Tawaref series: Company formation in Saudi from A to Z

After understanding the types of licences, and attestation processes, it’s time to move on to the actual company formation. Starting a business in Saudi Arabia involves a few key steps: understanding and obtaining a proper investment/MISA licence, selecting the right business activity, choosing a suitable trade name, and establishing the authority of managers.

For a company to properly align itself in the Saudi market, it’s crucial to implement these processes successfully. We find that sometimes even local Saudis struggle to grasp these concepts. Even one misstep can be costly in the long run, so we highly recommend hiring a knowledgeable lawyer/Saudi setup partner to guide you through the process. 

To help out foreign investors who may not be familiar with these terms, we have developed a comprehensive article breaking down all aspects for better understanding.

Part 1: Investment licence: business activities

What is the investment/MISA licence?

Successfully obtaining the investment/MISA licence is the first and most important step for any foreign investor with shareholders who are not GCC nationals. If all owners of the company are GCC nationals, this step is not required. Once you obtain this licence, you are officially eligible to conduct business in Saudi Arabia.

These licences are of varying types, depending on the nature of the business. To understand the different types of investment licences, read our previous article. 

What are business activities?

As you may know, part of opening a company includes choosing its business activities in their application. Saudi Arabia follows the global United Nations classification ISIC 4 as a standard for all business activities. Please note that your business activities must follow your licence type. You can search the list of all activities here. 

Additionally, if you want to choose an activity that falls under a separate licence type, then you must apply for that licence as well. For example, you cannot have trading and transport under one licence type you must obtain separate licences for each.

Note: Not all business activities are allowed for foreign investors. Others require obtaining a special licence (healthcare, FinTech). These come with their own cost and bureaucracy, so a good lawyer will help you work around this. For more information, check MISA.

Part 2: Trade names

What is a trade name?

Many business people often get confused between trade names and trademarks. Although they both sound similar, there are very distinct differences between the two. The trade name is the legal name of the company, while the trademark is typically the commercial identity through which a business is popularly known. 

Guidelines for Saudi trade name

The following are a few guidelines to follow when deciding on a trade name. 

• Shariah Compliant: The trade name must be in line with Islamic principles and law. 
• Appropriate: Inappropriate names that violate public decency are not allowed.
• Unique: You cannot name a company after an entity that already exists. For example, Aramco, the Ministry of Investment, and Google would all be rejected. 
• Arabic or English: You can keep the name of your mother company if it is in English. 

Banned trade names

Thousands of words are banned for use in trade names by the Saudi government. This includes religiously inclined phrases like (Quran, Makkah, Allah), historical landmarks (HIra, Thaur), city names (Riyadh, Dammam), and more. It is best to consult with professionals before applying for a trade name to avoid any mishaps. You can also reference this list of current banned names here. 

Note: As of June 2024, virtual trade name registration requires a Saudi ID.

Part 3: Incorporation (GM authorities)

Once you receive your investment licence and trade name, you can begin the actual incorporation process. The entire process can be done online, but one physical visit is required to submit original documents and verify the identities of owners/lawyers. Successful incorporation allows legal operations of your business, even without an Iqama or bank account. Although the entire process is conducted online over the course of about 3 to 5 working days, one physical visit is required by you or your lawyer for identity verification.

To open any company, you need to submit the Articles of Association, which include the authorities of the general manager of your business. The following section explains both of these requirements.

What are articles of association (AoA)?

The AoA is a document containing key information on the company structures. The following are examples of some of the information mentioned in this document:

1. Passport information
2. Addresses
3. Stakeholder percentages

• Years of business
• Amount of Capital (predefined in MISA licence)
• Financial Year
• Liquidation and dissolution information
• Headquarters location
• Personalised articles (specific/customised authorities)
• Authorities of the GM (explained below)

Authorities of the GM

Often an integral part of the Articles of Association is assigning the authorities of the GM. This section defines all the roles and responsibilities of a company’s general manager(s) related to governance, representation, etc. 

There are more than 300 authorities you can choose from, with all available options accessible online. Examples of authorities are assignment of shareholders, representation rights, and so on. 

Saudi Expansion Series

This article is part of the Saudi Expansion series, where we aim to educate international entrepreneurs and business owners on Saudi Arabia’s foreign investment regime for a smooth landing. This article is written by Tawaref, a tech investment community that finances top regional startups and offers entrepreneurial services.