The origin of the idea of the limited partnership company dates back to the sixth century BC, when the Greeks devised the maritime loan system. Under this system, Greek nobles would lend the ship-owner money to equip the ship with goods and equipment. Upon the ship’s arrival and the sale of its cargo, the lender would recover his money with substantial interest. However, if the goods or the ship were lost, the lender was not entitled to claim anything from the ship-owner.
The idea of the commenda contract then shifted from maritime trade to land trade (1). Limited partnership contracts spread in the Italian cities during the Middle Ages, owing to the social climate prevailing at that time among prominent families, similar to Roman society, which often refrained from engaging in trade. Nevertheless, the substantial profits of trade led them to resort to this type of contract. The contract was based on one party providing capital to another, who would trade with that capital under his own name, appearing before others as the owner of the money. The agreement would stipulate the percentage for profit and loss sharing between the capital provider and the active partner who traded in his own name. This contract was referred to as a commenda. If profits were realized, they would be distributed between them as agreed; if losses occurred, the active partner bore them in full, while the financial partner’s liability was limited to the amount of capital he contributed to the company.
The limited partnership company is classified as a partnership company. It combines features of a partnership agreement and a loan contract. Its most notable feature is the distinction between two types of partners: general partners and limited partners. This arrangement suits many individuals who do not wish to acquire merchant status, as is the case with general partners, but instead seek to achieve profit without bearing management burdens. The company is thus established on a personal consideration basis.
The Saudi regulator devoted Part Three of the Companies Law, issued by Royal Decree No. (M/132) dated 012/01/1443 AH, to the regulation of limited partnership companies.
Definition of a Limited Partnership Company
A limited partnership company is one composed of two categories of partners:
- At least one partner, whether a natural or juristic person, who is personally and jointly liable with all his assets for the company’s debts and obligations.
- At least one partner, whether a natural or juristic person, as a limited partner, who is not liable for the company’s debts and obligations beyond the value of his contribution to the company’s capital. The limited partner does not acquire the status of a merchant (3).
Establishment of a Limited Partnership Company
The founders shall submit an application for incorporation and registration to the commercial register, attaching the Articles of Association (4).
The Articles of Association must include the following particulars:
- Names and particulars of the partners.
- The company’s name.
- The company’s principal office.
- The company’s purpose.
- The company’s capital, its distribution among partners, a sufficient description of each partner’s contribution, and the due date thereof.
- The duration of the company, if applicable.
- The company’s management.
- Partners’ resolutions and the quorum required for their adoption.
- The method of profit and loss distribution among partners.
- The start and end date of the financial year.
- Company dissolution.
- Any other provisions, conditions, or information agreed upon by the partners to be included in the Articles of Association, provided they do not conflict with the provisions of the law (5).
The commercial register shall decide on the application once it is complete with the required data and documents, in accordance with the provisions of the law. If the application is rejected, the rejection must be reasoned, and the founders have the right to appeal before the Ministry within sixty (60) days of being notified of the rejection (6).
If the appeal is denied, or if no decision is made within thirty (30) days from the date of submission, the founders may appeal before the competent judicial authority (7).
The Legal Status of Partners in a Limited Partnership Company
A limited partnership company consists of two types of partners:
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General Partners
The general partner in a limited partnership company is treated in the same manner as a partner in a general partnership. He bears unlimited personal and joint liability, together with the other general partners, for the company’s debts and obligations. He acquires the status of a merchant, is prohibited from disposing of his share, and may not transfer his shares, whether in whole or in part, except in compliance with the restrictions stipulated in the company’s Articles of Association or with the consent of the other partners. Any agreement to transfer shares without observing these restrictions or without partners’ approval shall be deemed null and void. Such a transfer must also be registered and published in the commercial register (8).
Furthermore, a juristic person may serve as a general partner, as provided under Article (51) of the Companies Law.
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Limited Partners
Limited partners are those whose liability is restricted to the value of their contributions to the company’s capital and does not extend to their personal assets. A limited partner does not acquire the status of a merchant.
