Company Formation in Saudi Arabia -- Including Appendices a Through D Fi

8/10/2019 Company Formation in Saudi Arabia -- Including Appendices a Through D Fi...

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SEPTEMBER 30, 2013

COMPANY FORMATION

IN SAUDI ARABIA1

A Report Prepared for the Ministry of Justice of the Republic of Korea

I INTRODUCTION

The requirements and process for forming a company in Saudi Arabia depend on several factors,including the specific activity to be conducted in Saudi Arabia and the nationality of the owners of thecompany, specifically whether any owner is to be a national of a country other than Saudi Arabia oranother member of the Gulf Cooperation Council (GCC) (being Bahrain, Kuwait, Oman, Qatar, Saudi

Arabia and the United Arab Emirates). For example, there are numerous references in this report to theSaudi Arabian General Investment Authority (SAGIA). SAGIA is the gatekeeper for foreign directinvestment into Saudi Arabia other than for direct investment by nationals of GCC countries and directinvestment in professional companies. Accordingly, references in this report to SAGIA should beunderstood only to apply in situations in which SAGIA approval is required. SAGIA approval isdocumented by the issuance of a foreign investment license, as described further in Exhibit 1.

Activities may be divided into four general groups: providing commercial services, providing professionalservices, conducting trading (the purchase and resale of products, including by means of importation andsale) and conducting manufacturing activities. A companys authorized activities are set forth in itsarticles of association, its commercial registration (CR) and, if applicable, its SAGIA license.

This report discusses the types of companies that may be created and the process for creating commercialcompanies, with specific focus on the most common form of commercial company (the limited liabilitycompany). It also addresses other specific issues, such as whether there is a national ownershiprequirement (i.e., is foreign investment permitted and is a Saudi partner required) and capitalrequirements.

Generally, foreign investment is permitted other than in activities on the negative list referenced below,and no Saudi partner is required for performing commercial services or manufacturing. Professionalservices and trading require one or more Saudi partners to own 25% or more of the company.

Apart from formation of the company itself, many other Saudi Arabian laws, regulations and practices arerelevant to how a company conducts business, including those related to taxes, immigration, labor and

employment, leasing, contracting, banking, trademarks and other intellectual property, dispute resolution,and cultural matters. Also, the foreign company will be subject to laws and regulations of its homejurisdiction and possibly other jurisdictions that affect the conduct of the foreign companys business inSaudi Arabia. This report does not address non-Saudi laws and regulations or those Saudi laws andregulations beyond the formation of the company.

A company must be registered in a city or area, e.g., Riyadh, Jeddah, Yanbu, Al Khobar or Jubail. Toperform projects or open offices in other locations, the company should open a branch there. Acompanys CR is tied to particular authorized premises. Each business must have a place of business thathas been approved by the authorities, including at the municipal or equivalent level and potentially by thelabor office.

1 Prepared by Mohammed Al-Ghamdi Law Firm In Association with Fulbright & Jaworski LLP. Fulbright & Jaworski

LLP is a member of Norton Rose Fulbright, a Swiss Verein.


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The application of laws, regulations and policies in Saudi Arabia is not always uniform, and those laws,regulations and policies may change without advance notice, as has been happening with the policiesrelated to employment of Saudi nationals and applications for new foreign investment licenses. Theremay be exceptions to laws and practices described in this memorandum. This memorandum is intendedas general guidance to orient the reader to the formation of companies in Saudi Arabia, not as legal advicefor any particular activity.

II PERMITTED ACTIVITIES

Specific activity requirement

A company registered in Saudi Arabia is permitted to engage only in the activities specifically mentionedin its CR and in activities incidental to such activities. The CR will reflect what has been approved bySAGIA in the foreign investment license for those companies or branches that require SAGIA approval.For a company, the specific activities are also set forth in the articles of association. Activities are alsoknown as objects. For a manufacturing company the activities are expressed as the right tomanufacture and sell specific products in accordance with annual volumes. This means the companymust amend its SAGIA foreign investment license, CR and articles of association to add or delete a

product or to increase production volume. Other than for professional services or investments bynationals of Saudi Arabia and the other GCC countries, SAGIA is the gatekeeper to determine whatactivities will be set forth in the CR, the foreign investment license and the articles of association.

Mixing activities

Some activities cannot be mixed. Engineering and construction cannot be mixed, which has made itdifficult to obtain a license for EPC activities. Manufacturing and trading other products not made bythe manufacturer cannot be mixed, nor can manufacturing and providing services for goods notmanufactured by the manufacturer. Example: A company sells products from overseas into Saudi

Arabia and sets up a plant in Saudi to make one line of products. The company operating that plant cansell in Saudi Arabia and export what it makes and can service what it makes, but it cannot obtain a trading

license to import and sell other products or to service other products. However, the foreign companycould always sell the other products into Saudi Arabia through an agent or distributor or form a separatetrading company with a Saudi partner.

