Changing an institution into a limited liability company is one of the most crucial strategic decisions entrepreneurs can make for several key reasons.
The main objective of this procedure is to convert the legal form of this institution from a sole proprietorship to a limited liability company, which provides it with many legal and administrative advantages as well.
Below, I will discuss the most prominent features of this process and the conditions that must be met.
Converting an institution into a limited liability company requires fulfilling and achieving some important conditions according to the approved and followed government procedures in the Kingdom, including:
1- Verifying the validity of the institution's commercial register.
2- Having an active account on the Ministry of Commerce and Industry website.
3- Documenting the company's articles of association.
4- Submitting a waiver declaration certified by the Chamber of Commerce.
5- Opening a branch of the company and certifying it from the Chamber of Commerce.
6- The necessity of paying all fees due to social insurance.
7- Paying the publication fees and extracting the electronic contract to convert the institution into a limited liability company.
Many institutions carry out the process of converting to a limited liability company rather than others due to the many advantages it enjoys, the most prominent of which are:
Since if the company goes bankrupt, none of the original partners' properties or assets are confiscated, which preserves their money.
Capital in limited liability companies does not represent an obstacle to starting your business, as you can start with limited capital, which makes the start-up process quick and flexible for entrepreneurs.
Establishing this company encourages investors to enter the labor market, and contributes to strengthening and activating the economy and increasing the volume of investments as well.
The company enjoys high flexibility in managing its ownership and organizing its financial structure, through the ability to buy and sell shares easily, which enhances management efficiency and facilitates expansion and investment operations.
Since the company is not affected by the bankruptcy or death of one of the partners, as in both cases it continues to practice its activity normally.
The possibility of establishing it by one person, which facilitates its establishment procedures and reduces administrative complications as well.
You can determine the appropriate method of paying taxes for you according to the applicable tax and economic guidelines.
The diversity of partners within the company provides greater and broader opportunities for growth and expansion, which contributes to achieving the desired goals with greater efficiency and effectiveness.
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Converting an organization into a limited liability company is a strategic step that provides many legal and financial advantages, which enhances business stability and facilitates growth and expansion processes. The following are the most prominent advantages:
The conversion process contributes to highlighting the partners' status and their ownership shares more transparently and clearly.
Flexibility in paying capital, as partners can pay their share in the company in cash or any other assets they own, which contributes to strengthening the company's basic financing in flexible ways that suit the circumstances of each partner.
Companies enjoy their independent legal personality granted to them by law, which enables them to buy or sell, sign contracts and exchange in their own name and not the name of one of the partners.
The company enjoys continuity and stability thanks to its legal independence, as it remains in existence regardless of partner changes, which enhances its reliability and sustainability.
The company is distinguished by having its official seal, which facilitates the approval of official papers, contracts and documents with an official legal character.
As partners are bound by the value of their unpaid shares or the agreed amount, which protects their capital from the company's financial obligations.
Disadvantages of converting from an institution to a limited company
Although the conversion process has many advantages and benefits, it may face some disadvantages, including:
1- Increase in establishment costs, which include registration fees, required documents, and obtaining licenses.
2- The company is obligated to submit financial and accounting reports, which causes an increase in management responsibilities and costs as well.
3- Loss of complete management control because the company has a larger number of shareholders and partners than the institution.
4- Managing a company is more complex than an establishment, as it requires joint decisions between partners and shareholders, in addition to the need to adhere to specific administrative policies and procedures.
Determining the total cost required for this process depends on determining several different fees such as commercial registration amendment fees, zakat and taxes, chamber of commerce fees, commercial registration extraction fees, and electronic publishing fees as well.
Determining the period required for the conversion depends on several factors, including the speed of fulfilling the requirements and legal procedures, but in general, the process takes from 5 to 15 working days, and the period may increase if additional approvals are required or certain documents are completed.
Do you have any questions or inquiries about converting an establishment into a limited liability company? Do not hesitate to contact us now.
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March 11, 2025
- BY Sultan Al-Qahtani