Drafting Partnership Agreements under Saudi New Companies Law

A partnership agreement is the legal foundation of any company in Saudi Arabia—lack of legal clarity is the leading cause of partnership dissolution. With the New Saudi Companies Law, it is essential to draft compliant agreements covering profit shares, exit mechanisms, and dispute resolution. This guide explains every essential clause for partner protection.

The Importance of Drafting under the New Law

A partnership agreement is no longer just a boilerplate template used to extract a commercial register. The new Companies Law allows incredible flexibility in structuring agreements, such as joint-venture capital, partnerships by labor, and simplified joint-stock companies. Professional drafting defines administrative powers, preventing deadlocks and securing shareholder rights from day one.

Key Clauses Every Partnership Agreement Needs

• Detailed Capital Contribution: Clear specifications of the monetary or in-kind assets contributed by each partner, as well as labor contributions.
• Management & Signing Authority: Identifying who governs the company, signs contracts, and appoints directors, along with financial limits of authority.
• Profit/Loss Distribution Policy: Clear mechanisms to calculate annual profits, distribute dividends, and fund deficit capital.
• Share Transfer Restrictions (Lock-up): Specifying guidelines for selling shares to external parties, along with rights of first refusal for existing partners.
• Non-Compete Clauses: Prohibiting partners from operating similar or competing entities during and after the partnership for a set period.

Dispute Resolution & Exit Strategies

A successful contract anticipates disagreements before they arise. Agreements must outline clear protocols for amicable settlements, mediation, or referring conflicts to **Commercial Arbitration** as a fast-track alternative to general courts, which can freeze company bank accounts for months.