly responsible for all obligations, especially debts, from his money, and the other is responsible according to his share in the capital of this company.
Limited liability company
This company is composed of several shareholders, but each individual is responsible according to his share in the capital of this company, and if the capital ends, none of them bears responsibility.
Holding company
There are several forms of this company, as it may be a joint stock company, a simplified joint stock company, or a limited liability company.
Simplified joint stock company
This company enjoys that it operates according to a system determined by the shareholders, which controls the way it is managed and structured, and there is a chairman who has all the powers enjoyed by the board of directors and its members.
Professional company
This company is established by one or more persons to practice a profession, and a license must be obtained from the competent authority to practice this profession.
Cooperative companies
A company formed by the union of a group of individuals or small companies, and is managed collectively, and its profits are divided according to the amount of capital contributed by each person.
Advantages of converting from an establishment to a company
The Saudi corporate system has many advantages that make the conversion process an important and distinct decision for the growth and expansion of many establishments, and the most prominent of these advantages are:
1- The possibility of working to expand the company's commercial operations and thus increasing the opportunity to reach new markets.
2- Companies are distinguished by their legal personality, which facilitates the implementation of all sales, purchases and contracting operations with complete flexibility.
3- Companies enjoy the advantage of not being subject to social security taxes or the health care system, which provides them with many great financial advantages.
4- Companies have broader legal protection compared to companies, as the personal legal responsibilities of the owners of this company are separated, which provides them with more security.
5- Converting establishments into companies enhances credibility between company owners and their customers, which contributes to building a strong reputation and greater trust.
6- The process of managing companies is more flexible and easier compared to individual establishments, which facilitates making operational decisions.
7- Flexibility in raising the largest amount of money, as it allows for private subscription of capital through cash or in-kind contributions.
Frequently Asked Questions
1- Does the process of converting from an establishment to a company require an increase in fees and taxes?
Yes, the process of converting an establishment to a company may require an increase in some fees and taxes, depending on the type of company to which the conversion is being made, so the financial and tax systems in force in the Kingdom must be reviewed before making the conversion decision.
2- Can I return to an establishment again after converting to a company?
Of course, you can return from a company to a sole proprietorship again, but this process requires some important legal and administrative procedures such as liquidating the company, canceling the commercial register, canceling all licenses for this company and obtaining other licenses appropriate to the structure and activity of the establishment, and re-registering the establishment after completing all the required procedures.
March 06, 2025
- BY Sultan Al-Qahtani