The negative list

In principle foreign direct investment is permitted for any activity that is not on the negative list. Thenegative list is maintained by the SAGIA. The current list is attached at Exhibit 2.

National ownership requirements

Certain activities require one or more Saudi partners holding not less than 25% of the company. Those

include trading and the provision of professional services. Other activities such as manufacturing andcommercial services may be conducted through wholly foreign-owned branches or companies.Professional services include architecture, engineering, accounting and may be interpreted to includesome services related to architecture and engineering such as project management or constructionmanagement. So-called sleeping partner arrangements through which the local partner purports to giveup rights to vote, participate in profits, and examine the books of the company are not enforceable andraise exposure for violation of the Saudi anti-concealment law. That law criminalizes hiding a foreignoperation behind a Saudi front. Therefore, it is not appropriate to agree that the Saudi partner will acceptonly a fixed annual fee in lieu of profits.


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III PROFESSIONAL COMPANIES

Only a professional company may perform professional services, such as accounting, certain types ofproject management consultancy, engineering, and architecture. The Saudi Professional Companies Law2regulates such companies. One or more Saudi individuals must be partners holding in the aggregate atleast 25% of the equity, and the Saudi partners must hold the relevant professional license and not be a

shareholder in any other professional company. The partners are jointly and severally liable for theliabilities of the company. There is a statutory exclusivity requirement to the effect that the partnersshould not compete with each other. After the partnership arrangements are agreed, the parties obtainthe approval of the Ministry of Commerce and Industry (MoCI) and the relevant licensing authority forthe particular profession, then execute the partnership agreement in front of the notary public, depositthe capital, publish the agreement, and obtain the CR.

To obtain the preliminary approval of the MoCI, the Saudi partner(s) must submit evidence to confirmhe(they) hold the relevant professional license and are in good standing with the relevant professionalregulator and the foreign professionals must submit a completed application form to MoCI together withseveral supporting documents including: (i) a certificate from a professional body in their jurisdiction ofregistration indicating that it has been a professionally licensed company/partnership for at least ten (10)

consecutive years during which it engaged in its activities without interruption; (ii) a certificate issued bythe competent foreign authorities indicating the number and date of the companys/partnershipsprofessional license; (iii) an undertaking from the foreign partner that it will assist in the training of Saudisin its licensed field; (iv) an appointment of a qualified representative in Saudi Arabia who undertakes toreside in Saudi Arabia at least nine (9) months per year to ensure training of Saudi professionals occurs;and (v) the draft partnership agreement.

Once approval is given by the MOCI they would forward the draft partnership agreement to the Notaryfor signing, which subsequent to signing would need to be published. The next step in the formation andregistration process is obtaining the license from the MoCI. Several additional documents are required inorder to secure the license, including, but not limited to: (i) a certificate of capital from a Saudi Arabianbank certifying that the entire share capital has been deposited into a blocked account in Saudi Arabia; (ii)

the unanimous written consent or resolution of the partners (as appropriate according to the partnersagreement) appointing the general manager and/or board of managers; and (iii) a copy of the initial officelease. Upon the issuance of the license, the company would be fully authorized to engage in the activitiesset out in its articles of association. This part of the process can take another week or so to complete.

The share capital that was deposited in the blocked bank account is unblocked by the relevant bankupon presentation of a copy of the license. Although the company has been formed and licensed uponissuance of its license, it also must make several administrative filings and pursue other formalitiesincluding applying for membership at the Chamber of Commerce, opening a 700 File and a Labor Fileat the Labor Office, registering with the Department of Zakat and Income Tax (DZIT) and the GeneralOrganization of Social Insurance (GOSI) and obtaining a Municipality License for the premises. Due tothe increased emphasis on Saudiization, it is recommended that, as part of the early business planning, theshareholders address hiring Saudi personnel.

The requirements of each professional licensing authority may vary. Foreign parties should expect that itwould take no less than two to three months to form a professional services company from the time theyhave reached their own agreement on terms.

IV COMMERCIAL COMPANIES

All activities other than professional services can be conducted through commercial companies. TheCompanies Regulations3 do not require a local Saudi partner to form a commercial company. Therequirement for Saudi equity participation is based on activity. For example, one or more Saudi nationals

2The Professional Companies Law, as issued by Royal Decree No. M/4 dated 18/2/1412H, as amended.

3The Companies Regulations, as issued by Royal Decree No. M/6 dated 22/3/1385, as amended.


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must own in the aggregate not less than 25% of the capital of a company that will engage in trading (thebuying and selling of goods).

A company not wholly-owned by nationals of Saudi Arabia or other GCC countries must obtain a foreigninvestment license from SAGIA to invest in a commercial company in Saudi Arabia. SAGIA hasdiscretion to grant, deny or condition the issuance of the license. Details concerning such licenses are set

forth in Exhibit 1 and the Appendices to that Exhibit.

LLCs

The most common type of commercial company is the limited liability company (LLC), which requires atleast two partners but may not have more than fifty partners. 4 Natural persons and corporate entitiesmay be partners. The partners have limited liability for the liabilities of the company, up to the value oftheir shares. LLCs have articles of association, but no bylaws.

