Company Formation in Saudi Arabia: Setting Up a Business, Choosing Between an LLC, Joint Venture, or Branch Office

Introduction

Company Formation in Saudi:

Saudi Arabia has become a prime destination for foreign investors, offering a dynamic business environment, strategic location, and pro-business reforms. With its Vision 2030 initiative, the Kingdom has opened doors to various industries, encouraging foreign direct investment (FDI) and fostering economic diversification.

For investors looking to establish a presence in Saudi Arabia, selecting the right business structure is crucial. The three most common options are:

Limited Liability Company (LLC)
Joint Venture (JV)
Branch Office

Each structure has distinct advantages, legal requirements, and operational implications. This article provides a comprehensive guide to help entrepreneurs and corporations choose the best business entity for their needs.

Commercial Law

Understanding the Business Structures in Saudi Arabia

Company Formation in Saudi

Before registering a company in Saudi Arabia, investors must understand the differences between an LLC, a joint venture, and a branch office. These entities vary in terms of ownership, liability, taxation, and regulatory requirements.

1. Limited Liability Company (LLC)

A Limited Liability Company (LLC) is the most popular business structure for foreign investors in Saudi Arabia. This type of entity provides limited liability protection, ensuring that shareholders’ personal assets are not at risk beyond their capital contributions.

Key Features of an LLC

Ownership: Foreign investors can own up to 100% of an LLC in most sectors, depending on the industry regulations.
Minimum Capital Requirement: Some industries require a minimum capital investment, but many do not.
Number of Shareholders: An LLC requires at least one shareholder and can have up to 50 shareholders.
Legal Liability: The liability of shareholders is limited to their share in the company.
Taxation: LLCs are subject to corporate income tax (20%) for foreign-owned businesses and Zakat (2.5%) for Saudi-owned entities.
Business Flexibility: LLCs can engage in commercial, industrial, and service-related activities.

Advantages of an LLC in Saudi Arabia

✅ Limited Liability Protection ensures that shareholders’ personal assets remain safe. Moreover, full foreign ownership is permitted in most sectors under MISA, making it easier for investors to establish their businesses. In addition, the simple governance structure—with no board of directors required—streamlines decision-making, ultimately enhancing credibility and market access for seamless operations in Saudi Arabia.

Disadvantages of an LLC

❌ Regulatory Requirements – Registration can be time-consuming due to compliance checks.
❌ Restrictions in Some Sectors – Certain industries require a local partner.

An LLC is ideal for businesses looking for long-term operations and local market penetration while maintaining financial protection.

Debt Collection Through a Lawyer

2. Joint Venture (JV)

A Joint Venture (JV) is a business arrangement where two or more parties collaborate to operate a company while sharing both risks and rewards. Typically, JVs are formed when foreign investors require local expertise or when 100% foreign ownership is restricted in a particular sector.

Key Features of a JV

Ownership Structure: Foreign investors must partner with a local Saudi entity, typically holding 49% to 75% ownership, depending on the industry.
Legal Framework: The JV can operate as an LLC or any other agreed-upon structure.
Profit & Risk Sharing: Partners agree on a revenue and loss-sharing ratio.
Industry-Specific Regulations: Some sectors (such as oil, defense, and media) require a JV with a local company.

Advantages of a Joint Venture

✅ Local Market Expertise from a Saudi partner not only helps navigate regulations and business culture, but also provides access to restricted sectors. Furthermore, the shared financial responsibility helps reduce the financial burden on a single entity, making it a strategic choice for foreign investors.

Disadvantages of a JV

❌ Potential conflicts may arise as a result of shared decision-making. Additionally, profit-sharing obligations require distributing earnings according to the partnership agreement. Consequently, this can limit foreign investors’ control over operations.

A Joint Venture is suitable for investors entering regulated sectors or those seeking a local business advantage.

3. Branch Office

A Branch Office is an extension of a foreign company in Saudi Arabia. Unlike an LLC or JV, a branch office does not have a separate legal identity from its parent company. This setup allows multinational corporations to operate in the Kingdom without forming a new legal entity.

Key Features of a Branch Office

Ownership: The parent company retains 100% ownership of the branch.
Legal Responsibility: The parent company is fully liable for the branch’s debts and obligations.
Permitted Activities: Branches can engage in commercial, service, or industrial activities, depending on the license.
Regulatory Compliance: Approval from MISA (Ministry of Investment of Saudi Arabia) is required.
Taxation: Subject to 20% corporate tax but not Zakat.

Advantages of a Branch Office

✅ 100% Foreign Ownership with Full Control Over Operations, allowing parent companies to make all decisions independently—an ideal choice for multinational companies looking to expand easily into Saudi Arabia

Disadvantages of a Branch Office

❌ Full Liability on Parent Company – Financial risks are borne by the headquarters.
❌ Limited Scope in Some Sectors – Not all industries allow foreign branch operations.

A Branch Office is particularly well-suited for large corporations that are seeking direct market entry while simultaneously maintaining full control over their operations.

Choosing the Right Business Structure in Saudi Arabia

The best business structure depends on investment goals, industry regulations, liability concerns, and operational flexibility.

Criteria	LLC	Joint Venture	Branch Office
Foreign Ownership	✅ (100%) in most sectors	❌ (Requires local partner)	✅ (100%)
Limited Liability	✅ Yes	✅ Yes	❌ No
Ease of Setup	⭐⭐ (Moderate)	⭐⭐⭐ (Complex)	⭐ (Simple)
Regulatory Approval	✅ Required	✅ Required	✅ Required
Operational Control	✅ Full	❌ Shared	✅ Full