The limited partners are granted the following rights:
- They may-either personally or through a representative-review the company’s operations twice during each financial year, examine its records and documents, and obtain a summary statement of the company’s financial position based on such records and documents.
- They may not intervene in the external management of the company. Even if granted a power of attorney, should they interfere, they shall become personally and jointly liable, with all their assets, for the debts and obligations of the company arising from the acts they performed. However, they may participate in the internal management of the company as provided in its Articles of Association. Such participation shall not impose any liability upon them unless their acts lead third parties to believe that they are general partners. In that case, they shall be deemed, vis-à-vis such third parties, personally and jointly liable with all their assets for the company’s debts and obligations.
Limited partners may not request the dissolution of the company, nor may they vote on matters relating to the appointment or dismissal of its manager in the general assembly of the company.
Transfer of Shares
Article (51/2) of the Companies Law provides that: *“The general partners in a limited partnership shall be subject to the provisions applicable to the partners in a general partnership.”* Accordingly, a general partner may not transfer all or part of his shares except in compliance with the restrictions set forth in the company’s articles of association or with the consent of the other partners. Any agreement to transfer shares without observing these restrictions or obtaining the partners’ consent shall be deemed null and void. Such transfer must be registered and published in the Commercial Register.
However, a general partner may transfer to a third party the financial rights related to his share in the company, provided that such transfer shall only have effect between the parties thereto (12) .
A limited partner may transfer all or part of his shares to any of the other partners in the company.
A limited partner may also transfer all or part of his shares to a third party, subject to the approval of all the general partners and the owners of the majority of the share capital held by the limited partners, unless otherwise stipulated in the company’s articles of association.
Similarly, a general partner may transfer all or part of his shares to a limited partner, or to a third party, subject to the approval of all the general partners and the owners of the majority of the share capital held by the limited partners, unless otherwise stipulated in the company’s articles of association.
It is also permissible to admit new general or limited partners into the company with the approval of all the general partners, without the need to obtain the consent of the limited partners, unless otherwise provided in the company’s articles of association (13) .
Dissolution of the Company
Article (57) of the Companies Law provides that: “A limited partnership shall not be dissolved by reason of the death of any of the limited partners, or the interdiction, insolvency, initiation of liquidation proceedings against him in accordance with the Bankruptcy Law, or his withdrawal, unless otherwise stipulated in the company’s articles of association.”
The general rule, therefore, is that the company shall not be dissolved upon the death of any of the limited partners, nor by his interdiction, insolvency, or the initiation of liquidation proceedings against him under the Bankruptcy Law, unless otherwise stipulated in its articles of association.
As for the death of a general partner, by reference to the provisions governing the dissolution of a general partnership pursuant to Article (51/2,3), the general rule is that the company shall not be dissolved by the death of any of the partners, nor by interdiction, nor by the initiation of liquidation proceedings against him in accordance with the Bankruptcy Law, nor by his expulsion, nor by his withdrawal, unless otherwise provided in the company’s articles of association. In such cases, the company shall continue between the remaining partners, and the deceased partner or his heirs shall only be entitled to his share in the company’s assets, which shall be valued in accordance with Article (49) of the Law (14) .
However, if the deceased partner is the sole general partner, then it is mandatory, within ninety days pursuant to Article (50/3), either to admit another general partner to regularize the status of the company or to convert one of the limited partners into a general partner. This shall not affect the liability of the remaining limited partners, which shall remain restricted to the value of their respective shares.
How does the Saudi regulator define a limited partnership company in terms of partner categories?
Under the Saudi Companies Law (issued by Royal Decree No. M/132), the regulator defines a limited partnership company as an entity composed of two specific categories of partners:
General Partners: The Company must have at least one general partner, who can be either a natural or juristic person. These partners are personally and jointly liable with all their assets for the company’s debts and obligations. Because of this level of responsibility, a general partner acquires the status of a merchant.