Capital requirements. Legal capital requirements for an LLC depend on activities and for serviceactivities are relatively low, typically SAR 500,000 (approximately USD 133,333) has been sufficient.Capital for manufacturing depends upon the business plan and, if a SAGIA license is required, will be

related based on SAGIAs perception of what is required. Capital for trading is straightforward, but highif there is foreign (non-GCC investment): the foreign partner must invest not less than SAR 20 million(approximately USD 5.333 million) no matter whether it holds the maximum permitted 75% of capital orsome lesser amount.

Capital contributions must be made in cash or tangible property that is valued by a Saudi auditfirm. Intellectual property has not been acceptable. Subject to issues such as taxable gain on sale ofassets to be contributed, it is better from a purely Saudi perspective to contribute cash and use the cash tobuy assets than to go through the complication of having the assets valued and the valuation accepted.

Increasing capital and decreasing capital require approval of SAGIA (if a foreign, non-GCCshareholder is involved), MoCI and all of the partners. Increasing capital can require 45 to 60 days if the

company must amend a SAGIA license. If there is no SAGIA license, the process can be accomplishedwithin one to two weeks. Decreasing capital would require a longer period and is almost never a goodidea because it requires paying all creditors of the company who request to be paid. Paying premium forshares in a share acquisition does not increase the capital of the Company, which has implications when aforeign company buys into a trading company and the capital must be increased.

Dividends. Partners are entitled to profit distributions in accordance with their capital interest inthe company. Profits are allocated in that manner, and disproportionate profit allocations are notpermitted. All shares are alike, there is only one class of shares. Profits are determined based on annualaudits as approved by the shareholders. Dividends, therefore, are based on annual, audited results of theprior year.

Shares and share transfers. There are no share certificates for LLCs. Ownership is evidenced by thecontent of the articles of association, which specify the owners, the ownership percentages represented bytheir respective shares of the LLCs capital, and the par value of their respective shares of the LLCscapital. The articles of association may not be amended to change ownership without the approval ofSAGIA (if a foreign, non-GCC shareholder is involved), MoCI and, at the time the amendment is signedby all partners, the notary public. Transferring ownership essentially requires consent at the time oftransfer by all partners. Notwithstanding the fact that it is permissible to enter into certain buy-sellarrangements, if a partner breaches that contractual obligation and does not appear at the notary public tosign the necessary amendment, the transfer normally will not occur.

4It is customary to refer to owners of share capital in LLCs as either shareholders or partners.


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There is a statutory, non-waivable right to transfer shares subject to a statutory right ofpreemption if the share transfer is to someone not already a partner. Heirs of an individual partner have astatutory right to inherit his or her shares upon his or her death. Due to the lack of injunctive relief, thedifficulty of recovering money damages for speculative lost profits, and the referenced procedural andlegal hurdles for share transfers, buy-sell arrangements, puts, calls, tag-along rights and drag-along rightsare of questionable value. Notwithstanding that fact, they are often included in shareholder agreements.Stock options for LLC shares are not feasible and are not common.

Governance. Partners are entitled to vote. Even where the law does not require unanimity theneed for all amendments to the articles of association to be notarized, means that all the partners shouldbe present and sign the amendment. Third parties such as banks and government authorities may requireall partners to sign written resolutions in order to approve changes in signatories of bank accounts,appointment or replacement of general managers, approval of dividends, or other actions,notwithstanding provisions in the articles of association that permit fewer than all partners to make thedecision or that might even permit the action to be taken without partner involvement.

A board of directors is not required. It is common to have one because foreign companies andmany Saudi companies want to have the board as a tool for managing the company. However, directors

are responsible primarily to the partner they represent and can take direction from that partner on voting.Moreover, there is no available injunctive relief to enforce corporate governance arrangements relating toquorum etc. and signed partner resolutions often must be presented to authorize action even if the boardhas approved the action. So, it is often simpler to eliminate the board and have all issues either handledby a strong general manager (in the case of a wholly-owned company) or dealt with at the partner level (ifthere are two or more partners).

Formation. The partners must submit the LLCs proposed articles of association to the Ministryof Commerce and Industry (MoCI) office for review and approval. If one or more of the partners is not anational of either Saudi Arabia or another GCC country, the step of submitting articles of association tothe MoCI occurs after SAGIA has approved the foreign investment. The MoCI normally requires that anLLCs articles of association closely follow the standard form of articles of association issued by the

MoCI. Articles of association that do not closely follow the standard form, except in a limited number ofarticles, can be rejected by the MoCI. This part of the process can take one or two weeks to complete, ifno problems are encountered.

After the LLCs articles of association are approved by the MoCI, they must be signed byrepresentatives of the partners, at the notary public office. The notary public must review the substanceof the partners capacity to sign, including proof of the identity of the signatory, a power of attorney fromthe signatorys company and resolutions from the signatorys company approving the power of attorney.If the partner is foreign, these documents must be fully notarized, legalized and consularized by theappropriate authorities in the partners home jurisdiction. Obtaining an appointment with the notarypublic and attending the signing can take a week or two if no problems are encountered.

