How JVs are regulated in Saudi Arabia

Thinking about starting a business in Saudi Arabia? Want to know about the legal issues involved with establishing & managing JVs in the KSA? Have a look at our article - perhaps, you’ll find the answers you’re looking for here? 

Registration of JVs in the KSA

Under KSA legislation, JVs are classified into two categories:

• unincorporated JVs; 
• JVs.

Establishing a JV in the KSA involves a collaboration between multiple individuals or entities that have no legal personality. It is JV partners that are directly responsible for establishing legal relationships with respect to unincorporated JVs. An unincorporated JV’s structure is determined by:

• a JV agreement; 
• contract law which is based on Islamic law.

JVs represent formalized cooperatives in which multiple parties use joint corporate structures to carry out joint projects. Under KSA legislation, JVs can take the form of partnerships or companies.

Registering JVs in the KSA is frequently done in the form of:

• LLCs; 
• closed JSCs.

Those seeking to open a company in the KSA should keep in mind that JVs are more widespread in the infrastructure & construction sectors. The country’s legislation imposes no limitations on the amount of shares owned by foreign individuals. Thus, foreign individuals can own up to one hundred percent of shares in a JV.

However, if you’re planning on investing in the KSA, you should remember that foreign investments are limited in certain sectors (e.g. real estate, oil & gas, etc.). The full list of sectors & activities can be found n the guidelines published by the Main Investment Directorate.

Regulation of JVs in the KSA

Partners to a JV aren’t required to disclose their JV’s beneficial ownership, the only exception being JVs registered as JSCs. Being subordinate to the CMA (the country’s main financial regulator), JSCs are required to comply with the regulator’s rules & regulations. In particular, JSCs are legally required to disclose the identity of all individuals holding a beneficial ownership of at least five per cent.

Under the Kingdom’s laws, all KSA-registered JVs are required to hold at least one GM per annum. An extraordinary GM must be conducted in particularly grave cases (e.g. if a JV has too many liabilities)

Protecting IP in the KSA

Under KSA legislation, foreign investors can count on no IP protection. If their IP rights (including trade secrets) are violated, it will be very hard for them to prove it, unless the IP rights are registered in the KSA (the only exception being well-known brands). However, the KSA authorities do allow JV partners to continue using their IP rights after a JV is liquidated.