Limited Partners: The Company must also have at least one limited partner, who may also be a natural or juristic person. Their liability is strictly restricted to the value of their contributions to the company’s capital and does not extend to their personal assets. Notably, a limited partner does not acquire the status of a merchant.
This structure allows the company to combine features of a partnership and a loan contract, appealing to individuals who want to invest and achieve profit without taking on the personal liability or the management burdens associated with being a merchant
What specific particulars must be included in a company’s Articles of Association for it to be registered?
For a limited partnership company to be registered in Saudi Arabia, its Articles of Association must include several specific particulars as mandated by the regulator:
- Partner Information: The names and specific particulars of all partners involved.
- Identity and Purpose: The official name of the company, the location of its principal office, and its defined purpose.
- Capital Details: The total capital of the company and how it is distributed among the partners. This must also include a sufficient description of each partner’s contribution and the date it is due.
- Operational Duration: The duration of the company, if a specific timeframe is applicable.
- Governance and Management: Details regarding the company’s management structure, as well as the process for passing partners’ resolutions and the quorum required to adopt them.
- Financial Structure: The agreed-upon method for distributing profits and losses among the partners, along with the specific start and end dates for the company’s financial year.
- Dissolution: Provisions concerning the eventual dissolution of the company.
- Additional Agreements: Any other conditions, information, or provisions agreed upon by the partners, provided they do not conflict with existing law
Overview of Limited Partnership Company
The text traces the historical development and modern legal framework of limited partnership companies, originating from ancient Greek maritime loans and medieval Italian trade contracts. Under Saudi Arabian law, these entities are defined by a dual structure comprising general partners with unlimited liability and limited partners whose financial exposure is restricted to their capital contributions. The documentation outlines rigorous incorporation requirements, requiring specific articles of association to be registered with commercial authorities. It further distinguishes the legal rights and obligations of each partner type, noting that only general partners typically manage operations and hold merchant status. Finally, the text details the regulations for transferring shares and the specific conditions under which the company may continue or dissolve following a partner’s death or insolvency.
Sources:
1- Masoud Siham: Provisions of the Limited Partnership under Algerian Legislation, Master’s Thesis, 2019, Abdelhamid Ibn Badis University, Mostaganem, pp. 1, 2.
2- Counselor Tariq Mujahid Al-Arabi: The Historical Origins of Corporate Legislation, a legal article published on the Historical Origins of Corporate Legislation website in a unique legal article – Free Legal Consultations, accessed March 10, 2025, at 4:16 PM.
3- Article 51/1 of the Companies Law issued by Royal Decree No. (M/132) dated December 1, 1443 AH.
4- Article 6/2 of the Companies Law issued by Royal Decree No. (M/132) dated December 1, 1443 AH.
5- Article 52 of the Companies Law issued by Royal Decree No. (M/132) dated December 1, 1443 AH.
6- Article 6/3 of the Companies Law issued by Royal Decree No. (M/132) dated 12/01/1443 AH.
7- Article 6/4 of the Companies Law issued by Royal Decree No. (M/132) dated 12/01/1443 AH.
8- Article 44/2.1 of the Companies Law issued by Royal Decree No. (M/132) dated 12/01/1443 AH.
9- Article 51/1 of the Companies Law issued by Royal Decree No. (M/132) dated 12/01/1443 AH.
10- Article 53 of the Companies Law issued by Royal Decree No. (M/132) dated 12/01/1443 AH.
11- Article 55/2 of the Companies Law issued by Royal Decree No. (M/132) dated 12/01/1443 AH.
12- Article 44/2,3 of the Companies Law issued by Royal Decree No. (M/132) dated 12/01/1443 AH.
13- Article 56 of the Companies Law issued by Royal Decree No. (M/132) dated 12/01/1443 AH.
14- Article 50/1 of the Companies Law issued by Royal Decree No. (M/132) dated 12/01/1443 AH.
