The Mechanism of Implementing the New Companies Law

The implementation process of the New Companies Law (the “Law”) was clarified by the Ministry of Commerce ("MC") and the Capital Market Authority ("CMA") on 11/06/1444H (04/01/2023G). This is an extension of the collaborative efforts between the MC and the CMA to accomplish integration and harmony in the Law's implementation to assist in recognizing its goals.

The MC and CMA indicated that, in full compliance with Item (Third) of Royal Decree No. (M/132) dated 1/12/1443H (30/06/2022G) and released authorizing the Law, it is required that existing companies modify their positions in full compliance with the Law's provisions within two years from the date the Law becomes effective.

It should be noted that the MC and CMA, taking into consideration their competencies, have the authority to determine the provisions of the laws that companies should comply with. Since the Law was published in Umm Al-Qura Gazette on 23/12/1443H (22/07/2022G) and will be effective on 26/06/1444H (19/01/2023G), new corporations formed after the Law takes effect are not covered by the two-year grace period (“grace period”) and will consequently be subjected to all of the requirements of the Law from the date it becomes effective.

In addition, the grace period does not apply to (i) the clauses specified in the Law on crimes, offenses, and penalties, (ii) the regulations that have been carried over from the Companies Law issued by Royal Decree No. (M/3), dated 28/01/1437H (10/11/2015G), and (iii) the provisions that impose legal restrictions on the company or its administrative body.

Articles (36), (52), (61), and (158) of the Law are a few examples of regulations for which companies are given a grace period. However, companies must abide by the regulations of Paragraph (1) of Article (68) of the Law in two cases (i) when the term of the current Board of Directors ends and a new Board is chosen, and (ii) before the expiry of the two-year grace period following the Law's effective date, whichever one arises first.

The table below summarizes the provisions and regulations that companies have to take into consideration from the effective date of the Law. Article Number Article Subject

Moreover, the MC and CMA made it clear that established companies may not, once the Law becomes effective, make any arrangements, take any actions, or establish new legal situations that are against the Law. Additionally, if a company updates its bylaws or articles of incorporation within the two-year grace period, it is required to do so in compliance with the Law in all its respects, unless an exception is made by the MC and CMA.

It must also be mentioned that as of the Law's effective date, companies, partners, and shareholders shall have the complete authority to exercise all rights specified in the Law, including changing their Articles of Incorporation or Bylaws, as necessary.

The MC and CMA's main purpose in clarifying the process for Implementing the New Companies’ Law is to satisfy the demands and needs of the entrepreneurial sector and to encourage the expansion of small and medium-sized businesses.

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