المملكة: 3 years for liquidation… New rules establish corporate governance in economic zones

The Special Economic Cities and Zones Authority has introduced new rules through the “Estilaa” platform to regulate Establishing companies, managing them, and liquidating them within the regions. The initiative aims to enhance transparency, protect customers, and create a competitive and flexible investment environment in the Kingdom.

This strategic step includes locally established companies and Saudi, Gulf, and foreign companies wishing to carry out their activities officially within the scope of special economic zones.

Company identity and personality

The proposed regulations stressed the need for companies to take the form of “limited liability company,” which provides high operational flexibility and controls the responsibilities of partners strictly in accordance with modern standards.

The company established according to this system is considered Saudi identity, provided that it takes the economic zone as its main center, to determine the scope of its legal subjection and investment obligations.

The company officially acquires its legal personality immediately after its registration in the companies registry, while it is granted a temporary and limited personality to complete the establishment procedures in a smooth legal manner.

The rules strictly warn that any transaction in the name of the company before completing the incorporation procedures holds the perpetrator personally and jointly responsible for all of his private funds towards others.

Trade name conditions

The investment project obligated companies to have a clear commercial name, conditional on it being associated with letters indicating the nature of the area: “M. E. x” or “SEZ” In all official dealings and correspondence.

The rules also require obtaining explicit written approval when using the name of a former partner in the trade name, to protect the intellectual and commercial rights of individuals.

Regular incorporation requires submitting an official application to the registrar attached to the contract of incorporation, and prior obtaining a license from the concerned authority to practice activities within the geographical scope of the region.

In a step that ensures transparency and justice, the rules gave the founders the right to appeal rejection decisions within sixty days before the Authority, and then resort to the competent judiciary within thirty days.

Ownership of companies and capital shares

The legislation deals with companies owned by one person with great flexibility, granting the owner all the powers of management, the board of directors, and the general assembly, on the condition that his decisions are recorded in documented written records.

The regulations recognized that companies’ capital consists of exclusive cash or in-kind shares, categorically prohibiting “reputation or influence” from being considered an acceptable legal share.

Legislation permitted offering shares in exchange for actual work in multi-partner companies, provided that the return is a specific percentage of profits approved in a transparent manner by the articles of incorporation.

The rules set strict standards for evaluating in-kind shares that exceed half of the capital, requiring their evaluation by a certified expert to ensure fairness and determine the true market value.

The Authority held the founders personally responsible for a period of five years for any tampering or inaccuracy in the evaluation of those in-kind shares before the concerned authorities and third parties.

In the context of strict financial discipline, the fiscal year was limited to twelve months, with companies obligated to submit their financial statements in accordance with Saudi standards within six months of its end.

Regulating profits, losses and audits

The rules framed the appointment of auditors for a period not exceeding ten years for an individual and twenty years for a professional company, to ensure their complete independence and prevent financial conflicts of interest.

Profits and losses are divided proportionately according to the shares owned, with provision for the distribution of interim profits based on reasonable cash liquidity and approved financial statements that reflect retained profits.

When relinquishing shares, the current partners are granted the right of first refusal and priority within thirty days to ensure stability of ownership and protect the internal structure of the companies from sudden changes.

The regulations consolidated the rights of minorities by granting them the right to oblige the majority to purchase their shares in major acquisitions, and vice versa, to achieve an investment balance that protects all parties fairly.

In the event that half of the capital is eroded by losses, the General Assembly must be called upon within sixty days to take urgent measures to address the financial situation or approve dissolution and liquidation.

The regular liquidation procedures are set for a maximum period of three years, during which the liquidator is obligated to accurately inventory the assets within ninety days and pay the creditors’ debts according to specific priorities.

The rights to litigate and file liability lawsuits against the liquidator shall expire five years after the cancellation of the register, with the exception of cases of judicially confirmed forgery and financial fraud.

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