Saudi Arabia’s new Commercial Registration Law and Trade Name Law

The Kingdom of Saudi Arabia (the “KSA”) has approved on 17 September 2024 two significant legislations which should be considered by all operating entities in the KSA market. The Commercial Registration Law (the “Commercial Registration Law”) and the Trade Name Law (the “Trade Name Law”), collectively (the “Laws”), pursuant to a Council of Ministers decision. The Laws are anticipated to be published in the KSA official gazette (“Umm Al-Qura”) and will supersede the current legislative framework, which are expected to be effective one-hundred and eighty days after their publication.

The new Laws represent significant reforms of the KSA registration framework in respect of entities and procedures relating to the trade names. The Laws are covering many essential matters which are in-line with all the economic and technological developments in KSA as part of the Saudi Vision 2030. Both Laws align with the recently published Investment Law, sharing the objective of fostering a more conducive environment for businesses. 

Key developments

The new Laws are set to replace the previous legislative framework including the following:

• Commercial Register Law, issued by Royal Decree No. M/1, dated 21/02/1416 H. (corresponding to 07/07/1995 G.); and
• Trade Names Law (Royal Decree No. M/15, dated 12 Sha'ban 1420 H. (corresponding to 20/11/1999 G.).     

Reforms under the Commercial Registration Law

The Commercial Registration Law distinguishes itself through its comprehensive approach to enhancing business operations. Comprising of twenty-nine articles, it regulates the procedures for registration in the commercial registration system, ensures the accuracy of recorded data, mandates periodic updates, and makes the information easily searchable and accessible. 

Under the new Commercial Registration Law, several key developments have been introduced to simplify the registration process for investors, including:

1. Unified commercial registration system across KSA: This new system functions on a national scale, replacing the previous regional approach where commercial registers were issued based on administrative regions. This change eliminates the regional requirement, streamlining the registration process and ensuring uniformity throughout KSA.
2. Single national commercial registration (SNCR): Companies will now receive a single national commercial registration that encompasses all their branches. This change eliminates the previous requirement for separate registrations for each branch under the previous law.
3. Annual electronic confirmation of commercial register data: Commercial registrations will no longer have an expiration date. However, Companies must confirm their data electronically every 12 months from the date of issuance. If this confirmation is delayed by more than three months from the due date, the register will be suspended. If the suspension lasts for one year, the register will be automatically cancelled.
4. Availability of non-financial penalties: Violations of the Commercial Registration Law can be addressed through alternative procedures, such as warnings and corrective actions, which may be used instead of or alongside financial penalties. This contrasts with the previous law, which has specific financial penalties for infractions that would typically be evaluated on case-by-case basis.
5. Extended cancellation period for commercial register: For companies ceasing operations in KSA, the commercial register will now be cancelled one year after the registration is suspended. Previously, the register was cancelled 30 days after the business was notified of the cessation of operations.
6. Requirement to open bank accounts: As with the previous law, companies must open bank accounts directly linked to their operations. While this requirement remains unchanged, it now aligns with the mandate to consolidate all subsidiaries and branches under a single national commercial register. 

Grace period for compliance with Commercial Registration Law

Existing companies are granted a five-year grace period (the “Grace Period”) to update their existing commercial registers for branches through one of the following methods: 

• transferring the commercial register of the branch to the SNCR of another entity whether new or already existing; or
• cancelling the commercial register of the branch and transferring its assets and activities to the entity’s SNCR.

Reforms under the Trade Names Law

The Trade Name Law comprises of twenty-three articles designed to regulate the procedures for reserving and recording names on commercial registers, maximize their value, and protect them and their rights.

Under the new Law of Trade Names, several key developments have been introduced to enhance the management and protection of trade names in KSA, including:

1. Reservation of trade names: The law permits companies to reserve a trade name before officially recording it. This reservation can be extended, allowing companies to secure their preferred trade names ahead of time.
2. Requirements for registration: The law outlines the necessary criteria for trade names to be registered or reserved, as well as the guidelines for prohibited names. This ensures a clear and consistent registration process.
3. Expanded scope of trade names: Companies can now use Arabic, non-Arabic, Arabized words, or words composed of letters or numbers in their trade names, offering greater flexibility in name selection.
4. Arabic language experts platform: To enrich Arabic content, the law established the Arabic Language Experts Platform, which seeks to expand the linguistic repertoire of Arabic names in the commercial sector.
5. Simplified trade name ownership changes: Companies can now transfer the ownership of trade names independently. This new provision allows for the assignment of a trade name without necessitating the transfer of the entire business.
6. Protection of trade names: Companies are required to obtain the trade name owner’s consent before using a reserved or registered name. Names must be appropriate and not misleading. The Trade Name Law also prohibits registering names similar to existing ones, regardless of differing business activities.

Anticipated Implementing Regulations

It remains to be seen whether Implementing Regulations (the “IRs”) for the Laws will be issued. If published, these IRs are anticipated to offer more detailed guidance on the practical application and enforcement of the new Laws. The IRs typically serve to clarify the provisions of the primary legislation, ensuring that the laws are applied consistently and effectively across various scenarios. The IRs would likely address specific procedural requirements, compliance measures, and enforcement mechanisms. 

Once the Laws have been formally published in Umm Al-Qura, it is expected that further guidance will be issued by the competent Saudi authorities on the practical application and enforcement procedures of these two Laws. In the meantime, all entities must take into consideration the requirements under the Laws when preparing and/or amending the corporate documents of their KSA entities. We advise the concerned entities to review the requirements under the Laws.

If you would like further information or advice, please contact Alain Sfeir.