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The Saudi Council of Ministers approved the Civil Transactions Law. The law is a major milestone legislation in line with Sharia objective and provisions and brought about by the vicissitudes of modern times, to protect property ownership and ensure the stability and validity of contracts, identifying of sources of rights and obligations and their effects, and the clarity of legal positions, which shall have a positive impact on businesses and the attractiveness of the investment environment and enhancing transparency and predictability in civil transactions, thereby reducing discrepancies in judicial rulings and litigations. If you require assistance relating to this article or require other legal services, please feel free to Contact Us.

What happened? Foreign law firms in the Kingdom used to work with Saudi law firms through structures that include cooperation, association, or affiliation. However, the Ministry of Justice (MoJ) has recently approved new regulations that ushers in new structuring options. The new Implementing Regulation for Regulating the Licensing of Foreign Law Firms (IRFLF) by the MoJ on (27/01/1444H) corresponding to the (25th of August 2022), has given foreign law firms the opportunity to establish a physical presence directly in the Kingdom. Saudi law firms that have a cooperation, association, or an affiliation with a foreign law firm prior to these regulations, have a grace period of (9) months from the approval date of the IRFLF to reform their respective structure in accordance with these regulations. Criteria for Foreign Law Firms: In addition to the requirements for foreign investments issued by the Ministry of Investments (MISA), foreign Law firms are required to meet the criteria set forth by Article 45 of the Code of Law Practice (CoLP), which include having an actual presence in more than two countries or five different regional jurisdictions, as well as being established for more (10) years with a stellar reputation. What structure options are available? Two structure options are available: The first type of structure: Professional Services Company: This requires foreign law firms to take the form of a Professional Services Company, while having one or more licensed Saudi lawyer possessing a minimum stake (25%) of the firm’s capital, as stipulated in Paragraph A of Article 77 of the Implementing Regulations of the Companies Law (IRCL). The IRFLF has also put forth some restrictions on who can become the Saudi partner, in Article 5 of the regulation. The restrictions are: 1- To be licensed to practice law in the Kingdom. 2- To have at least (10) years of experience, at least (3) years of which are after obtaining the license to practice. 3- The partner has not been found guilty of any professional violations, unless (5) years have lapsed since the execution of a judgment\decision for such violation. The second type of structure: Branch: Through this structure, foreign law firms retain a (100%) ownership of the firm. The law firm could be established as a branch as stated in Article 50 of CoLP. Although, this structure will limit the services that could be offered by the firm, by restricting such firms to the provision of consultations relating to international law, without providing services related to Saudi Law. Obligations: The two abovementioned options, include the continued satisfaction of obligations set by Article 13 of the IRFLF and Article 52 of the CoLP, which include: 1- Adherence to Saudization rates, which currently stands at (70%) of the firm’s workforce. 2- Developing annual plans for the transfer of knowledge and training, that include: a) Providing (20) hours of training annually for each employee. b) Approve a policy for the secondment of Saudi employees to the firm’s headquarters or any of its branches abroad. c) Implementing a capacity building program for Saudi employees in both “technical and administrative” fields. d) Implementing a training program to train university graduates in legal practice. e) Contribute to hold or sponsor professional conferences, seminars and events in the Kingdom. 3- Allowing Saudi employees to be actually involved in the firm’s departments and in its projects in the Kingdom. Also, Paragraph 4 of Article 45 of the CoLP obligates foreign law firms to name at least two partners to represent the firm in the Kingdom. The named partners must reside in the Kingdom for a minimum period of (180) days per year. Temporary License: Foreign law firms also have the option of a temporary license as stipulated in Article 15 of the IRFLF to practice in the Kingdom. This option is similar to a pro hac vice engagement, whereby certain conditions must be met, inter alia: 1- The temporary license shall be limited to providing consultations for specific or specialized projects needed by the Kingdom, where similar expertise is not available in the Kingdom. 2- Only one temporary license can be granted to a foreign law firm per year. Another could be granted in the same year after gaining the approval of the Minister of Justice. 3- The licensee of a temporary license cannot provide any service beyond the scope of the license. 4- The licensee of a temporary license must assign at least (10%) of the work to a Saudi licensed firm. Cooperation with Saudi law Firms without establishment: The IRFLF permits cooperation between foreign law firms and Saudi law firms that transfers consultancy services abroad as per Paragraph 4 of Article 13 of the regulation. Such services are capped to a percentage of (30%) of a Saudi firm’s total consultancy services per year. However, the cap does not apply to consultancy services relating to non-Saudi laws involving foreign jurisdictions. Non-Saudi Consultants: Non-Saudi consultant must register as foreign consultants with the MoJ. The consultant must also meet certain requirements stipulated in Articles 3 and 41 of the CoLP and Articles 17, 18, 19, 20, and 21 of the IRFLF. Penalties: Failure to adhere to these regulations will entail one or more of the following penalties according to Article 29 of the CoLP: 1- Warning. 2- License suspension for a period not exceeding (3) years. 3- License revocation. 4- A fine not exceeding Three Hundred Thousand Riyals for each violation. If you require assistance relating to this article or require other legal services, please feel free to Contact Us.

What Changed? The Kingdom introduced a new Companies Law (New Law), which shall come into force and repeal the old Companies Law (Old Law) of 2015 after 180 days from the date of its publication in the Official Gazette (Umm Al-Qura), which was on the 22nd of July 2022. The New Law is intended to encourage investments in line with the declared objectives of the Kingdom’s Vision 2030. Most notable aspects of the New Law are articles pertaining to family-owned businesses, non-profits, professional Companies, and the introduction of a new form of joint-stock company, identified as the ‘Simple Joint Stock Company’ (SJSC), which is intended to be more amenable to change and less tedious as to encourage venture capital investments. Changes also included omission of the formerly known ‘Partnership’ as referred to under Article 3(C) in the Old Law and some other restrictions. As well as, regulating the issuance of tradable debt instruments by limited liability companies, provisions pertaining to merges and acquisitions, and division of companies. The New Law is planned to be more responsive to micro and small enterprises, conditionally relieving these enterprises from previously mandatory provisions requiring them to appoint an external auditor. It also recognizes the split and division of shares into lower nominal values following a split or higher nominal values following a merger. In addition to introducing the concept of issuing shares allocated to employees. Furthermore, it recognizes electronic attendance and voting for company assembly meetings, and harmonized the New Law with the Bankruptcy Law regulations. If you require assistance relating to this article or require other legal services, please feel free to Contact Us.

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