After the execution and recordation of the articles of association by the notary public, a summaryof the articles of association, as recorded by the notary public, must be submitted to the Saudi OfficialGazette, the Umm Al-Qura, for publication. Before the summary of the articles of association is actuallypublished in the Umm Al-Qura, it is usually possible to proceed with the commercial registrationformalities described below in order to obtain the CR. This can be accomplished by presenting asummary of the articles of association to the MoCI in order for them to publish on their website. Thus,obtaining the CR, the final step in each LLCs formation and registration process, as discussed below, canbe accomplished even though the required summary of its articles of association has not yet appeared inthe Umm Al-Qura.

The next step in the formation and registration process is the registration of the LLC at theMoCIs commercial registry. Several additional documents are required in order to secure the CR,

including, but not limited to: (i) a certificate of capital from a Saudi Arabian bank certifying that the entireshare capital of the LLC has been deposited into a blocked account in Saudi Arabia; (ii) the unanimous


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written consent or resolution of the shareholders of the LLC (as appropriate according to the articles ofassociation) appointing the general manager and/or board of managers; and (iii) a copy of the initial officelease. Upon the issuance of the CR, the LLC would be fully authorized to engage in the activities set outin its articles of association. This part of the process can take another week or so to complete. The sharecapital of the LLC that was deposited in the blocked bank account is unblocked by the relevant bankupon presentation of a copy of the CR. Although the LLC has been formed and licensed upon issuanceof its CR, it also must make several administrative filings and pursue other formalities including applyingfor membership at the Chamber of Commerce, opening a 700 File and a Labor File at the LaborOffice, registering with the Department of Zakat and Income Tax (DZIT) and the General Organizationof Social Insurance (GOSI) and obtaining a Municipality License for the premises. Due to the increasedemphasis on Saudiization, it is recommended that, as part of the early business planning, the shareholdersaddress hiring Saudi personnel.

JSCs

General. The second most common form of commercial company is the joint stock company(JSC), which may be either public (if its shares are listed on the Tadawulexchange) or closed, if its sharesare not traded publicly. A JSC must have a minimum of five shareholders. There is no maximum number

of shareholders. Natural persons and corporate entities may be shareholders. Shareholders have limitedliability for the liabilities of the company, up to the value of their shares. JSCs have articles of associationand bylaws.

Capital. Article 49 of the Companies Regulations, as amended, stipulates that the minimum sharecapital for a JSC that offers shares for public subscription is SR 10,000,000. Otherwise the minimumshare capital is SR 2,000,000. Article 100 of the Companies Regulations provides that cash sharessubscribed to by the founders (as well as shares issued to the founders for contributions in kind) shall notbe negotiable before the publication of the companys financial statements for two complete fiscal years(each consisting of at least 12 months) from the date of incorporation of the company. During therestricted period, founders shares may be transferred or sold only by one founder to another or by theheirs of a founder to third parties. Public sale of shares is also regulated by the Saudi Capital Market

Authority (CMA). The CMAs requirements for listing shares on the Tadawul stock exchange are beyondthe scope of this report.

Preliminary approval. A JSC may be incorporated under the Companies Regulations only followingissuance of either a royal decree approving its formation or a recommendation from the Minister ofCommerce and Industry. An application to form a JSC must be submitted by at least five founders to theMinister of Commerce and Industry requesting approval for the incorporation either by royal decree orby his ministerial resolution. The founders may include foreign shareholders, in which event a foreigninvestment license from SAGIA is also required. The discussion in Exhibit 1 regarding the SAGIAapplication process is generally applicable to a foreign investment in a JSC.

Charter documents. The MoCI application (as to which there is no prescribed form) should be

accompanied by the requisite license from any other government agency, together with copies of theproposed contract of incorporation and bylaws of the company. The proposed contract of incorporationmust be pre-signed by the founders in advance of submission to the MoCI. The MoCI has published astandard form of bylaws for a JSC which form is mandatory, although minor deviations will be acceptedby the MoCI in circumstances which it considers justifiable.

The contract of incorporation must be recorded by the notary public, but the bylaws do not needto be so recorded. The MoCI signifies its approval of both documents by stamping each page thereof.Upon such approval, the contract of incorporation is executed by the shareholders, or their attorneys-in-fact, before the notary public. A copy of the notarized contract of incorporation is submitted to theMoCI, with a request for the license under Article 52 of the Companies Regulations. Shortly thereafter,the license is issued in the form of a resolution of the Minister of Commerce and Industry. The sequence

is essentially the same for issuance of a royal decree. (It should be noted that fewer joint stock companiesare formed by royal decree, particularly since the Companies Regulations were amended in 1982 to allow


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for licensing by ministerial resolution.). The ministerial resolution or royal decree licensing the companysformation is then published in Umm Al-Qura.

