Steps and Requirements for Licensing a One-Person Company Under the New Companies Law

Licensing a one-person company is one of the most significant practical developments introduced by the new Saudi Companies Law. This innovative legal structure allows an individual investor to establish an independent business entity with its own separate legal personality and financial liability, while keeping full control over how the business is run. In this comprehensive guide, we explain it in detail in line with the latest legislation.

What Is a One-Person Company Under Saudi Law?

A one-person company is a special form of investment within the limited liability company or joint stock company model, in which all of the company's shares are owned by a single owner, whether an individual or a legal entity such as another company.

The owner directly exercises the legal and executive powers granted to both the company's management and its general assembly, while the company retains full legal independence through:

1. Its own trade name and independent commercial registration.
2. The separation of the company's funds from the owner's personal funds.
3. Limiting the owner's financial obligations to the amount of their contribution to the capital, without extending to their personal assets.

Key Features of a One-Person Company

A one-person company has a number of features that make it an attractive option for entrepreneurs, most notably:

Limited Liability

This is the most important advantage of a one-person company. The owner's financial liability is limited to the capital invested in the company, so their personal assets are protected from creditors seeking to recover the company's debts, except in exceptional cases where the owner is shown to have committed gross misconduct or acted in bad faith.

Independent Legal Personality

A one-person company has an independent legal identity that is entirely separate from its owner, and its own financial liability that is fully distinct from the owner's personal finances.

Separate Financial Liability

This separation has legal and financial consequences: all of the company's assets belong to the company as a legal entity alone and are dedicated exclusively to meeting its obligations and commercial commitments. As a result, the owner's personal money and property remain fully insulated from any debts or losses the company may accumulate, and creditors cannot pursue the owner's personal wealth to recover what they are owed, except in specific exceptional cases defined by law involving gross negligence or fraud.

Administrative Flexibility

This structure allows the sole owner to run the business and make decisions smoothly, as they hold all the powers and duties normally assigned to the manager, the board of directors and the general assembly of partners. To ensure governance and legal transparency, all of these decisions must be recorded in writing and entered in a regular official register kept at the company.

Business Continuity

A one-person company allows an individual to allocate part of their assets to a business, with the possibility of transferring ownership and keeping the business running.

The Legal Basis for One-Person Companies

The legal framework for one-person companies is based on the Saudi Companies Law issued by Royal Decree No. (M/132) dated 1/12/1443H, which came into force on 19 January 2023.

The law establishes the legitimacy of this structure through two main provisions:

• Defining a limited liability company as a company that may be established by one or more persons, whether natural or legal persons.
• Allowing a company to be established from the outset by a single owner, and allowing all of a company's shares to later pass to a single person without the company being dissolved or losing its legal existence.

Requirements for Licensing a One-Person Company

To obtain a one-person company license, you must meet a set of requirements defined by the Companies Law, as follows:

1. If the owner is a natural person, they must be at least 18 years old; the rules on guardianship of minors apply where the company is established through a guardian.
2. The founder must hold Saudi nationality or the nationality of a GCC country.
3. The founder must not be a government employee, in line with the conditions of the incorporation service.
4. The company's trade name must be accompanied by the words "One-Person Company" or its official abbreviation, to make its legal nature clear to third parties.
5. A manager holding Saudi nationality or the nationality of a GCC country must be appointed for the company.
6. A certified auditor must be appointed for the company.
7. The capital must be sufficient for the activity. Although the law does not set a prohibitive minimum, the capital must be at least SAR 5,000 to begin the incorporation process.

Documents Required to Establish a One-Person Company

Incorporating the company requires preparing the following documents before starting the official procedures:

1. The incorporation application form, completed with the basic information.
2. The articles of association (original and copy), including the company's name, activity, capital and head office.
3. The bylaws, if issued as a separate document from the articles of association.
4. A trade name reservation certificate issued by the Commercial Register, confirming that the name is not confusingly similar to another.
5. A bank certificate confirming that the full capital has been deposited in the company's account.
6. Valid copies of the national ID of both the owner and the manager.
7. A power of attorney, if a legal representative is authorized to complete the incorporation procedures on the owner's behalf.
8. Prior licenses and approvals from the competent authorities, if the company's activity requires special regulatory permission before it can be carried out.

