# Business Partnership Guide: 5 Things to Settle Before You Sign
*How to protect your investment and run the partner relationship on numbers instead of feelings*

> **In short:** Five things partners must settle before signing, plus the Saudi Companies Law rules on quorums, exits, reserves, dividends tax and manager liability.

- **URL:** https://www.snad.io/en/blog/commercial-partnership-contract-tips-saudi
- **Arabic original:** https://www.snad.io/blog/commercial-partnership-contract-tips-saudi
- **Category:** Guides — Business & Inventory Management
- **Tags:** business partnership, contracts, Saudi Companies Law, business management, partner rights
- **Published:** 2026-01-17
- **Updated:** 2026-08-02
- **Publisher:** Snad (snad.io)

Plenty of business partnerships start with enthusiasm and end in a legal dispute — not because the partners are bad people, but because nobody documented the expectations at the start.

Here are five things you need to agree on before signing any partnership contract.

## A partnership is a professional marriage that demands total clarity

Most partnerships between friends or relatives begin with a great deal of enthusiasm and verbal promises, and most of them end in conflict at the first cash crunch or the first profit distribution. In a modern business environment governed by the rules of the Ministry of Commerce and the National Competitiveness Center, a partnership has to be built on solid legal and technical foundations. Transparency is the key, and the best way to achieve it is a single financial system that every partner can see clearly — which is exactly what Snad provides.

## 1. Defining roles and authority (who runs what?)

The contract must state who holds signing authority, who runs purchasing, and who supervises staff. On the technical side, Snad lets you mirror those authorities in the system: the "operating partner" can be given full permissions over inventory and purchases, while the "funding partner" holds view-only access to the financial reports so they can track the performance of their investment without getting into daily detail — which keeps conflicts of interest out of the way.

## 2. How profits are distributed and reserves calculated

Profits are not distributed on the basis of "the cash sitting in the drawer", but on the basis of net profit after deducting zakat, taxes, expenses and the statutory reserve (10% under the new Saudi Companies Law). Using Snad means partners can issue an accurate, approved income statement at any time, which ends the argument over "how much did we make this month?" and puts the split on accounting figures that leave no room for interpretation.

## 3. Additional funding and partner loans

What happens if the company needs extra liquidity? Do the partners contribute equally? And do those amounts count as a capital increase or as an interest-free loan? In Snad's chart of accounts you can open current accounts for partners that track, to the riyal, every amount a partner pays into the company or withdraws from it as personal drawings — which protects everyone's rights and documents the company's liability towards its partners professionally.

## 4. Financial transparency and real-time oversight

One of the biggest reasons partnerships fail is quiet suspicion about expenses. When the company runs on a cloud system such as Snad, any partner can open their phone at any time and see cash movements, issued invoices and recorded expenses. That kind of self-service oversight builds trust and kills doubt before it grows, because numbers become the only language spoken in partner meetings.

## 5. Exit mechanics and dissolving the partnership

The contract must include an exit strategy. How is the company valued if one partner wants to withdraw? Having years of organised financial records in Snad makes it far easier for advisory firms to value the company, and it makes selling shares or liquidating the business run smoothly, on real asset and sales values.

## What the law requires in the memorandum of association (Article 158)

The Companies Law does not leave the content of the memorandum of association to the partners' discretion. Article (158) requires the memorandum of association of a limited liability company to include specific information, and any contract missing one of these items remains incomplete in the eyes of the Commercial Registration (CR):

- The names and details of the partners, the company name, its head office and its purpose.
- The capital and its distribution among the partners, and the partners' acknowledgement that the value of the shares has been paid.
- The company's term if any, the management of the company, and the provisions governing the transfer of shares.
- The method by which the company sends notices to the partners, and the mechanism for issuing partners' resolutions.
- How profits and losses are distributed, the start and end dates of the financial year, and the dissolution of the company.

The incorporation application must also be accompanied by a declaration from the founders committing to the requirements of the law, and a report from one or more accredited valuers setting out the fair value of any in-kind shares, together with an acknowledgement from the remaining founders approving the consideration set for them. In other words, a partner joining with equipment or stock starts with an accredited valuation, not a friendly estimate — and a tidy [inventory](/inventory) record kept before incorporation shortens that step considerably.