Initial shareholder meeting.An invitation to attend the constituent meeting of shareholders, with theagenda for such meeting approved by the MoCI, is then required to be published by the founders in twodaily newspapers. The agenda includes verification that the authorized capital has been subscribed to in

full and that the capital or the minimum (not less than 25 per cent) has been paid up in full; ratification ofthe approved bylaws; consideration of the founders report on pre-formation activities and expenses;consideration of the evaluation of founders contributions in kind (if any), including the experts reportthereon; appointment of the first board of directors; and appointment of the first auditor. Any majorfinancing would also normally be placed on the agenda for shareholder approval.

The constituent meeting is held at the appointed time and place at which a representative of theMoCI must be present. The minutes and resolutions of the constituent meeting must be signed by thechairman and the company secretary and approved by the MoCIs representative. The minutes aresubmitted to the MoCI, with another application requesting issuance of a ministerial resolutionannouncing the companys incorporation. Shortly after receipt of such application, the Minister ofCommerce and Industry issues his resolution to this effect. This ministerial resolution is required to be

submitted for publication in Umm Al-Qura, together with copies of the notarized contract ofincorporation and the bylaws as ratified at the constituent meeting. The company is then registered in theappropriate commercial register in the city where its head office is situated and is deemed to be dulyincorporated from the date of issuance of the Minister of Commerce and Industrys resolutionannouncing the incorporation of the JSC.

Other actions. The JSC must then establish its files with the Labor Office, DZIT, and GOSI, andjoin the Chamber of Commerce, as for an LLC.

Governance. A JSC is administered by a board of directors. The number of directors is specifiedin the companys bylaws, but may not be less than three. Each director must own company shares havinga nominal value of at least SR 10,000. These shares must be deposited in a Saudi Arabian bank

designated by the Minister of Commerce and Industry and are held as a guarantee for the directorsstatutory liability under Articles 75 to 77 of the Companies Regulations. In practice, the JSC purchasesand holds the shares and such shares are only nominally the property of the directors.

Timing. The formation and operation of a JSC involves a higher degree of MoCI involvementthan does the formation of an LLC and, generally speaking, takes longer. A minimum of six monthsfrom initial application to the Minister of Commerce and Industry until commercial registration wouldnot be unusual, absent exceptional circumstances. This assumes that all of the share capital has beensubscribed for by the founders or raised by private placement and that the founders and other investorsfunds (i.e., all of the capital or the minimum required to be paid up) are available for deposit prior tosubmission of the initial application to the Minister of Commerce and Industry. The MoCI must beinformed of and does attend meetings of the shareholders of a JSC in order to scrutinize its activities.

Branches

A branch is equivalent to an office or division of the company that owns it, and it is indivisible from thatcompany. A unique feature of a branch of a foreign company in Saudi Arabia, is that it is required tohave its own capital deposited in a Saudi Arabian bank account registered in the name of the branch. Thecompany is fully liable for the branchs acts, omissions and debts. The branch cannot be sold (althoughits assets can be). A branch cannot be a shareholder in another company, but can enter into teamingagreements or contractual consortia with other companies just as a company can. Foreign companies mayestablish branches to perform industrial or service activities, but not for trading. The process forestablishing a branch is similar to the process for establishing a company, but without articles ofassociation and related corporate governance arrangements. Of course, there is never a partner for a

branch. In Saudi Arabia it is not necessary to have a sponsor for a branch.


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Saudi Arabia does not license representative offices. In other jurisdictions a representative office (orrep office) is a branch that is licensed to conduct non-revenue generating marketing and liaisonactivities. Saudi Arabia will, in limited circumstances, license such activities to be conducted through atechnical and scientific service office (TSSO). The authorities have not been consistent over the years

with TSSOs. They are required for pharmaceutical companies, but are very difficult to establish for othertechnical companies and in all events can only be established with the consent of a Saudi agent ordistributor for the company. Most foreign companies prefer instead to establish a services branch tohandle installation, commissioning, and warranty work for the product or to second a home officeemployee into the distributor to assist the distributor in marketing the products.

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EXHIBIT 1

FOREIGN INVESTMENT LICENSE

Introduction

This Exhibit and its Appendices describe the requirements and process for obtaining a foreign investmentlicense from SAGIA. SAGIA has in recent times been in a state of flux following the changes to thelicensing procedure and required documents as implemented by the Governor of SAGIA. Therefore,

while the information contained in this report represents the most current information available, changesto the process and requirements for obtaining a SAGIA license are possible. This Exhibit focuses onLLCs. The process for obtaining a SAGIA license in connection with the formation of a JSC issubstantially the same.

SAGIA was established pursuant to the Foreign Investment Regulations, Royal Decree No. M/1, dated05/01/1421 A.H. (corresponding to April 9, 2000 G.), and their Implementing Rules (collectively, theForeign Investment Regulations). Subject to certain limitations based on the activity to be conducted (e.g.,negative list or professional activities), it is possible for foreign entities to form an LLC for purposes

of either a) performing services (including trading activities subject to certain capital and shareholdingrequirements), or b) manufacturing in Saudi Arabia.

