How Profits and Losses Are Shared
Under Article 23, all partners in a Saudi company must share in both profits and losses in proportion to their interests in the company's capital. This is the default rule, and it applies unless the articles of incorporation specify a different arrangement.
Important rule: Any agreement that completely denies a partner their share of profits or fully exempts a partner from losses is considered null and void under Saudi law. You cannot contract out of sharing in both the upside and downside of the business.
However, the articles of incorporation can set a different profit and loss ratio from the capital contribution ratio — so partners can agree to give a larger profit share to a partner who contributes specialized expertise or plays a more active role, even if their capital contribution is smaller.
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Partners Who Contribute Work
Under Article 24, if a partner's contribution is their work or services rather than capital, and the articles of incorporation do not specify their profit and loss share, they will receive a share equal to the partner who made the smallest capital contribution.
Practical implication for expats: If you are bringing skills or management expertise to a partnership rather than cash, make sure your profit-sharing arrangement is explicitly written into the articles of incorporation. Relying on the default rule may result in a smaller share than you intended.
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Dividend Distributions
Under Article 22, companies may distribute annual or interim dividends to partners or shareholders. This applies to:
- Joint-Stock Companies
- Simplified Joint-Stock Companies
- Limited Liability Companies
The critical rule: Dividends may only be paid from distributable profits. If dividends are paid in violation of this rule, the partners or shareholders who received them may be required to return those amounts to the company, particularly if they knew the distribution was unlawful at the time.
What are distributable profits? Generally, these are profits remaining after:
- Covering company losses from prior years
- Setting aside any legally required reserve funds
- Accounting for tax obligations
Always have your financial statements reviewed before authorizing a dividend payment to ensure the company genuinely has distributable profits available.
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Accounting Records and Financial Statements
Under Article 17, every Saudi company is required to maintain:
- Accounting records covering all business activities
- Supporting documents for all transactions and contracts
- Financial statements prepared at the end of each fiscal year
These records must be kept at the company's registered headquarters or at another location designated by the manager or board of directors.
Retention requirement: Financial records must be kept for the period specified by applicable regulations — typically a minimum of 10 years in line with Saudi accounting standards.
Practical tip for expats: Invest in proper accounting software and a qualified local accountant from day one. Poorly maintained records are one of the most common causes of regulatory problems for small foreign-owned businesses in the Kingdom.
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The Fiscal Year
Under Article 16, a company's fiscal year must be exactly 12 months and must be specified in the articles of incorporation or association.
Exception for new companies: The first fiscal year of a newly incorporated company can be between 6 and 18 months, starting from the date of registration with the Commercial Register. This gives founders some flexibility when setting up mid-year.
Choose your fiscal year carefully — changing it later requires a formal amendment to your articles of association.
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Auditor Requirements
Under Article 18, most companies incorporated under Saudi law must appoint at least one auditor who is licensed to practice in the Kingdom. The auditor's appointment, fees, term, and scope of work are determined by the partners or general assembly.
Auditor independence rules (Article 20):
- The auditor must be independent in accordance with professional standards
- The auditor cannot participate in the management of the company they audit
- The auditor cannot serve as a board member of the company
- The auditor cannot hold shares in the company they audit
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Exemptions for Micro and Small Companies
Under Article 19, micro and small companies are generally exempt from the mandatory auditor requirement — but this exemption does not apply if:
- The articles of incorporation specifically require an auditor
- The company has issued debt instruments (such as bonds or sukuk)
- A court or regulatory authority orders an audit
- The company meets certain financial thresholds set by the regulations
Expat tip: Even if your company qualifies for the exemption, voluntarily engaging an auditor is strongly advisable if you have external investors, plan to seek financing, or intend to sell the business in the future.
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Partner Rights to Monitor Accounts
Under Article 21, partners and shareholders have the right to monitor company accounts in accordance with the Companies Law and the company's articles of incorporation or association. This is an important protection for minority investors.
If you are a minority partner in a Saudi company, ensure your articles of association clearly define your access rights to financial information, including the right to receive regular financial statements and to inspect underlying records.
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Key Financial Compliance Checklist for Expats
- [ ] Specify your fiscal year in your articles of association before registration
- [ ] Appoint a licensed auditor (or confirm you qualify for an exemption)
- [ ] Maintain complete accounting records from day one of operations
- [ ] Only distribute dividends from verified distributable profits
- [ ] Clearly document profit and loss sharing ratios in your articles
- [ ] Retain all financial documents for the legally required period
- [ ] Ensure financial statements are prepared at the close of each fiscal year
- [ ] Include required company information (name, CR number, capital) on all official documents per Article 12