Foreign Partner in a Saudi Company: Rules and Concealment Risk

Your expat friend funds the business and runs it, while the commercial registration is in your name "until things are arranged". The arrangement seems convenient for both of you. Under Saudi law, it may be commercial concealment (tasattur), while the legal way to bring in a foreign partner is available and clear.

The direct answer: a Saudi company may have a foreign partner, provided the partner registers with the Ministry of Investment before investing (Article 7 of the Investment Law) and obtains approval if the activity is excluded (Article 8). The company's articles of association are then amended and the change is entered in the Commercial Register. But if a foreigner runs a business for his own account under your name or your registration, that is concealment and is punished under the Anti-Concealment Law (Articles 3 and 9).

What is the legal way to add a foreign partner to a Saudi company?

1. The foreign investor registers with the Ministry of Investment before investing, except for investment in securities (Article 7 of the Investment Law).
2. Check that the activity is not prohibited, and request approval if it is restricted. Any change in the ownership of an investment in a restricted activity needs prior approval (Article 8).
3. Amend the company's articles of association and enter the new partner in the Commercial Register.

The Investment Law guarantees the foreign investor equal treatment with local investors in similar circumstances, and the freedom to transfer funds related to the investment into and out of the Kingdom (Article 4).

How does a foreign partner buy a share in a Saudi LLC?

In a limited liability company (LLC), if a partner wants to transfer his share to a non-partner, he must notify the other partners through the manager of the buyer's name and the terms of sale. Each partner may ask to buy back (redeem) the share within 30 days of the manager's notice. If they disagree on the value, an accredited valuer decides it. If the period ends without a redemption request, or the partner who asked does not pay the value, the share may be transferred to the outsider (Article 178 of the Companies Law). The articles of association may set other procedures or a longer period for redemption.

Two Saudi partners own an LLC. One wants to sell 40% of the shares to a British investor for SAR 1 million.

The manager notifies the other partner. If he asks to redeem the share within 30 days and pays the value, he has priority.

If he does not, the share is sold to the British investor after the investor registers with the Ministry of Investment. The articles of association are then amended and the change is registered.

When is a partnership with a foreigner considered concealment in Saudi Arabia?

Concealment is an agreement or arrangement through which a person enables a non-Saudi to carry on an economic activity in the Kingdom that he is not licensed to carry on, by using the licence or approval of the person concealing him (Article 2 of the Anti-Concealment Law). One form is allowing a foreigner to use your name, licence or commercial registration to carry on the activity for his own account (Article 3). A foreign partner who is registered and entered in the Commercial Register works under his own licence. Someone who really owns and runs the business from behind your name is in a different position.

The penalty for concealment crimes is imprisonment of up to five years and a fine of up to SAR 5 million, or one of the two (Article 9). It is also a violation to give a non-Saudi, in an irregular way, tools that allow him full control of the establishment, or for the establishment to use a bank account that does not belong to it (Article 4).

This is general information based on the official Arabic texts of Saudi laws, which prevail over any translation. It is not legal advice for your specific case.

Practical solutions for the Saudi partner and the foreign investor

If you are the Saudi partner:

• Bring in the foreign partner officially instead of an unwritten arrangement.
• Amend the articles of association to set out management, profits and how a partner can exit.
• Do not hand over tools of full control of the establishment, such as full bank signing authority, to anyone who is not a registered partner.
• If the current situation is an irregular arrangement, look at correcting it urgently.

If you are the foreign investor:

• Register with the Ministry of Investment before paying any money.
• Buy the share under a contract that respects the other partners' right of redemption.
• Make sure the company's bank account is in its own name and its transactions go through it.
• Do not accept that your investment is held in someone else's name. Your rights in it become weak and the arrangement is illegal.

Bringing in a foreign partner correctly protects both sides and the business. Send us your company's current structure and shareholding on WhatsApp, and we will explain the steps to join or to correct the position.