27 questions on running an LLC & partners' rights. Each answer starts with the bottom line, then gives the condition or detail that changes it, and every question has its own link to copy and send. Where the answer turns on your own papers, you will find a button to ask about your case.
No. An LLC is run by one or more managers who may be partners or outsiders. The partners appoint them in the memorandum of association or in a separate contract, for a fixed or open-ended term, and may by resolution form a board of managers where there is more than one.
SourceCompanies Law, Art. 160 (Umm Al-Qura official gazette)
Read moreBefore signing a partnership agreement: management, profits, exit and disputes
Its manager, who represents the company before the courts, arbitral tribunals and third parties. The manager may delegate some of these powers to others to carry out particular tasks. Under Article 162 of the Companies Law, the company is bound by the manager's acts that fall within its objects.
SourceCompanies Law, Art. 162 (Umm Al-Qura official gazette)
No. A decision appointing or replacing a manager, or restricting the manager's powers, has no effect against third parties until it is entered in the commercial register. The removal should therefore be registered as soon as it is made.
SourceCompanies Law, Art. 162 (Umm Al-Qura official gazette)
Read moreThe new commercial register: one register and the annual confirmation
The partners must appoint a new manager within 15 days of learning of the vacancy. The auditor, if there is one, or any partner may call the general assembly to make the appointment.
SourceCompanies Law, Art. 163 (Umm Al-Qura official gazette)
Yes. The partners may remove a manager whether appointed in the memorandum or under a separate contract, and must appoint a successor. Under the Implementing Regulations, removal is passed by the ordinary majority required for partners' resolutions, even where the manager is a partner named in the memorandum, subject to what the memorandum itself provides.
SourceCompanies Law, Art. 164 (Umm Al-Qura official gazette)Implementing Regulations of the Companies Law, Art. 63 (Umm Al-Qura official gazette)
Read moreBefore signing a partnership agreement: management, profits, exit and disputes
No. Under Article 164 of the Companies Law, a manager who is a partner may not take part in the vote on the resolution to remove them.
SourceCompanies Law, Art. 164 (Umm Al-Qura official gazette)
Yes, if they hold at least a quarter of the capital. One or more partners holding at least 25% of the capital may apply to the competent judicial authority to remove the manager or managers. Filing the application does not mean removal will be ordered without the grounds being examined.
SourceCompanies Law, Art. 164 (Umm Al-Qura official gazette)
Read moreA commercial claim: what to prepare before registration, and when it is too late to plead
Yes. The partners' general assembly may be called at any time at the request of the managers, the auditor, or one or more partners holding at least 10% of the capital. In any event it must meet at least once a year, within the six months following the end of the financial year.
SourceCompanies Law, Art. 165 (Umm Al-Qura official gazette)
Yes. Partners' general assembly meetings may be held, and partners may take part in the deliberations and vote, using modern technology. The company may also use such technology to record the deliberations and resolutions.
SourceCompanies Law, Art. 165 (Umm Al-Qura official gazette)
No. Partners' resolutions may be passed by circulation without convening the general assembly. The manager sends each partner the proposed resolutions and related documents, and the partners vote in writing. Unless the memorandum provides another method, these may be sent by registered letter, delivered in person, or sent by email or other modern technology.
SourceCompanies Law, Art. 166 (Umm Al-Qura official gazette)
As a rule, yes. A partners' resolution is valid only if approved by one or more partners holding more than half the capital, unless the memorandum requires a larger majority. If that majority is not reached in the first deliberation or consultation, the partners must be called to a meeting at which resolutions pass by a majority of the shares represented, whatever proportion of the capital they make up, unless the memorandum provides otherwise (Article 166). Matters that need a special majority, such as amending the memorandum, are excluded.
SourceCompanies Law, Arts. 166 and 172 (Umm Al-Qura official gazette)
Read moreBefore signing a partnership agreement: management, profits, exit and disputes
Yes. Notice must be sent to all partners at least 21 days before the meeting, by registered letter, by modern technology or by any other means the memorandum specifies. Partners who together hold all the shares may hold the assembly without observing the notice formalities and periods.
SourceCompanies Law, Art. 165 (Umm Al-Qura official gazette)
Yes. The manager must provide the partners with the financial statements, a report on the company's activity and the auditor's report (if any) at least 21 days before the annual meeting. The documents must also be made available to the auditor at least 45 days before the meeting and filed as the Implementing Regulations require.
SourceCompanies Law, Art. 167 (Umm Al-Qura official gazette)
Yes. Under Article 169, if a partner asks for a matter to be put on the agenda, the manager must comply. If the manager does not, the partner may refer the matter to the assembly. The assembly may not deliberate on matters outside the agenda unless facts arise during the meeting that require it.
SourceCompanies Law, Art. 169 (Umm Al-Qura official gazette)
Yes. Every partner may discuss the items on the agenda and put questions to the manager, who is bound to answer. A partner who considers an answer inadequate may refer the matter to the assembly.
