Article 221 of the Saudi Companies Law
المادة 221 من نظام الشركات · الفصل الأول: تحول الشركات
The article states when a private non-profit company may convert to another form and on what conditions, and permits any company to convert to a non-profit company by unanimous consent of the partners.
Official text (Arabic)
This article has not been amended since the law was issued.
1- مع مراعاة حكم الفقرة (1) من المادة (العشرين بعد المائتين) من النظام، يجوز تحول الشركة غير الربحية الخاصة دون العامة إلى أي شكل من الشركات ما لم ينص عقد تأسيس الشركة أو نظامها الأساس على غير ذلك، على أن يصرف ما زاد على رأس المال عند التأسيس من أرباح أو احتياطيات أو هبات أو غيرها في المصارف والمجالات غير الربحية المنصوص عليها في عقد تأسيسها أو نظامها الأساس، وأن ترد أي إعفاءات حصلت عليها. وتحدد اللوائح أحكام ذلك.
2- يجوز تحول أي شركة إلى شركة غير ربحية عامة أو خاصة بإجماع الشركاء أو المساهمين.
This is the official Arabic wording, the only legally binding version. We do not translate the law itself; the explanation below is ours. Official source: Bureau of Experts at the Council of Ministers
Article 221 explained in plain English
This article addresses conversion in two directions: from a non-profit company to another form, and from any company to a non-profit company.
First: conversion of a non-profit company (paragraph 1)
- Conversion is permitted only for a private non-profit company, not a public one; public companies are not covered by this permission.
- It may convert to any form of company, unless its articles of association or bylaws provide otherwise, and subject to paragraph (1) of Article 220, that is, by a resolution issued according to the procedures for amending the articles of association or bylaws and after meeting the formation, registration and publication requirements for the new form.
- It is required that whatever exceeds the capital at formation, whether profits, reserves, donations or otherwise, be spent on the non-profit channels and fields set out in the articles of association or bylaws.
- It is also required that any exemptions the company obtained be returned.
- The regulations specify the provisions on this.
Second: conversion to a non-profit company (paragraph 2)
Any company may convert to a non-profit company, public or private, provided the partners or shareholders are unanimous.
The logic in paragraph (1) is that what a non-profit company has accumulated beyond its original capital was devoted to non-profit purposes, so it does not go to the partners when it converts to a for-profit company. Article 222 regulates the right of a partner who objects to the conversion resolution to withdraw. To apply these conditions to a particular case, it is advisable to consult a lawyer specializing in company matters.
Practical example
A private non-profit company in Riyadh was formed with capital of one million riyals and has accumulated donations and reserves of SAR 300,000. The partners decided to convert it into a limited liability company. The SAR 300,000 must be spent on the non-profit fields set out in its bylaws, and the exemptions it obtained must be returned.
Translated from our Arabic explanation with machine assistance. For guidance only; it does not replace advice from a lawyer on your situation.
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Frequently asked questions about Article 221 of the Saudi Companies Law
Can a non-profit company be converted into a for-profit company?
This is permitted for a private non-profit company, not a public one, unless its articles of association or bylaws provide otherwise, and on the conditions that the excess over capital is spent and the exemptions are returned.
What happens to a non-profit company's profits when it converts?
Whatever exceeds the capital at formation, whether profits, reserves, donations or otherwise, is spent on the non-profit fields set out in its articles of association or bylaws.
What is required to convert an ordinary company into a non-profit company?
The unanimity of the partners or shareholders.
Articles this article refers to
More articles on Company Conversion and Merger
- Article 215
The article allows the partners or shareholders to convert a professional company into another form of company listed in Article 4, after meeting the conditions of the Law and the regulations.
يجوز للشركاء أو المساهمين في الشركة المهنية تحويلها إلى شكل آخر من أشكال الشركات الواردة في المادة (الرابعة) من النظام، وذلك بعد استيفاء الشروط والضوابط التي ين
- Article 220
The article regulates converting a company from one form to another, the conditions for converting to a simplified joint stock or joint stock company, and transferring sole proprietorship assets to companies.
1- يجوز تحول الشركة إلى شكل آخر من الشركات بقرار يصدر وفقًا للأوضاع المقررة لتعديل عقد تأسيسها أو نظامها الأساس وبعد استيفاء شروط التأسيس والقيد والشهر المقررة
- Article 222
The article gives a partner or shareholder who objects to a company's conversion resolution the right to withdraw by written request within 15 days, with payment of the value of their stakes or shares.
دون إخلال بأحكام التنازل عن الحصص أو الأسهم المقررة بحسب شكل الشركة، للشركاء أو المساهمين الذين يعترضون على قرار التحول التخارج من الشركة بناء على طلب مكتوب يقد
- Article 223
The article provides that a company's conversion does not create a new legal person, so the company keeps its rights and remains liable for its pre-conversion obligations.
لا يترتب على تحول الشركة نشوء شخص ذي صفة اعتبارية جديد، وتظل الشركة محتفظة بحقوقها ومسؤولة عن التزاماتها السابقة للتحول.
- Article 224
The article provides that converting a general or simple limited partnership does not discharge the partners with joint liability from pre-conversion debts, unless the creditors expressly accept or none objects within 30 days.
لا يترتب على تحول شركة التضامن أو شركة التوصية البسيطة إلى أي شكل من أشكال الشركات، إبراء ذمة الشركاء المتضامنين من مسؤوليتهم عن ديون الشركة السابقة للتحول، إلا
- Article 225
The article sets out the two forms of company merger, what a merger proposal must contain and how it is approved, and the conditions for a valid merger and the consideration in it.
1- يكون الاندماج بضم شركة أو أكثر إلى شركة أخرى قائمة، أو بمزج شركتين أو أكثر لتأسيس شركة جديدة. 2- يجب أن يعد مقترح الاندماج للموافقة عليه من كل شركة طرف فيه و
The texts are reproduced from the official website of the Bureau of Experts at the Council of Ministers for reference; where they differ, the officially published Arabic text prevails. This content is not legal advice.