How to Establish a One-Person Company

Licensing a one-person company involves the following stages:

1. Choosing a trade name that complies with the Companies Law, adding the words "One-Person Company" next to the name.
2. Preparing the one-person company's articles of association (also known as the bylaws), which set out the company's name and head office; its purpose and activity; its term; its paid-up capital; how profits and losses are distributed; and the appointment of the manager and the auditor.
3. Applying through the Saudi Business Center platform: log in to the platform, choose the service for establishing a limited liability company, click "Start Service", set the number of partners to "one person", specify the company's status (optional), enter the business activity details and attach the required documents.
4. The license is approved and the company is entered in the Commercial Register once the competent authorities have reviewed the application.
5. After obtaining the license, a bank account must be opened in the company's name and the company must be registered with the Zakat, Tax and Customs Authority.
6. Registering with the General Organization for Social Insurance (if the company has employees).

One-Person Company vs. Sole Proprietorship

A one-person company differs from a sole proprietorship in key ways, so understanding the distinction is a crucial step for anyone preparing to start a business. The most important difference lies in the extent of financial liability and the nature of the owner's legal liability.

In a sole proprietorship, the business is completely intertwined with the owner's personal finances. The establishment has no independent legal personality, so its liability for obligations and debts is unlimited and extends directly to the trader's personal assets.

For example, if the establishment's debts reach SAR 200,000 while the capital allocated to the business does not exceed SAR 50,000, creditors are legally entitled to pursue the owner's personal assets, such as real estate or personal bank accounts, to recover the balance. The level of legal protection for personal assets is therefore very low.

A one-person company, on the other hand, gives the investor a higher level of protection, as it is a legal entity with a legal personality and financial liability that are completely separate from its founder, and the owner's liability is limited to the capital allocated to the company.

If the company incurs obligations or losses that exceed its capital, creditors' claims are limited to the company's assets and do not extend to the owner's personal property.

Converting a Sole Proprietorship into a One-Person Company

The new law makes it possible to convert a sole proprietorship into a one-person company. This is a strategic option for many sole proprietors who want the legal protection offered by an independent legal personality and limited liability. The conversion steps are as follows:

1. Determining the value of the establishment's assets and liabilities.
2. Preparing the bylaws of the new company.
3. Submitting the conversion application through the Saudi Business Center platform.
4. Transferring ownership of the establishment's assets to the new company.
5. Cancelling the establishment's commercial registration once the conversion procedures are complete.

Accounting and Tax Obligations After Incorporation

The entity's financial and legal obligations begin as soon as the commercial registration is issued. These requirements follow set deadlines that call for early preparation and compliance with the rules of the Zakat, Tax and Customs Authority (ZATCA):

Zakat and Income Tax

Entities wholly owned by Saudi or GCC nationals are subject to zakat at 2.5% of the zakat base each year, while foreign ownership is subject to income tax of 20% on its share of profits. In entities with mixed ownership, the zakat and tax base is allocated according to the partners' shares.

Value Added Tax

VAT registration is essential, with a standard rate of 15%. Registration is mandatory if taxable supplies reach SAR 375,000 a year, and optional for businesses whose sales exceed SAR 187,500. We therefore recommend monitoring revenue every month to avoid late-registration penalties as you approach the mandatory threshold.

E-Invoicing

Every VAT-registered business must issue digital invoices that comply with ZATCA's requirements and the integration phase rules through the FATOORA platform, which makes using an approved accounting system a mandatory compliance requirement.

Books and Financial Statements

The independent entity must keep regular accounting books and prepare annual financial statements. These statements are the main reference for filing zakat and tax returns and for assessing creditworthiness with financing providers, and they give an accurate picture of the business's profitability and the soundness of its capital.

Practical Tips for Successfully Licensing a One-Person Company

1. Consult a specialist lawyer to make sure the legal procedures are correct and the bylaws are sound.
2. Choose your trade name carefully, and make sure it does not conflict with other registered names and complies with the regulatory requirements.
3. Define your activity precisely, choosing activities that are permitted for one-person companies.
4. Set capital that suits your activity, taking into account the minimum capital required for a one-person company.
5. Keep your personal accounts separate from the company's accounts to preserve the protection of limited liability.

By following these tips, you can obtain your one-person company license and begin your business journey with confidence, achieving growth and sustainability in the Saudi market under the ambitious Saudi Vision 2030.