## Decision quorums: who can change what?

Most disputes do not start with the numbers. They start with the question of who holds the right to decide. The law sets a minimum quorum for each decision and lets the contract raise it, never lower it.

| Decision | Quorum required by law | Article |
|---|---|---|
| Amending the memorandum of association, including increasing or reducing capital | Partners representing at least three quarters of the capital, unless the contract stipulates a higher percentage | 172/1 |
| Increasing capital by raising the nominal value of shares, or suspending pre-emption rights | Unanimous consent of the partners | 172/3 |
| A clause obliging the minority to accept a purchase offer, or obliging the majority to guarantee the sale of the minority's shares | Partners representing at least ninety percent of the capital | 181 |
| Extending the term of a fixed-term company | Partners owning half the shares, unless the contract stipulates a larger majority | 183/1 |
| Settling partner disputes by arbitration or an alternative mechanism | May be stipulated in the memorandum of association | 173 |

The practical takeaway: anyone holding more than a quarter of the capital can block any amendment to the contract. And anyone holding less than that is protected by nothing except an explicit clause raising the quorum — written before signing.

## Clauses the law voids no matter who signed them

Some of what gets written into partnership contracts has no effect at all, however many people signed it:

- **Depriving a partner of profit or exempting them from loss**: such an agreement is deemed void (Article 23/1). That said, the memorandum of association may stipulate different ratios between partners in profits and losses.
- **The partner who contributes nothing but their work**: they may be exempted from sharing in losses, provided no remuneration has been set for that work (Article 23/2). If they draw a salary, the exemption falls away.
- **Restricting a non-managing partner's access**: that partner — or their delegate — may request to inspect the company's business and examine its records and documents at the company's head office twice during the financial year, and the company must meet the request within fifteen days; any clause to the contrary is void (Article 171/3). In return, whoever obtains the information is bound to keep it confidential.
- **Voting**: each partner has a number of votes equal to the number of shares they own, and no agreement to the contrary is permitted (Article 171/1).

## Reserves and losses: what changed in the Companies Law

The familiar line that a company must set aside a tenth of its profits as a statutory reserve is no longer a binding rule for the limited liability company. Article (177) states that the memorandum of association **may** stipulate setting aside a specific percentage of net profits to build a reserve allocated to the purposes the contract defines, and that when determining each partner's share at the annual meeting, the partners may resolve to build reserves to the extent that serves the company's interest.

In practice: if no reserve percentage is written into the contract, there is no percentage. Shares carry equal rights in net profits and in the liquidation surplus unless the contract states otherwise (Article 175/1). Annual or interim dividends may be distributed out of distributable profits (Article 22/1) — meaning quarterly distributions are permitted by law, but they require closed [financial statements](/accounting), not estimates.

In the other direction: if the company's losses reach half of its capital, the manager must call the general assembly of partners within sixty days of the date of becoming aware that losses have reached that level, to consider whether the company continues or is dissolved (Article 182). And "the date of becoming aware" is determined by the quality of your monthly close.

## Transferring shares and the thirty-day redemption right

Article (178) sets out a path that cannot be skipped. If a partner wishes to transfer their share to someone who is not a partner — for consideration or otherwise — they must notify the remaining partners, through the company manager, of the buyer's name and the terms of sale. Every partner then has the right to request redemption of the share, or to have the company buy it, within thirty days of the date the manager notifies them of the agreed price. If more than one partner requests it, the share is divided between them in proportion to each one's holding in the capital. Where the value is disputed, it is assessed by one or more accredited valuers at the expense of the party requesting redemption or of the company.

The contract may stipulate different notification procedures, a different valuation method, or a longer period for exercising the redemption right. This is where the important part gets written: is the valuation a profit multiple? Net assets? Silence on this clause is a dispute postponed.

And two points that are usually forgotten: the redemption right does not apply to the transfer of share ownership by inheritance, by will or by court ruling (Article 178/4), and the company is not dissolved by the death, withdrawal or insolvency of a partner unless the memorandum of association says so (Article 184). Which means the heirs come in as partners unless the contract deals with that in advance.

