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2 NATURE OF COORPORATIONS Corporations can only be created pursuant to the laws of the state of incorporation Corporations Codes – State statutes that regulate the formation, operation, and dissolution of corporations The courts interpret state corporation statutes to decide individual corporate and shareholder disputes The Corporation as a Legal Person A corporation is a separate legal entity (or legal person) Corporations are treated as artificial persons created by the state that can: Sue or be sued in their own names Enter into and enforce contracts Hold title to and transfer property Be found civilly and criminally liable for violations of law

3 COMMERCIAL REGISTRATION Every industrial or commercial establishment must register with the Ministry of Commerces commercial registration offices in the major cities in the Kingdom. Saudi partners in foreign companies and branches of foreign companies need the consent of the Foreign Capital Investment Committee one month before they apply for commercial registration.

4 . The registration procedures are as follows: Foreign Companies Commercial Agencies Registration: To register an agency, the agent must be a Saudi company or establishment. The partners and the management of the company must all be Saudis. The time limit for the submission of the registration application in the register of commercial agencies is three months from the date on which the agency came into effect. Companies Service Agencies: The act stipulates that a foreign contractor who has no Saudi partner shall appoint a Saudi service agent. The Saudi agent must have a commercial registration. If the contract under consideration is a consultancy, the Saudi agent shall be licensed to carry out consulting services of the same nature as the contractor Foreign Companies Branches: A foreign company carrying out industrial or contracting apply to the Foreign Capital Investment Committee for a license to establish a branch in the Kingdom. On receiving the license, the company may complete its registration with the Ministry of Commerce according to the Commercial Register and the Companies Act. Scientific and Technical Offices: A foreign company that distributes its products in the Kingdom through a registered Saudi agent may apply to the Ministry of Commerce to open a Scientific and Technical Office for providing Scientific and Technical Services to agents, distributors and consumers if the use of its products requires specialized knowledge or precautions.

5 COMMERCIAL AGENCY REGULATIONS Under the 1962 Commercial Agency Regulations, non-Saudis are not permitted to act as commercial agents in Saudi Arabia. In addition, no one can act as a commercial agent unless his name has been entered into the Register maintained by the Ministry of Commerce. Saudi distributors are responsible for registering each foreign contractor they represent. Failure to register a distributorship agreement will not render such agreement unenforceable or otherwise adversely affect the foreign supplier. For the term of the agency agreement and for the earlier of one year after a contracts termination or until appointment of a new agent, the agent must provide consumers with necessary spare parts and maintenance at reasonable prices, available within 30 days of request. Commercial agency contracts must include certain basic terms, A model contract (originally issued in 1981 but revised in 1983) was recommended by the Ministry of Commerce for this purpose.

6 What is The Model Contract It is the a guideline to help the parties involved meet the minimum standard requirements of the Ministry of Commerce, Use of the Ministry of Commerce form is not required. However, if the agency contract differs substantially from the provisions in the Ministry of Commerce form, the Ministry may not register the contract. The major provisions of the 1983 Model Contract include: Saudi agents/distributors need not accept goods that do not meet Saudi Government specifications. The foreign supplier must supply spare parts and maintenance for one year after the contract terminates or until appointment of a new agent. The Model Contracts section on disputes serves only as a guide to dispute resolution. Disputes under distributorship agreements should be settled amicably if at all possible. If the parties are unable to settle amicably, the dispute will be submitted to the Saudi Board of Grievances for resolution, unless arbitration within or outside the Kingdom is specified in the distributorship agreement

7 Text Model of Saudi Arabian Agency Contract Article (1) No natural or corporate entity, other than Saudis, shall be permitted to operate as a commercial agent in the Kingdom of Saudi Arabia. Article (2) Commercial agents who were still operating on the date of the issuance of this regulation and who are not covered by the provisions of Article 1 above, shall be given a period to liquidate their businesses and to transfer the same to Saudi commercial agencies within two years from the date on which this regulation becomes effective. Article (3) No one shall be allowed to operate as a commercial agent unless his name is registered in the Commercial Agents Register maintained by the Ministry of Commerce, The register shall contain the name of the merchant or the company, the kind of goods for which he acts as agent, the name of the appointing company or the establishment, and the date of appointment and its duration if the agency was fixed for a certain period Article (4) Anyone who acts as commercial agent and violates this regulation shall be fined a sum not exceeding 50,000 Riyals and not less than 5,000 Riyals

8 Article (5) Registration fees are fixed at 500 Riyals whether the agent is an individual or company. The fee shall be paid once.

