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    The Sole Proprietorship Company(part-2)

    Written by Legal Consultant & Attorney- Abdulhaleem Ammar

     In the previous article, I have mentioned some legal aspects of the Sole Proprietorship Company, for example, definitions, methods enforced for establishing it, in addition to mentioning that the Saudi legislative body has prevented to establish more than one Sole Proprietorship Company for a same individual, and here we will continue discussing the few more similar aspects.

     We talked about establishing the Sole Proprietorship company. Whereas an individual intended to form a Sole Proprietorship company must fulfill the legal requirements. A shareholder lacks the capacity as a trader and a minor is not allowed to establish a Sole Proprietorship company. Now, we find that an individual that lacks full legal eligibility does not have the contracting capacity to establish a Sole Proprietorship Company, and if so, their actions would be deemed null and void. However, there is an exception to this, which is to allow a minor to establish a Sole Proprietorship Company via their guardian, custodian, or trustee, under the condition that their guardian or trustee who have full capacity take over the management of the company.  

     The Sole Proprietorship Company, like other companies, has its corporate personality. It is considered, since being established as a legal person, after fulfilling all legal registration procedures, and as a result, the company adopts a title by which it can sign contracts and obligations, and helps distinguish it from other companies. This name can be the name of the Sole Proprietorship partner, or a name relative to its activity or the purpose it was established for.

     When a Sole Proprietorship company has its corporate entity, this implies a must to have its independent financial disclosure, but this financial disclosure is different from that one of other companies, and this difference is due that the capital is just one share provided by the Sole Proprietorship, thus the Sole Proprietorship company’s financial disclosure consists of its capital and assets.

     Therefore, the Sole Proprietorship company’s financial disclosure is considered to be the general guarantee to fulfill debts, and thus personal debtors to the shareholder may not fulfill their debts out of the shareholder’s shares in the company paid as capital, during validity period of this company, debtors are only allowed to seize on profits of the company. The liability of the Sole Proprietorship is limited to their share in the capital, i.e., their liability is limited to their shares in capital as a shareholder, away from their own money which would not be affected. 

     Article (1/154) of the Companies Act issued under the Royal Decree No. (3/م) , dated in 28/01/1437H, stipulates as follows: – (  as an exception of the 2nd article of the Law, it is allowed to establish a limited liability company of a Sole Proprietorship, and thus all its shares may belong to one person, thus this Sole Proprietorship liability is limited to the one person’s shares in capital, and they shall have the powers of a manager, Board, and the Shareholders’ board of directors as stipulated in this chapter).   

     As an exception to this, the Saudi Legislator allows liability to affect shareholder’s personal money in special cases mentioned in Article (155), out of the New Companies Act, as follows: – (The owner person of a limited liability company is liable by his own personal money to fulfill company’s obligations against third parties under the name of the company, on the following cases: –

    • In case he, in mala fide, terminates the company or pause activities before its expiry date or before fulfilling its purposes by which it was established for.
    • In case he doesn’t separate between company’s business and his own personal business.
    • In case he practices business for the company, before having its corporate entity.

     Termination of the Sole Proprietorship Company

    A Sole Proprietorship Company is terminated under the general reasons of the termination of companies, i.e., expiry of duration, bankruptcy, expiry of purpose of which it is established for, in addition to the death of owner, unless otherwise agreed between heirs, i.e., in case heirs agree to keep the company, then it will be another type of company, but in case of only one heir, who intends to keep it, then the company may continue its activities and business.

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