## Zakat and tax come before profit distribution

The net profit split between the partners comes after zakat and tax obligations, not before, and the treatment differs according to the partner's nationality and residency.

| Item | Treatment per the issuing authority | Reference |
|---|---|---|
| The share of a Saudi partner, and of GCC nationals treated as such, in resident companies | Subject to zakat collection | Zakat Collection Regulations, Article 3 |
| Zakat rate | 2.5% of the zakat base for the Hijri year, pro-rated by actual days where the zakat year differs from it | Zakat Collection Regulations, Article 15 |
| A resident capital company, and a non-Saudi resident carrying on the activity | 20% of the tax base | Income Tax Law, Article 7(a) |
| Dividends distributed to a non-resident partner or shareholder | 5% withheld from the gross amount paid | Income Tax Implementing Regulations, Article 63 |
| Management fees paid to a non-resident | 20% withheld | Income Tax Implementing Regulations, Article 63 |
| Zakat return and payment for a taxpayer assessed on the basis of accounts | Within 120 days of the end of the zakat year | Zakat Collection Regulations, Article 102 |

The withheld amount must be remitted within the first ten days of the month following the month of payment to the beneficiary. It is therefore worth stipulating in the contract that distributions are approved only after these obligations have been set aside. To size the impact: [trade goods zakat calculator](/tools/finance/zakat-trade-calculator) and [withholding tax calculator](/tools/finance/withholding-tax-calculator).

## Before the profit clause: which legal form are you choosing?

The company's legal form determines who settles the debt if the business fails, and it is a decision that comes before every clause in the contract.

| Form | Partner's liability for the company's debts and obligations | Merchant status | Article |
|---|---|---|---|
| General partnership | Personal, across all their assets, jointly and severally with the other partners | The partner acquires it | 35 |
| Limited partnership — general partner | Personal, across all their assets, jointly and severally | Acquires it | 51 |
| Limited partnership — limited partner | Limited to their share in the capital | Does not acquire it | 51 |
| Limited liability company | Limited to their share in the capital; the company has a separate legal estate | — | 156 |

And a second difference that gets overlooked: in a general partnership, partners' resolutions are issued by numerical majority — by heads, not by size of shareholding — and an amendment to the memorandum of association requires unanimity unless the contract states otherwise (Article 38).

## The manager: who appoints, who removes, and when limits on authority take effect

A limited liability company is managed by one or more managers, whether partners or not, appointed by the partners in the memorandum of association or in a separate contract, for a fixed or an indefinite term (Article 160).

- **Removal**: the partners may remove the manager whether appointed in the memorandum of association or in a separate contract. If the manager is a partner, they may not take part in voting on the resolution to remove them (Article 164/1).
- **Judicial route**: one or more partners representing at least a quarter of the capital may apply to the competent judicial authority to have the manager removed (Article 164/2).
- **Vacancy**: if the company has a single manager and the post falls vacant, a successor must be appointed within fifteen days of the date of becoming aware (Article 163).
- **Limits of authority**: no resolution appointing a manager, changing them, or restricting their powers takes effect against third parties until it has been registered with the Commercial Registration (Article 162).

The practical result: an approval ceiling written into an internal minute does not protect the company against a supplier acting in good faith. Register the restriction with the Commercial Registration first, then mirror it as an approval limit inside the [purchasing](/purchases) cycle.

## The Companies Law calendar: deadlines that are not left to custom

The contract sets the rights; the law sets the dates. And most disputes begin with a missed deadline, not a denied right.

| Obligation | Deadline required by law | Article |
|---|---|---|
| Financial year | Twelve months; the first may run from six to eighteen months from the date of registration | 16 |
| Making the statements and the manager's report available to the auditor | At least forty-five days before the annual meeting | 167/1 |
| Providing partners with the statements, the activity report and the auditor's report | At least twenty-one days before the annual meeting | 167/2 |
| Calling the general assembly meeting | At least twenty-one days before the date | 165/3 |
| Holding the annual general assembly | At least once within the six months following the end of the financial year | 165/2 |
| Filing the financial statements | Within six months of the end of the financial year | 17/2 |
| Requesting annulment of a general assembly resolution | Within ninety days of the date the resolution was issued | 170/2 |

One or more partners representing ten percent of the capital may request that the general assembly be convened at any time (Article 165/3). Which means your accounting close has to be ready a month and a half before the meeting, not on the morning of it.

