The commercial sector in Saudi Arabia is witnessing remarkable development, driven by Vision 2030, which aims to improve the business environment and expand the scope of investment by attracting local and foreign investors.
Among the important legal entities for investors and entrepreneurs at the beginning of their projects, as well as for owners of small and medium-sized enterprises, are the sole Establishment and the single-person company.
Despite their similarity in terms of sole ownership, there are fundamental differences in terms of legal liability, management, size, and financing.
Therefore, in this article, we will review the most prominent differences between them, clarifying the advantages and disadvantages of each, to help you choose the most suitable structure for your goals and future vision.
Definition of a Sole Establishment
In the Kingdom of Saudi Arabia, a sole establishment refers to any commercial or industrial establishment owned and managed by a single individual. It does not possess a separate legal personality or financial liability distinct from its owner, and it operates independently without direct government involvement.
The business is based on individual ownership and personal management, where the owner or a person appointed by the owner directly manages the commercial or industrial activity.
Sole Establishments include a wide range of businesses such as restaurants, retail stores, offices, and technology companies.
These businesses are a fundamental pillar of the Saudi economy, playing a vital role in creating job opportunities, providing goods and services, and supporting sustainable development by encouraging entrepreneurship and private investment.
Advantages and Disadvantages of a Sole Establishment
Advantages:
Disadvantages:
Definition of a Single Person Company
The Single Person Company (SPC) is one of the newest forms of legal entities in the Kingdom, and it is an attractive option for individuals and investors who wish to establish and manage their companies independently.
It is a company owned by whether a natural or legal person, and their financial liability is limited to the company's capital.
Although it enjoys an independent legal and financial personality, the owner may bear personal liability in some specific cases, such as gross breach of obligations.
Advantages and Disadvantages of a Single-Person Company
Advantages:
Disadvantages:
Key Differences Between a Sole establishment and a Single-Person Company
1. Ownership:
A sole establishment is owned by a natural person, while a single-person company is considered a separate legal entity .
2. Financial Liability:
In a sole establishment, the owner is personally liable for all debts and obligations of the business.
In a single-person company, liability is limited to the company's capital only.
3. Management:
A sole establishment is managed by the owner alone, while the owner of a single-person company can appoint a manager or a board of directors to manage it.
4. Size and Scope:
A sole establishment is smaller in size and resources, while a single-person company offers greater opportunities for expansion and growth.
5. Financing:
Financing for a sole establishment often depends on the owner's personal resources, while a single-person company can attract investors or institutional financing.
6. Profits:
In a sole establishment, profits are considered personal income for the owner.
In a single-person company, profits are first recorded in the company's name and then distributed to the owner according to the distribution policy.
How to Convert a Sole establishment into a Single-Person Company
The Saudi Ministry of Commerce allows the conversion of a sole establishment into a single-person company electronically through its official website by following these steps:
1. Visit the Saudi Business Center website.
2. Select "Start Service".
3. Log in to your account.
4. Create a new request.
5. Specify the type of registration, region, and required service.
6. Upload the required attachments.
7. Review the data and ensure its accuracy.
8. Submit the request electronically.
Conclusion
Choosing the appropriate legal entity depends on the nature of the business, the size of the project, and the level of financial risk the business owner is willing to bear.
Understanding the differences between a sole establishment and a single-person limited liability company will help you make a more accurate legal and financial decision that aligns with your future goals and investment vision.
If you wish to undertake any procedure related to a sole establishment or a single-person company, please do not hesitate to contact us at Mohammed Al-Khliwi Law Firm, and we will assist you with utmost professionalism.
Disclaimer: The above content does not constitute legal advice, and the author of this article assumes no legal responsibility. For legal advice, please contact us.
Mohammed Alkhliwi Law Firm is a Saudi legal practice that serves individuals, institutions, and corporations, drawing on extensive experience in litigation and legal consultancy. The firm believes that law is not merely a set of regulations and procedures, but a powerful tool to protect rights and ensure justice. For this reason, the firm is dedicated to serving its clients with the utmost professionalism and responsibility.
