Saudi Arabia's (KSA) new Companies Law of 2015 came into effect on May 2, 2016. At JHI, we wished to see the new law in practice and how it would be enforced by Saudi authorities before commenting. In the meantime, much has already been written about the new law and we need not cover the same ground here.
Of particular interest to clients and potential clients of JHI is, we believe, the law's provision of the option of Sole Proprietorships (or "Single-Shareholder" companies), and how applications for the licensing and registration of such by foreign investors are treated by the Ministry of Commerce and Investment and the Saudi Arabian General Investment Authority (SAGIA).
As a general matter, the new law provides that SAGIA may continue to impose additionally stringent incorporation requirements on companies being established with the backing of foreign investors. While the process of approving incorporation applications has been somewhat streamlined at SAGIA, a certain level of uncertainty, especially at the beginning stages of such an application, remains.
When considering establishing or reforming an entity in the KSA, JHI feels that if a foreign investor has a trustworthy local partner/ agent (or "sponsor") then, for the time being, it may remain prudent to make use of such local parties when doing business in the Kingdom. In addition to possibly enjoying a smoother approval process, one might avoid any potential bureaucratic pushback by some recalcitrant officials who may still be resistant to the Vision 2030 reforms more generally.
The relationship with one's local sponsor can be further clarified via a side letter to the sponsorship agreement. Such sideletters have been enforced by Saudi courts with increasing regularity. And, JHI hopes that the provision for Single-Shareholder companies in the new Companies Law is not seen by the local judiciary as a rationale for reversing this trend.
We will have more to say about the execution and enforement of the new Companies Law and other reforms as events (rapidly) progress. Speaking of events, recent news indicates a very real likelihood of a shift in the direction of investment capital flowing between the Untied States and the Kingdom of Saudi Arabia.
Where the Riyals of the Sovereign Wealth Fund go, other Saudi-based investment capital tends to follow. With that in mind, JHI is seriously considering offering the shepherding of EB-5 (Investor) Visa applications to the menu of professional services our firm offers to incoming companies that invest in the United States, particularly New York, Pennsylvania and/ or New Jersey, where Mr. Huf is admitted to bar. JHI will have more to say on this in the near future as well.