The Authority for Cities and Special Economic Zones has issued the rules for companies in special economic zones, which apply to companies established in the zone, Saudi companies founded in another region of the Kingdom, and branches of Gulf or foreign companies registered in the same economic zone.

Distribution of profits and their review 40 days before the general assembly meeting

The rules include regulations for company incorporation, most notably that companies must ensure each company has a trade name in Arabic or another language. The name may be derived from its purpose, a distinctive name, or the name(s) of one or more current or former partners, or a combination thereof, provided it does not violate the rules for trade names. Written consent must be obtained from the partner or their heirs if deceased, in case the trade name includes any of the names of former partners in the company. The trade name may also be amended according to the regulated procedures, and such amendment shall not affect the company's rights or obligations prior to the amendment.

The rules stipulate that the company’s contract of incorporation or its bylaws must include a set of basic data, including the names and data of the partners, the company name, its main headquarters, its purpose, the capital and its distribution among the partners, the partners’ commitment to fulfill the value of shares, the term of the company if any, its management mechanism, provisions for transfer of shares, means of sending notices to partners and their decisions, how profits and losses are distributed, start and end of the fiscal year, cases of company dissolution, in addition to any other data or terms agreed upon by the partners, provided they do not conflict with the provisions of the rules.

The rules require the company’s manager or board of directors to prepare annual financial statements and a report on the company’s activity and financial position, attaching recommendations related to profit distribution, and subject them to audit by the auditor at least 40 days before the annual general assembly meeting. They also require providing partners with the financial statements, activity report, and auditor’s report at least 21 days before the general assembly meeting, and depositing these documents with the authority according to the legally approved procedures and means, provided that the founders commit to complying with all incorporation requirements, and submitting a report from an accredited evaluator if in-kind shares are owned by more than one person, determining their fair value, along with a declaration from the remaining founders approving that value, and ensuring that the data submitted in the registration request does not conflict with data previously submitted to the competent authorities for licensing purposes.

It is also permissible to amend the company’s capital or its bylaws, including increasing or decreasing its capital with the approval of one or more partners representing at least three-quarters of the capital. When increasing the company’s capital by issuing new shares, partners have priority in owning the shares issued against cash contributions in proportion to their ownership in the company’s capital. Increasing capital by raising the nominal value of partners’ shares or suspending the right of priority is not permissible except by unanimous consent of all partners. Except for criminal acts, the contract of incorporation may provide for the settlement of disputes or conflicts, of any nature, that may arise between partners or between the company and its managers or board of directors through arbitration or other alternative dispute resolution methods.

It is not permissible to increase capital by raising the nominal value of shares.

Regarding liquidation, if the company is dissolved, it enters the liquidation phase according to the provisions of the rules. The partners or the general assembly must take liquidation procedures. The company retains its legal personality to the extent necessary for liquidation. If the company is dissolved for any of the grounds of dissolution stipulated in the rules, the partners, company manager, board of directors, or board of directors must prepare a statement confirming that they have examined the company’s status, including an affirmation that the company’s assets are sufficient to pay its debts by the end of the proposed liquidation period, and that the company is not insolvent under the Bankruptcy Law, unless prepared before its dissolution and unless the period from its preparation exceeds 30 days.

If it becomes evident that the assets are insufficient to pay its debts or that it is insolvent, it must apply to the competent judicial authority to initiate any of the liquidation procedures under the Bankruptcy Law. If the company is dissolved in violation of this article, the partners, company manager, board of directors, or board of directors shall be jointly liable for any remaining debt.

The rules also stipulate that if the company does not engage in its activity, the partners or the general assembly may issue a unanimous resolution to dissolve the company if it has not carried out any activity or performed any work. The resolution is submitted to the authority and must include: a declaration from the company manager or board of directors that the company has not carried out any activity or performed any work, that it has no assets or property, that it has no debts or obligations (due, deferred, or disputed) towards third parties, and that no taxes or fees are due to the state or the relevant competent authority, and a commitment from all partners jointly and severally to pay any debts or obligations that may arise towards third parties from their own funds. After this commitment, the liquidation period ends, and the company is financially closed for its final account, and it is considered a request to remove the company's registration from the company register.

It is prohibited to announce obtaining a license before completing the procedures.

It also stipulates a set of prohibited acts that are considered violations, most notably: recording incorrect data or information in the company’s records, financial statements, or reports, or providing misleading data to partners or the general assembly; misusing the company’s funds, assets, or authorities for personal benefit or harming the interests of the company or creditors; or exploiting the company’s investment opportunities for personal benefit or for the benefit of others without right. The rules also prohibit auditors from failing to report violations they discover during their work, and prevent any person from obtaining benefits, guarantees, or promises in exchange for influencing or refraining from voting in a manner that harms the company’s interests.

The rules also prohibit announcing or implying that a company has obtained a registration or license before completing its registration procedures, disclosing or exploiting company secrets, establishing shell companies or using names of persons contrary to fact, distributing profits or returns in violation of regulations or based on incorrect financial statements, failing to disclose material losses or making decisions that harm the rights of partners or creditors. It also obligates responsible persons to report losses as required by law, and prohibits exploiting confidential information to harm the company, or preventing persons with legal capacity from accessing the company’s records, documents, and papers when they have the right to do so under the regulations.