Approval of a foreign direct investment such as the formation of an LLC is discretionary, although it isreasonable to expect that such approval can be obtained if all the requirements are met and theshareholders are able to satisfy the SAGIA authorities that they have the required experience and financialsupport, and that the companies activities will be beneficial to the Kingdom of Saudi Arabia. Undercurrent procedures obtaining a SAGIA license can require two to four months from the time thecomplete application is submitted if no complications arise.

Application

In order to obtain a foreign investment license the proposed shareholders must submit a completedapplication form to SAGIA together with a significant number of supporting documents, including acopy of the proposed articles of association of the LLC. Lists of such supporting documents for an LLCbased on the various types of activities, are attached hereto as Appendices A-D. Such requirements aresubject to change by SAGIA in its discretion.

The activities to be performed by the LLC are listed on the foreign investment license and therefore aproposed description of those activities must be provided on the application. Assuming that theapplication and supporting documents are complete and no problems are encountered, based on previousexperience SAGIA often issues a foreign investment license within approximately thirty to forty-five days.

As set out in the attached document lists (Appendices A D), the shareholders making an application to

SAGIA for a foreign investment license are required to provide three years audited financial statements inorder to convince SAGIA that they have the financial means to operate the LLC in Saudi Arabia.

Therefore ideally in selecting which entities are used as shareholders, this should be kept in mind. It hasin the past been possible in certain appropriate cases to obtain SAGIA approval for shareholding entitiesthat did not have the required three years of financial statements.

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APPENDIX A

LIST OF DOCUMENTS REQUIRED FOR SAGIA APPROVAL

(TRADING COMPANY)

1. Name reservation for the new Saudi company obtained from the Ministry of Commerceand Industry (MoCI).

2. A letter addressed by a Saudi lawyer, as attorney in fact for the foreign investor entity, tothe Director of the License Department of SAGIA.

3. A completed SAGIA License Application Form.

4. An original resolution of the foreign investor entity issued by its relevant corporategovernance body, approving the formation of the new Saudi company, and authorizing the powers ofattorney (see items #5 and #6 below).

5. An original power of attorney issued by the foreign investor entity in favor of thedesignated general manager of the new Saudi company.

6. An original power of attorney issued by the foreign investor entity in favor of the foreigninvestor entitys Saudi lawyers for purposes of executing and filing documents and processing the file inconnection with the formation of the new Saudi company.

7. An original Foreign Bank Certificate issued by the foreign investor entitys bank outsideSaudi Arabia, evidencing that the foreign investor entitys bank account balance is sufficient to fund theforeign investor entitys portion of the new Saudi companys capital.

8. Audited financial statements of the foreign investor entity for the three most recent years

(i.e., auditors opinion, financial statements and accompanying notes for each year), certified by an officerof the foreign investor entity.

9. Copies of the constitutive documents of the foreign investor entity (e.g., Certificate ofIncorporation, Memorandum of Association, By-laws and Long Form Certificate of Good Standing)based on its jurisdiction of incorporation and entity type. NOTE: If these constitutive documents of theforeign investor entity name individuals as its shareholders, then passport copies of those individuals willbe required.

10. Corporate Profile of the foreign investor entity, its business, strategy, management team,and past projects and experience.

11. A Feasibility Study or Business Plan of the foreign investor entity describing its businessand investment strategy for operating in Saudi Arabia.

12. List of the foreign investor entitys Most Significant Acts during the last three years.

13. Saudiization Plan (i.e., plan to hire Saudi nationals) for the new Saudi company.

14. A general overview of the benefits that the new Saudi company plans to bring to theSaudi economy and the local community.

15. A completed SAGIA Entity Biography Form.


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16. A copy of each of the following for the local partner: (i) the notarized Articles ofAssociation and all notarized amendments thereto, (ii) the Commercial Registration (C.R.), (iii) thelatest years audited financial statements and (iv) Department of Zakat and Income Tax ClearanceCertificate.

17. An original shareholders resolution of the local partner approving the formation of the

new Saudi company.

18. The proposed form in Arabic of the Articles of Association for the new Saudi company.

19. Regarding the appointment of Board members of the new Saudi company:

a. Passport copy for each expatriate Board member;

b. Saudi ID copy for each Saudi national Board member; and

c. Shareholders resolution appointing the Board member, issued by the shareholdercompany that is appointing such Board member.

20. Regarding the designated General Manager:

a. four passport-size photos;

b. if the GM is a non-Saudi, then a full copy of his passport (including all pages of thepassport, not just the photo page);

c. if the GM is a non-Saudi holding an Iqama (Saudi residence permit), then a copy of theIqama;

d. if the GM is a married Saudi, then copies of the individuals Saudi identification card and

family identification card; and

e. if the GM is an unmarried Saudi, then copies of the individuals Saudi identification cardand Civil Registry Print-Out.