9 SUPPLY AND CONSUMER PROTECTION The Saudi Government is committed to assist the private sector in handling domestic and foreign trade. In pursuit of its efforts to contain inflation, the Ministry of Commerce regularly checks the supply and prices of basic commodities such as flour, rice, sugar, milk and milk products, vegetable oil and ghee substitute, frozen meat and the imported animal feeds (barley, sorghum and millet). Supply Policy: The Government has formulated a supply policy to achieve the following specific objectives: Procuring essential commodities continuously and in sufficient quantities for all markets. Providing supply items at reasonable quantities and prices. Expanding consumer choice. Reinforcing fair competition among suppliers. Encouraging the establishment of distribution chains and upgrading the level of commercial services in general. Promoting better understanding and cooperation between the private commercial sector and the government.

10 Further, the supply policy inspired by the country's socio- economic conditions is based on the following principles: Reliance on the private enterprise system under normal conditions. Government intervention only under abnormal conditions and when it is absolutely necessary. Fixation of local ceiling prices for a selected number of basic supply and food items in order to make these available to the majority of consumers and also to protect the consumers from volatile international market prices of commodities Fixation of ceiling profit margins in the trade of another group of essential supply commodities. Monitoring and regulation by government of import storage and warehousing operations carried out by the private sector with respect to supply commodities.

11 Consumer Protection Objectives and Functions: To protect the consumer from all kinds of commercial fraud and to keep him well-informed. To prevent the rise of monopolies. To contribute to price and cost of living stability. To achieve better quality control in locally produced and imported foods and other consumer products by checking on specifications and standards adopted by the Saudi Arabian Standards Organization or internationally. This is also done by examining the products conformity to the religious requirements of Islam. To ensure the commercial application of standardization rules with respect to volumes, weight, and measures. To ensure the commercial application of precious metal specifications with respect to gold, silver, platinum, etc.

12 Major functions Product and Price control. Quality control. Standardization and Hallmarking.

13 SAUDI ARABIA INDUSTRIAL LICENSING Licenses for establishing an industrial unit are granted according to one of the two following regulations: The National Industries Encouragement Act, which applies to industrial projects to be established by Saudi citizens with full Saudi capital. The Foreign Capital Investment Act, which applies to industrial projects fully owned by foreign capital or joint ventures with foreign capital. All industrial projects owned by foreign or national capital or by joint ventures whose fixed capital exceeds SR1 million (excluding the value of land and holdings) must be licensed by the Ministry of Industry and Electricity. Special units in both the Evaluation and Licensing of Industrial Projects Department and the Foreign Capital Investment Committee are responsible for evaluating applications. They submit their recommendations to the Minister of Industry and Electricity, who gives the final approval. Projects with a fixed capital of less than SR1 million are not subject to the industrial license system but should be recorded in the Commercial Register.

14 Projects with a fixed capital of less than SR1 million are not subject to the industrial license system but should be recorded in the Commercial Register. For these projects investors should obtain a registration form from the Ministrys Evaluation and Licensing of Industrial Projects Department. The investor must submit the form, along with equipment invoices, to the Department. If the Department approves the registration, it will contact the commercial registration office where the project is located and notify the investor to contact the Registration Department to complete the registration procedure. Bakeries, cold stores, ice factories, and cement-mixing projects can be registered commercially, without an industrial license from the Ministry.

15 NATIONAL INDUSTRIES ENCOURAGEMENT ACT The National Industries Encouragement Act was sanctioned by Royal Decree No. M/50 dated 23/12/1381 AH. Its articles apply to existing and new industries and include the following concessions: 1) Customs duty exemption on all imports for industrial establishments, including equipment, machinery, tools, spare parts, raw materials (primary or semi-manufactured), and packaging materials, including tins, bags and cylinders. 2) Provision of plots of land for the construction of factories and residences for laborers and personnel, at a nominal rent. 3) Support for local production by limiting imports to the Kingdom of commodities similar to those produced locally. 4) Extending financial aid to the industrial establishments. 5) Exempting local products from export duties and all other taxes.

16 FOREIGN CAPITAL INVESTMENT ACT The Foreign Capital Investment Act covers currencies, financial and commercial papers, equipment, machinery, spare parts, raw materials, products, transportation means, patent rights, and trade marks, provided that they are officially registered and officially recognized. Foreign investments in the oil and mineral sectors are subject to a special act applied by the Ministry of Petroleum and Mineral Resources. To enjoy the concessions allowed in the Foreign Capital Investment Act, foreign capital should meet three conditions: 1. The planned investment should be in projects within the framework of the development plan or projects of the same nature in existence in the Kingdom; 2. It should involve foreign technical expertise; and 3. It should have an industrial license from the Ministry of Industry and Electricity, upon recommendation of the Foreign Capital Investment Committee.


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