A Limited Liability Company (LLC) is one of the most common and versatile business structures in Saudi Arabia, especially for both local and foreign investors. Here’s a detailed overview of what an LLC entails, its advantages, setup requirements, and other essential details:

Key Features of an LLC

1. Limited Liability: Shareholders are only liable for the debts of the company up to the amount of their investment. Personal assets are protected.
2. Separate Legal Entity: An LLC is a distinct entity from its owners, allowing it to own property, enter contracts, and operate independently.
3. Ownership Structure:
   • Can have between 1 and 50 shareholders.
   • Single-member LLCs are permitted.
   • Foreign investors can own 100% of an LLC in most sectors with a MISA license.
4. Flexibility:
   • Suitable for small to medium-sized businesses and subsidiaries of foreign companies.
   • Management can be handled by the shareholders or by appointed managers.

Advantages of an LLC in Saudi Arabia

1. Foreign Ownership: Foreign investors can establish an LLC with 100% ownership in many sectors (with specific licenses from MISA).
2. Minimal Risk: Shareholder liability is limited to their capital investment.
3. Tax Efficiency: LLCs are taxed at a flat corporate tax rate (20% for foreign-owned companies), and Zakat is applicable for Saudi/GCC-owned portions.
4. Operational Flexibility: An LLC can undertake a wide range of business activities, except those restricted by Saudi law.

Disadvantages

1. Capital Requirements:
   • While there is no minimum capital requirement for local LLCs, foreign-owned LLCs often require substantial capital (e.g., SAR 500,000 or more, depending on the activity).
2. Ownership Restrictions:
   • Some industries require partial Saudi ownership or are fully restricted to foreigners.
3. Complex Setup: Compared to sole proprietorships, setting up an LLC requires more paperwork and approvals.

Steps to Establish an LLC in Saudi Arabia

1. Obtain a MISA License:
   • Foreign investors must apply for and receive approval from the Ministry of Investment of Saudi Arabia (MISA).
   • Documentation includes financial statements, a feasibility study, and articles of incorporation from the parent company.
2. Register with the Ministry of Commerce:
   • Choose a unique trade name and register the LLC.
   • Submit the Articles of Association and other required documents.
3. Open a Bank Account:
   • Deposit the required share capital into the company’s bank account.
4. Issue Commercial Registration (CR):
   • Obtain the CR from the Ministry of Commerce, which allows the LLC to commence operations.
5. Other Registrations:
   • Register with the Zakat, Tax, and Customs Authority (for VAT or Zakat purposes).
   • Register with the General Organization for Social Insurance (GOSI) for employee-related obligations.

Documents Required

1. Articles of Association (notarized and legalized).
2. Shareholder identification documents.
3. Proof of capital deposit.
4. Lease agreement for office premises (if required).
5. Special licenses for certain industries (if applicable).

Costs Involved

1. MISA license fees (varies based on activity).
2. Registration fees with the Ministry of Commerce.
3. Industry-specific license fees.
4. Legal and consultancy fees for document preparation and attestation.

Who Should Opt for an LLC?

1. Small to medium businesses seeking liability protection.
2. Foreign investors looking for 100% ownership in permissible sectors.
3. Companies planning to expand in Saudi Arabia with operational flexibility.

Taxation for LLCs

1. Corporate Tax: For foreign shareholders, a flat rate of 20% on profits.
2. Zakat: Saudi and GCC shareholders are subject to Zakat at 2.5% of the company’s equity and profits.