This study, carried out by Mr. Abdulrahman Sami Al-Jandal on 7 July 2024, investigates the restructuring of Raising Capital in Saudi Arabian markets, and highlights key insights discussed below.
Raising and circulating capital is one of the most critical challenges facing entrepreneurs, investors, and project developers in Saudi Arabia. As the regulatory environment evolves-especially under Vision 2030-business owners are exploring new legal structures that allow them to attract funds efficiently while protecting all stakeholders.
This article provides a practical overview of the lawful methods for raising capital in the Kingdom, the gaps that exist in current frameworks, and the potential solutions that help businesses structure investment relationships safely and effectively.
1. Official Regulatory Pathways for Raising Capital
Capital can be raised through regulatory frameworks governed primarily by the Ministry of Commerce and the Capital Market Authority (CMA). The main mechanisms include:
1.1 Equity-Based Structures
Establishing a legal entity and formally issuing shares or quotas through the Ministry of Commerce’s official records.
1.2 Investment Fund Units
Creating an investment fund where units are offered directly to investors or via licensed digital platforms.
1.3 Special Purpose Entities (SPVs) under CMA
SPVs licensed exclusively through CMA and established through financial institutions for structured finance, securitization, or asset-backed transactions.
1.4 Debt Instruments
Raising capital through bonds, sukuk, or bank financing supervised by the Saudi Central Bank (SAMA).
1.5 Other Regulatory Bodies
Additional mechanisms include:
- Partnership structures under the Civil Transactions Law, and
- Cooperative societies governed by the Cooperative Societies Law.
2. Commercial Practices for Temporary or Project-Based Investments
Businesses frequently use certain structures for time-bound ventures or project-based collaborations, such as:
2.1 Joint Ventures (JVs)
A collaboration between two or more parties with complementary capabilities.
Despite being widely used, the legal classification of JVs still fluctuates between the Companies Law, CMA regulations, and the Civil Transactions Law.
2.2 Special Purpose Vehicles (SPVs)
Used for projects with a clear timeline-common in real estate or asset management.
SPVs offer independent financial liability limited to the project’s assets and obligations.
However, SPVs currently exist only within CMA’s regulatory domain, and cannot be created independently outside CMA’s framework.
2.3 Real Estate Contribution Structures
The Real Estate General Authority has introduced regulations that address past issues in real estate contributions, though the model remains restricted to licensed real estate developers and often requires CMA oversight.
3. Raising Capital Outside Traditional Commerce and CMA Frameworks
3.1 Civil Transactions Law Companies
This law opened the door to flexible forms of partnerships established solely by contract.
Advantages include:
- Freedom to design the partnership model,
- Flexibility in profit-sharing and duration,
- Alignment with global practices.
Key challenge:
These companies still lack confirmed recognition as independent legal personalities, pending further regulatory clarification from the Ministry of Justice and Ministry of Commerce. This creates uncertainty in:
- Opening bank accounts,
- External audit treatment,
- Liability assessment.
3.2 Cooperative Societies
Globally recognized as sustainable commercial models, cooperatives:
- Enhance community development,
- Enable capital pooling through membership shares,
- Allocate profits across members, reserves, management, and community programs.
They offer a structured, regulated, and socially responsible way to raise and reinvest capital.
4. Challenges of Traditional Capital-Raising Models
Even though established structures exist, they pose several limitations:
4.1 Legislative Gaps
Temporary project entities are not fully addressed under the new Companies Law, creating gray areas for:
- Liability distribution,
- Financial independence,
- Capital-raising legality.
4.2 CMA’s Limited Application of SPVs
CMA’s SPV regulations only apply to licensed financial institutions, leaving a gap for entrepreneurs who need simplified, time-bound investment vehicles.
4.3 Real Estate Sector Regulations
Although improved, real estate contributions still require multiple approvals and apply only to licensed developers.
4.4 Inefficiency of Traditional Companies for Short-Term Projects
Structures like LLCs are difficult to dissolve, making them impractical for quick investment cycles.
Debt instruments, meanwhile, may be costly or inaccessible without strong collateral.
5. Practical Legal Solutions for Structuring Investor-Project Owner Relationships
Given these challenges, several practical solutions can support efficient and compliant capital structuring:
5.1 Utilizing the Companies Law Flexibly
- Partners may define custom liquidation mechanisms in the Articles of Association, simplifying dissolution for short-term projects.
- Shareholder agreements (including family charters) can detail governance, exits, responsibilities, and profit-sharing.
5.2 Civil Transactions Law Structures
Partnerships formed by contract can be assigned:
- Defined project durations,
- Custom liquidation frameworks,
- Clear profit and liability terms.
These structures are especially useful for project-specific ventures.
5.3 Investment or Agency Contracts
An investor may authorize an operator or developer to manage funds under an Investment Agency Agreement, with:
- Fixed compensation,
- Transparent obligations,
- Defined capital protection mechanisms.
This method offers a lawful, low-complexity alternative where formal corporate structures are unnecessary.
Conclusion
The legal ecosystem for raising capital in Saudi Arabia is expanding, but remains complex-especially for temporary ventures, joint commercial projects, and investment partnerships. Understanding the interaction between the Companies Law, the Civil Transactions Law, CMA regulations, and other sector-specific frameworks is essential for structuring compliant and efficient investment relationships.
Businesses that adopt flexible, legally grounded structures-whether contractual partnerships, simplified corporate vehicles, SPVs (where permitted), or agency-based models-can unlock smoother capital circulation and stronger investor confidence.
If your organization is exploring capital-raising strategies, project structuring, or investment governance frameworks, our consulting team can help design compliant, efficient models tailored to your needs.