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Since Ahmed, Sarah, and Khaled want to establish a limited partnership company (LPC), they need to know the applicable law that can govern their activity. According to Article 1, any company emerges when two or more persons decide to participate in an enterprise for profit (Companies’ Law, n.d.). An LPC implies that two types of partners should be present. The joint partners are Ahmed and Sarah, and they are responsible for their “entire funds for the partnership debts,” while Khaled is a dormant partner, meaning that his share determines his level of responsibility (Companies’ Law, n.d., p. 16). Since more than one joint partner is present, formation, operation, and termination rules are the same as those for a general partnership.
In particular, it is reasonable to comment on the specific rules. Articles 21 and 22 stipulate that, within 30 days of its formation, the partnership’s directors should publish a summary of its contract, highlighting the general information of the company, partners’ data, partnership’s capital, and others (Companies’ Law, n.d.). Simultaneously, Articles 27-34 denote that management practices can depend on whether the partners appoint directors and stipulate their responsibilities (Companies’ Law, n.d.).
For example, if management regulations are not specified, each partner is entitled to manage the partnership alone, while the others have the right to object to such management decisions as per Article 28 (Companies’ Law, n.d.). Termination rules are found in Article 35 explaining that a partnership typically ends “by the death, quarantine, declaration of bankruptcy or insolvency of one of the partners, or by the withdrawal of any partner from the partnership” (Companies’ Law, n.d., p. 15). However, the contract can stipulate that the partnership keeps existing after any of the events above has occurred.
Since it has been mentioned that not all the partners are equal, it is rational to comment on their shares in the company’s profits and losses. Since Ahmed and Sarah contribute equal shares of cash, they are entirely responsible for the partnership’s losses and gains. However, Khaled contributes to his employment, and Article 7 stipulates that an agreement can release such a partner from sharing losses provided that no remuneration is given to him (Companies’ Law, n.d.). Consequently, a contract between the partners can determine their liabilities in the company’s profits and losses.
If the friends want to establish a Joint Venture, they should be acquainted with additional rules. Even though the Companies’ Law (n.d.) stipulates some regulations regarding how general or limited partnerships should be named, such restrictions are absent for Joint Ventures. Simultaneously, Article 14 reveals that a Joint Venture is the only company type that does not require establishing its headquarters in the Kingdom of Saudi Arabia (Companies’ Law, n.d.). This company type implies the least number of organizational restrictions.
Finally, establishing an unlimited liability company (ULC) is also an option, but the friends should understand its peculiarities. In a ULC, Khaled’s bonds can be a suitable contribution of shares. According to the Ministry of Commerce (n.d.), Khaled can only assign his rights and liabilities upon the consent of all the other partners as per Article 19. Unrestricted assignment of shares is allowed if it is correctly formulated according to the law.
Following the assignment, Khaled can be released from the debts against the creditors unless the latter object to this assignment as per Article 20 (Ministry of Commerce, n.d.). According to Article 20, Khaled and his assignee are considered jointly liable (Ministry of Commerce, n.d.). Consequently, the three partners, Ahmed, Sarah, and Khaled, can use all this information to understand how they should formalize their legal relations concerning a supposed company according to Saudi company law.
Reference
Companies’ Law. (n.d.) Royal Decree No. (M/6), dated 22/3/1385H (corresponding to 22/7/1965AD).
Ministry of Commerce. (n.d.). Companies Law. Web.
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