## Manager liability: what a release from liability does not wipe out

The manager is jointly and severally liable to compensate the company, the partners or third parties for damage arising from a breach of the law or of the memorandum of association, or from errors, negligence or shortcomings on their part, **and any clause providing otherwise is deemed void** (Article 28/1).

- Where a resolution was passed by majority vote, a dissenting manager is not held liable provided they explicitly recorded their objection in the minutes of the meeting; absence excuses a manager only on proof that they did not know of the resolution (Article 28/2). The written minute is the first document of defence.
- One or more partners representing five percent of the capital — or a lower percentage stipulated in the contract — may bring a liability claim if the company does not, provided they notify the manager of their intention to file at least fourteen days in advance (Article 29).
- The partners' approval to release the manager from liability does not bar the claim from being filed (Article 30/1), and no claim is heard after five years from the end of the financial year in which the harmful act occurred, or three years from the end of the manager's term, whichever is later (Article 30/2).

On the other side of the ledger, a manager is deemed to have discharged their duty on a decision taken in good faith where they had no interest in it, informed themselves about the subject to an appropriate extent, and reasonably believed it served the company's interest; the burden of proving otherwise falls on the claimant (Article 31).

## Partners' agreements and the work share: two layers contracts miss

The law permits partners to enter into an agreement regulating the relationship between themselves or with the company, including how their heirs come in, or a family charter regulating ownership, governance, the employment of family members, profit distribution and dispute resolution. The agreement or charter is **binding**, provided it does not contravene the law or the memorandum of association (Article 11).

A share is indivisible; where it is owned by multiple persons — a partner's heirs, for example — the company may suspend the exercise of the rights attached to it until they choose one person to be treated as its sole owner vis-à-vis the company (Article 174).

As for the partner who comes in with their work rather than their money, special rules apply:

- A share may consist of work in exchange for a percentage of the profits whose amount the contract sets; a share may not consist of reputation or influence. Only cash and in-kind shares make up the capital (Article 13).
- Every gain produced by that work belongs to the company, the partner may not carry it on for their own account, and they are not required to hand over the intellectual property rights arising from it unless that has been agreed (Article 14/2) — a clause that deserves explicit wording in software and design firms.
- Where a partner is late in delivering their share, the company may demand performance or **suspend the effect of the rights attached to their shares**, such as profits and voting (Article 15).

And the working partner's remuneration is an operating cost recorded in [payroll](/payroll), not a draw against profits.

## The fines that follow sloppy bookkeeping

Article (262) imposes a fine of up to SAR 500,000 — without prejudice to any penalty stipulated in another law — in cases that include:

- Breaching the duty to keep accounting records and their supporting documents, to prepare financial statements in line with the accounting standards approved in the Kingdom, or to file them (paragraph e).
- Failing to perform the duty of calling the general assembly of partners to convene within the prescribed period (paragraph b).
- Negligence in making the necessary documents available to a partner, and in preparing and recording the minutes of meetings (paragraphs g and h).
- Failing to register the company, or to register an amendment to the memorandum of association, with the Commercial Registration (paragraph k).

Which is to say that an unkept ledger and an unrecorded minute are not merely internal administrative slips. That is what makes holding supporting documents inside a single [accounting system](/accounting) part of compliance.

## Frequently asked questions

### What is the difference between a partner current account and capital in Snad?

Capital is the value recorded in the memorandum of association. A partner current account is an account for day-to-day movements: advances, drawings, or the partner's salary.

### Does Snad remove the need for a certified public accountant in a partnership?

Snad supplies the data and reports accurately, but a certified public accountant is still needed to certify the annual financial statements for official purposes.

### Is the 10% statutory reserve still mandatory for a limited liability company?

No. Article (177) of the Companies Law published on the Ministry of Commerce website makes building a reserve optional, to be stipulated in the memorandum of association, and the partners may resolve to build reserves when determining each partner's share at the annual meeting. If the contract sets no percentage, no percentage is binding (accessed: 2 August 2026).