SourceCompanies Law, Art. 169 (Umm Al-Qura official gazette)
Yes. A non-managing partner, or someone they authorise, may ask twice in each financial year to review the company's business and examine its books and documents at its head office. The company must meet the request within 15 days, and any clause that takes this right away is void.
SourceCompanies Law, Art. 171 (Umm Al-Qura official gazette)
No. Anyone who obtains information through the inspection right must keep it confidential and must not use it for any purpose that could harm the company or any partner. They must compensate any harm caused by a breach.
SourceCompanies Law, Art. 171 (Umm Al-Qura official gazette)
Yes, where a resolution breaches the law or the memorandum of association. Only a partner who objected to it in writing, or who could not object after learning of it, may seek its annulment, and the claimant must remain a partner when filing and throughout the proceedings. If annulled, the resolution is treated as void for all partners, without prejudice to the rights of third parties acting in good faith.
SourceCompanies Law, Art. 170 (Umm Al-Qura official gazette)
Read moreA commercial claim: what to prepare before registration, and when it is too late to plead
90 days. Under Article 170 of the Companies Law, a claim to annul a resolution of the partners' general assembly will not be heard once 90 days have passed from the date it was issued. This period should not be confused with the time limits for challenging court judgments.
SourceCompanies Law, Art. 170 (Umm Al-Qura official gazette)
Read moreA commercial claim: what to prepare before registration, and when it is too late to plead
In principle, yes. An LLC's memorandum, including a capital increase or reduction, may be amended with the approval of one or more partners holding at least three-quarters of the capital, unless the memorandum sets a higher threshold. Some decisions, however, need unanimity: increasing the capital by raising the nominal value of the shares, suspending the partners' pre-emption right, and converting the company into a simplified joint stock company. An amendment cannot be relied on against third parties until it is entered in the commercial register.
SourceCompanies Law, Arts. 8, 172 and 220 (Umm Al-Qura official gazette)
Read moreBefore signing a partnership agreement: management, profits, exit and disputes
Yes. The memorandum may provide for disputes of any kind between the partners, or between the company and its managers, to be settled by arbitration or another alternative method. Criminal acts are excluded.
SourceCompanies Law, Art. 173 (Umm Al-Qura official gazette)
Read moreBefore signing a partnership agreement: management, profits, exit and disputes
No. Revenue alone does not mean there are distributable profits. The general assembly decides what proportion of the net profits, after any reserves, is to be distributed. A partner becomes entitled to their share under the resolution of the general assembly or the partners, which sets the entitlement and payment dates, subject to the memorandum of association.
SourceCompanies Law, Arts. 22 and 175 (Umm Al-Qura official gazette)
Read moreBefore signing a partnership agreement: management, profits, exit and disputes
As a rule, no. A partner who wants to transfer shares to a non-partner, for value or not, must notify the other partners through the manager of the buyer's or transferee's name and the terms. Each partner may then, within 30 days of the notice, ask to take over the shares at the agreed price or ask for the company to buy them; if the value is disputed, an accredited valuer sets it. If the period passes without a request, or the price is not paid, the partner may transfer to the outsider. The memorandum may set other procedures or a longer period. The transfer takes effect against the company and third parties only from its entry in the commercial register.
SourceCompanies Law, Arts. 25 and 178 (Umm Al-Qura official gazette)
Read moreBefore signing a partnership agreement: management, profits, exit and disputes
No. The pre-emption right in Article 178 of the Companies Law does not apply where shares pass by inheritance, by will, or under a ruling of the competent judicial authority.
SourceCompanies Law, Art. 178 (Umm Al-Qura official gazette)
Read moreDividing an estate: from the heirs’ inventory to partition, and what holds it up
Yes. A partner may pledge their shares under a written pledge agreement containing the particulars set out in the Implementing Regulations. Unless the pledge agreement says otherwise, the secured creditor collects the profits paid on them.
SourceCompanies Law, Art. 180 (Umm Al-Qura official gazette)Implementing Regulations of the Companies Law, Arts. 68 and 69 (Umm Al-Qura official gazette)
Yes, if the memorandum provides for it. Inserting such a clause requires the approval of one or more partners holding at least 90% of the capital. Under it, the majority can require the minority to accept a good-faith buyer's offer for all the company's shares at the same price and on the same terms as the majority (Article 181). With the same approval, the memorandum may also give the minority the right to require the majority to ensure the minority's shares are sold alongside theirs on the same terms.
SourceCompanies Law, Art. 181 (Umm Al-Qura official gazette)
Read moreBefore signing a partnership agreement: management, profits, exit and disputes
No. The company is not dissolved automatically on that ground. But once losses reach half of the capital, the manager must call the partners' general assembly within 60 days of learning of it, to decide whether the company continues, with measures to deal with the losses, or is dissolved.
SourceCompanies Law, Art. 182 (Umm Al-Qura official gazette)
These answers are brief general information. They are no substitute for a review of the facts and documents of a particular matter.
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