Notes:

(i) Under current Saudi law, up to 75% of the share capital of a Saudi trading company may beowned by a foreign shareholder; a local Saudi partner must own at least 25% of the share capital of theSaudi trading company.

(ii) The documents included in this list are all of the documents that SAGIA normally requiresfor the formation of a Saudi trading company currently. However, it is important to bear in mind thatSAGIA reserves the right to require additional documents in its sole discretion and, in practice, it is notunusual for SAGIA to exercise this right.

(iii) The documents referred to in paragraphs 4, 5, 6, 7, 8, 9 and 15 above are required to be fullyauthenticated for use in Saudi Arabia. As a general rule this requires that they are notarized, legalized andconsularized at the relevant Saudi Arabian Embassy. Please note that the document referred to inparagraph 15 will need to be signed on the original Arabic version.

(iv) The documents referred to in paragraphs 10, 11, 12, 13 and 14 above will need to betranslated into Arabic but will not need to be authenticated for use in Saudi Arabia.

(v) The documents referred to in paragraph 17 and 19c above will need to be executed by anauthorized signatory, and attested at the Chamber of Commerce.

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APPENDIX B


(SERVICES COMPANY - CONTRACTING)


2. A letter addressed by a Saudi lawyer, as attorney in fact the foreign investor entity, to theDirector of the License Department of SAGIA.









10. Corporate Profile the foreign investor entity, its business, strategy, management team,and past projects and experience.


12. List of the Most Significant Acts of the foreign investor entity during the last threeyears.




16. A completed SAGIA Undertaking Form for Services (Contracting) Companies.


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17. A list of, together with completion certificates for, the foreign investor entityspreviously completed contracting projects in excess of the minimum aggregate value threshold specifiedin the Appendix to the SAGIA Undertaking Form for Services (Contracting) Companies (see item #16above) for the type(s) of projects that the new Saudi company will be carrying out in the Kingdom ofSaudi Arabia.

18. A Bank Guarantee issued by the bank of the foreign investor entity in favor of SAGIA,for 2% of the contractual minimum amounts (as identified in the schedule to document #16 above.

19. [Applicable only if there will be a local partner] A copy of each of the following for thelocal partner: (i) the notarized Articles of Association and all notarized amendments thereto, (ii) theCommercial Registration (C.R.), (iii) the latest years audited financial statements and (iv) Department ofZakat and Income Tax Clearance Certificate.

20. [Applicable only if there will be a local partner] An original shareholders resolution ofthe local partner approving the formation of the new Saudi company.


22. Regarding the appointment of Board members of the new Saudi Company:








d. if the GM is a married Saudi, then copies of the individuals Saudi identification card andfamily identification card; and

e. if the GM is an unmarried Saudi, then copies of the individuals Saudi identification card

and Civil Registry Print-Out.

Notes:

(i) Under current Saudi law, a Saudi services company may be 100% foreign owned. There is norequirement to have a local partner. However, as a general requirement, any Saudi limited liabilitycompany must have at least two shareholders, both of which may be foreign entities.

(ii) The documents included in this list are all of the documents that SAGIA normally requiresfor the formation of a Saudi services (contracting) company currently. However, it is important to bear inmind that SAGIA reserves the right to require additional documents in its sole discretion and, inpractice, it is not unusual for SAGIA to exercise this right.

(iii) The documents referred to in paragraphs 4, 5, 6, 7, 8, 9, 15 and 16 above are required to befully authenticated for use in Saudi Arabia. As a general rule this requires that they are notarized, legalized


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and consularized at the relevant Saudi Arabian Embassy. Please note that the documents referred to inparagraphs 15 and 16 will need to be signed on the original Arabic version.


(v) The documents referred to in paragraph 20 and 22c above will need to be executed by an

authorized signatory, and attested at the Chamber of Commerce.

* * *


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APPENDIX C


(SERVICES COMPANY NOT CONTRACTING)












11. A Feasibility Study or Business Plan the foreign investor entity describing its businessand investment strategy for operating in Saudi Arabia.





16. [Applicable only if there will be local partner] A copy of each of the following for thelocal partner: (i) the notarized Articles of Association and all notarized amendments thereto, (ii) the


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Commercial Registration (C.R.), (iii) the latest years audited financial statements and (iv) Department ofZakat and Income Tax Clearance Certificate.

17. [Applicable only if there will be local partner] An original shareholders resolution of thelocal partner approving the formation of the new Saudi company.











e. if the GM is an unmarried Saudi, then copies of the individuals Saudi identification cardand Civil Registry Print-Out.

Notes:

(i) Under current Saudi law, a Saudi services company may be 100% foreign owned. There is norequirement to have a local partner. However, as a general requirement, any Saudi limited liabilitycompany must have at least two shareholders, both of which may be foreign entities.

(ii) The documents included in this list are all of the documents that SAGIA normally requiresfor the formation of a Saudi services (not contracting) company currently. However, it is important tobear in mind that SAGIA reserves the right to require additional documents in its sole discretion and, inpractice, it is not unusual for SAGIA to exercise this right.