### How often may a non-managing partner inspect the company's records?

Twice during the financial year, personally or through a delegate, at the company's head office, and the company must meet the request within fifteen days. Any clause to the contrary is void under Article (171/3) of the Companies Law, alongside an obligation on whoever obtains the information to keep it confidential.

### What quorum is required to amend the memorandum of association of a limited liability company?

The approval of one or more partners representing at least three quarters of the capital, unless the memorandum of association stipulates a higher percentage (Article 172/1). Increasing capital by raising the nominal value of shares or suspending pre-emption rights, however, is permitted only with the unanimous consent of the partners (Article 172/3).

### Can a partner sell their share directly to a buyer from outside the company?

Not before notifying the remaining partners, through the company manager, of the buyer's name and the terms of sale. Every partner may request redemption of the share, or that the company buy it, within thirty days of the date the manager notifies them of the agreed price. If the period lapses without redemption or without payment of the value, the owner is free to transfer it to a third party (Article 178).

### What happens to a partner's share if they die?

A limited liability company is not dissolved by the death, withdrawal or insolvency of a partner unless the memorandum of association says so (Article 184). The redemption right also does not apply to the transfer of share ownership by inheritance, by will or by court ruling (Article 178/4). The contract therefore has to address the entry of heirs in advance.

### Are dividends distributed to a non-resident partner subject to withholding tax?

Yes. Article (63) of the Income Tax Implementing Regulations published on the Zakat, Tax and Customs Authority (ZATCA) website sets withholding at 5% on dividends distributed to a non-resident and 20% on management fees, and the withheld amount is remitted within the first ten days of the month following the month of payment to the beneficiary (accessed: 2 August 2026).

### When must the annual general assembly of partners in a limited liability company be held?

At least once a year, within the six months following the end of the financial year, called by the manager at least twenty-one days before the date (Article 165 of the Companies Law). The manager makes the financial statements and their report available to the auditor at least forty-five days before the meeting, and provides them to the partners at least twenty-one days before it (Article 167) — accessed: 2 August 2026.

### Can the partners remove a manager appointed in the memorandum of association itself?

Yes. Article (164) allows the partners to remove the manager or managers whether they were appointed in the memorandum of association or in a separate contract, and the partners must appoint a successor to anyone removed. If the manager is a partner, they may not take part in voting on the resolution to remove them. One or more partners representing at least a quarter of the capital may also apply to the competent judicial authority to have the manager removed.

### Does a contract clause exempting the manager from liability work?

No. Article (28/1) of the Companies Law makes the manager jointly and severally liable to compensate the company, the partners or third parties for damage arising from a breach of the law or of the memorandum of association, or from their errors, negligence and shortcomings, and it states explicitly that any clause providing otherwise is deemed void. Nor does the partners' approval to release the manager from liability bar a liability claim from being filed (Article 30/1).

### What is the difference between a partner's liability in a general partnership and in a limited liability company?

In a general partnership, the partners are personally liable across all their assets, jointly and severally, for the company's debts and obligations, and the partner acquires merchant status (Article 35). In a limited liability company, the company has a separate legal estate and is alone liable for its debts; a partner is liable for them only to the extent of their share in the capital (Article 156).

### Are restrictions on a manager's powers effective against suppliers and banks?

No resolution appointing a manager, changing them, or restricting their powers takes effect against third parties until it has been registered with the Commercial Registration, and the company is bound by the manager's acts that fall within its purpose (Article 162). Which means an approval ceiling written only into an internal minute cannot be invoked against a counterparty acting in good faith.

### What is the penalty for failing to prepare or file the financial statements?

Article (262) of the Companies Law imposes a fine of up to SAR 500,000 — without prejudice to any penalty stipulated in another law — on anyone who breaches the duty to keep accounting records and their supporting documents, to prepare financial statements in line with the accounting standards approved in the Kingdom, or to file them in accordance with the provisions of the law. Filing is within six months of the end of the financial year (Article 17/2) — accessed: 2 August 2026.

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