THE LAW FIRM OF HAZIM AL MADANI ATTORNEYS AND LEGAL CONSULTANTS
A Comprehensive Guide to Converting Enterprises into Companies: Key Distinctions and Benefits
Transforming enterprises into companies fosters private sector development, stimulating investment, and promoting innovation. In this guide, we aim to elucidate the key differences between enterprises and companies, the benefits of such a transition, and the costs involved as stipulated by the Ministry of Commerce.
Differences Between Enterprises and Companies
Sole vs. Multiple Ownership: An enterprise is a legally recognized single-proprietor commercial entity conducting business independently, while a company is a collaborative venture between partners sharing profits and losses.
Capital Requirements: Enterprises don’t require specific capital to be established, whereas companies do, depending on their type and regulations.
Liability: The founder of an enterprise bears full responsibility for its debts and obligations, whereas partners in a company have limited liability proportionate to their share in the company.
Income Tax: Enterprises are not subject to income tax, while companies fall under income tax laws as per the Zakat and Tax system in the Kingdom.
Benefits of Converting Enterprises into Companies
Improved Efficiency and Effectiveness: Implementing standards for governance, accounting, and oversight, and clearly defining responsibilities and authorities.
Improved Efficiency and Effectiveness: Implementing standards for governance, accounting, and oversight, and clearly defining responsibilities and authorities.
Enhanced Financing and Partnership Opportunities: By improving market image and trust, and demonstrating their value and viability.
Promotion of Innovation: Encouraging enterprises to adapt to changes and challenges in the business environment and launch new initiatives and projects.
Support for Sustainable Development: By adhering to environmental, social, and ethical standards and contributing to solving societal challenges.
Costs of Converting an Enterprise into a Company
- Extension fees for the enterprise's commercial register: SAR 1200.
- Fees to modify the commercial register from enterprise to company: SAR 100.
- Electronic publication fees and e-extraction fees for the commercial register: SAR 500.
- Value-added tax (VAT) on the established company: 5%.
- The company's predefined service years determine fees for the Saudi Chamber of Commerce.
Conclusion
Transforming an enterprise into a company is not a straightforward process. It requires a thorough feasibility study—economic, legal, administrative—and a specific implementation plan for transitioning from the current to the new system. This process must involve all stakeholders, overcome resistance and difficulties, and ensure the preservation of the rights of employees, customers, and partners, while maintaining the continuity of services provided by the enterprise.