The commercial landscape in the Kingdom of Saudi Arabia has undergone significant transformation following the enactment of the new Companies Law of 2022, which introduced greater flexibility and clearer regulations for various types of companies. Among the most notable corporate forms established under the law are the Public Joint Stock Company (PJSC) and the Simplified Joint Stock Company (SJSC) — both of which serve as key investment vehicles within the Saudi business environment.

At first glance, these two company types may appear similar due to the resemblance in their names. However, in practice, there are substantial differences between them in terms of structure, management, and establishment requirements. This article explores these distinctions in detail.

An Overview of Companies in Saudi Arabia

Companies in the Kingdom of Saudi Arabia are classified into different categories based on the laws governing their establishment and operation. Some companies are governed by the Saudi Companies Law, issued under Royal Decree No. (M/132) dated 12/01/1443 AH, and these are classified as commercial companies.

Conversely, other entities are governed by the Civil Transactions Law, issued under Royal Decree No. (M/191) dated 11/29/1444 AH, and are referred to as civil companies.

In the following sections, we will focus on commercial companies, particularly the Public Joint Stock Company (PJSC) and the Simplified Joint Stock Company (SJSC).

First: Joint Stock Company in Saudi Arabia

A Joint Stock Company (JSC) is a company established by one or more individuals, with its capital divided into tradable shares that may be bought and sold by investors. Profits are distributed among shareholders in proportion to their respective shareholdings.

The company is solely liable for its debts and obligations incurred or arising from its business activities. Shareholders’ liability is limited to the value of the shares they have subscribed to, and their personal assets are not affected by the company’s debts.

Advantages of Joint Stock Companies

• This type of company provides a strong opportunity to attract substantial capital from investors.
• It may be offered for public subscription, enabling broader investment participation.
• Joint stock companies offer greater potential for expansion and profit generation.
• They can raise funds from the public through the sale of shares.
• Dividends are distributed based on each shareholder’s ownership percentage.
• The large amount of available capital allows the implementation of major development projects.

Management of Joint Stock Companies

• A joint stock company must have a Board of Directors with solid experience in both financial and administrative fields.
• The minimum capital requirement for establishing a joint stock company is SAR 500,000. At least one-quarter of the issued capital—i.e., not less than SAR 125,000—must be paid upon incorporation.
• The company is managed by a Board of Directors consisting of no fewer than three members, elected by the shareholders for a term not exceeding four years, with the possibility of re-election for another term.
• The General Assembly has the authority to dismiss all or some members of the Board of Directors. It may also appoint a temporary replacement in the event of a vacancy or terminate the membership of any member who fails to attend board meetings without an acceptable excuse.
• The company’s bylaws specify the method and amount of remuneration for board members. The General Assembly determines the remuneration value, provided it is fair and proportionate to the member’s performance and contribution. The company is required to disclose in detail all remuneration granted to board members during the fiscal year.
• The Board of Directors holds extensive powers to manage the company, except for matters explicitly reserved for the General Assembly under the company’s Articles of Association, which remain its exclusive authority.
• The Board may delegate certain powers to one or more of its members or to others, even if the delegate holds a lower position, provided such delegation is made in good faith.
• The distribution of profits is determined by the General Assembly after deducting the required reserves, and profits are distributed proportionally among shareholders.
• If the company’s accumulated losses reach 50% of its issued capital, the Board of Directors must disclose this within 60 days and convene an extraordinary General Assembly within 180 days to discuss the company’s financial position and decide whether to continue operations or dissolve the company.

Second: Simplified Joint Stock Company in Saudi Arabia

A Simplified Joint Stock Company (SJSC) is a company established by one or more persons, whether individuals or legal entities. It is governed by the same provisions applicable to Joint Stock Companies, except where specific provisions apply.

The company’s capital is divided into tradable shares, and the company alone is responsible for any debts and obligations arising from its activities. Shareholders’ liability is limited to the value of the shares they have subscribed to or purchased, and it does not extend to their personal assets.

Advantages of a Simplified Joint Stock Company

• No minimum capital requirement is imposed for incorporation.
• The ability to issue different classes of shares with varying rights, obligations, and restrictions.
• The company may be managed by one or more directors or by a board of directors.
• General assemblies are not mandatory, as shareholders have the discretion to determine how decisions are made.
• The articles of association — the official document regulating the company’s operations — determine the required quorum for meetings and the voting thresholds for decision-making.

Structure and Management of a Simplified Joint Stock Company

• Shareholders enjoy full flexibility in defining the company’s structure and governance framework, as agreed upon and stipulated in the articles of association.
• The chairman, manager, or board of directors, as designated in the articles of association, shall exercise all powers typically assigned to the chairman and members of a joint stock company’s board, unless otherwise specified.
• The incorporation data of a simplified joint stock company shall be identical to that of a joint stock company, in accordance with Article 140 of the Companies Law.
• The company’s management mechanism is defined in its articles of association. It may be managed by a chairman, one or more managers, a board of directors, or any other structure agreed upon by the shareholders. The articles also specify the method of appointment and dismissal of those in management, as well as the scope of their authority.
• If these details are not set forth in the articles, the shareholders themselves shall determine them.
• The chairman, manager, or board of directors has broad authority to manage the company and achieve its objectives, except for matters reserved to shareholders under the law or the company’s articles.
• Within the limits of their authority, the chairman or manager may delegate specific tasks to one or more persons, provided such delegation remains within their powers.
• The chairman, manager, or chairman of the board of directors represents the company before courts, arbitration panels, and other competent authorities. They may also delegate this authority to others if permitted under the company’s bylaws.
• The company is legally bound by all acts performed by its chairman, manager, or board of directors on its behalf, even if such acts exceed their authority — unless the counterparty acts in bad faith or is aware of the excess of authority.

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Disclaimer: This content is not legal advice. No liability is assumed. For legal consultation, please contact us.