(iii) The documents referred to in paragraphs 4, 5, 6, 7, 8, 9 and 15 above are required to be fullyauthenticated for use in Saudi Arabia. As a general rule this requires that they are notarized, legalized andconsularized at the relevant Saudi Arabian Embassy. Please note that the document referred to inparagraph 15 will need to be signed on the original Arabic version.


(v) The documents referred to in paragraph 17 and 19c above will need to be executed by anauthorized signatory, and attested at the Chamber of Commerce.

* * *


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APPENDIX D


(SERVICES COMPANY - MANUFACTURING)















14. A general overview of the benefits that the new Saudi company plans to bring to theSaudi economy and the local community. This overview should include a confirmation that the productsof the new Saudi company will fulfill a need in the Saudi domestic market and/or will increase exportsfrom the Kingdom of Saudi Arabia.



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16. A completed SAGIA Undertaking Form for Manufacturing Companies.

17. Engineers Plans for the manufacturing site and facility.

18. A Facilities Plan for managing garbage waste disposal/storage and energy and electricityuse at the manufacturing facility.

19. A Safety Plan for the manufacturing facility.

20. [Applicable only if there will be a local partner] A copy of each of the following for thelocal partner: (i) the notarized Articles of Association and all notarized amendments thereto, (ii) theCommercial Registration (C.R.), (iii) the latest years audited financial statements and (iv) Department ofZakat and Income Tax Clearance Certificate.

21. [Applicable only if there will be a local partner] An original shareholders resolution ofthe local partner approving the formation of the new Saudi company.











e. if the GM is an unmarried Saudi, then copies of the individuals Saudi identification card

and Civil Registry Print-Out.

Notes:

(i) Under current Saudi law, a Saudi manufacturing company may be 100% foreign owned. Thereis no requirement to have a local partner. However, as a general requirement, any Saudi limited liabilitycompany must have at least two shareholders, both of which may be foreign entities.

(ii) The documents included in this list are all of the documents that SAGIA normally requiresfor the formation of a Saudi manufacturing company currently. However, it is important to bear in mindthat SAGIA reserves the right to require additional documents in its sole discretion and, in practice, it isnot unusual for SAGIA to exercise this right.

(iii) The documents referred to in paragraphs 4, 5, 6, 7, 8, 9, 15 and 16 above are required to befully authenticated for use in Saudi Arabia. As a general rule this requires that they are notarized, legalized


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and consularized at the relevant Saudi Arabian Embassy. Please note that documents referred to inparagraph 15 and 16 will need to be signed on the original Arabic version.

(iv) The documents referred to in paragraphs 10, 11, 12, 13, 14, 18 and 19 above will need to betranslated into Arabic but will not need to be authenticated for use in Saudi Arabia.

(v) The documents referred to in paragraph 21 and 23c above will need to be executed by an

authorized signatory, and attested at the Chamber of Commerce.

* * *


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EXHIBIT 2

SAGIA NEGATIVE LIST(ACTIVITIES IN WHICH FOREIGN INVESTMENT IS NOT PERMITTED)

INDUSTRIAL SECTOR

1. Oil exploration, drilling and production. Except the services related to mining sector listed at ( CPC5115+883) in International Industrial classification codes.

2. Manufacturing of military equipment, devices and uniforms.

3. Manufacturing of civilian explosives.

SERVICE SECTOR

4. Catering to military sectors.

5. Security and detective services.

6. Real estate investment in Makkah and Madina.

7. Tourist orientation and guidance services related to Hajj and Umrah.

8. Recruitment and employment services including local recruitment offices.

9. Real estate brokerage.

10. Printing and publishing. Except the following activities:

Pre-printing services internationally classified at ( CPC 88442)

Printing Presses internationally classified at ( CPC 88442)

Drawing and calligraphy internationally classified at ( CPC 87501)

Photography internationally classified at ( CPC 875)

Radio and Television Broadcasting Studios internationally classified at ( CPC 96114)

Foreign Media Offices and Correspondents internationally classified at ( CPC 962)

Promotion and Advertising internationally classified at ( CPC 871)

Public Relations internationally classified at ( CPC 86506)

Publication internationally classified at ( CPC 88442)

Press Services internationally classified at ( CPC 88442)

Production, selling and renting of computer software internationally classified at (CPC 88)

Media consultancies and studies internationally classified at ( CPC 853)

Typing and copying internationally classified at ( CPC 87505 + 87904).

Motion picture and video tape distribution services internationally classified at ( CPC 96113).


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11. Commission agents internationally classified at ( CPC 621).

12. Audiovisual and media services.

13. Land transportation services, excluding the intra-city passenger transport by trains

14. Services provided by midwives, nurses, physical therapy services and quasi-doctoral servicesinternationally classified at ( CPC 93191).

15. Fisheries.

* * *

Documents

Company Formation in Saudi Arabia -- Including Appendices a Through D Fi