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Market View: Egypt

Posted on October 19, 2022 - 9:01 am by

Egypt’s economy is one of the most diversified in the Middle East and North Africa. The country’s strategic location, rich natural resources, and large population have made it a regional hub for trade and investment.

Egypt’s economy has been growing at around 3-5% per year since 2017 and is expected to grow by around 5.5% by the end of 2022. This growth has been driven by several factors, including strong foreign direct investment inflows, positive economic reforms, and robust domestic consumption.

Exploring Egypt’s Economic Opportunities

Egypt offers numerous advantages for businesses looking to invest in the country. For starters, Egypt’s population of over 100 million provides a large potential market for businesses. Additionally, the country’s geographic location also provides an excellent potential to develop the region as a hub for trade and investment.

Young Population

Egypt has a young and rapidly growing population. Over 60% of the population is under the age of 30, making it an attractive market for consumer-oriented businesses.

Strategic Location

Egypt is located at the crossroads of Africa, the Middle East, and Europe. This makes it an excellent location for businesses looking to tap into regional markets across all three continents.

Rich Natural Resources

Egypt is home to several valuable natural resources, including oil, gas, and minerals. These resources provide a great source of revenue for the government and offer opportunities for businesses in the mining and energy sectors.

Egypt’s Most Well-Developed Sectors

Egypt has many thriving industries, which offer opportunities for businesses looking to invest in the country and local businesses looking to expand their operations.

Agriculture

Egypt is a major producer of agricultural commodities, such as wheat, rice, and cotton. The country’s large agricultural sector provides the largest portion of employment in the nation, representing 21% of the entire workforce.

Manufacturing

Egypt has a large manufacturing sector, which accounts for around 15% of its total GDP. The manufacturing sector is dominated by the textile and food processing industries.

Tourism

Egypt is a major tourist destination, with around 13 million tourists visiting the country in the year prior to the pandemic. Tourism accounts for around 12% of the nation’s total GDP and employs around 2.2 million people.

Oil and Gas

Egypt is a major producer of oil and gas. The country’s oil reserves are estimated at around 4.4 billion barrels, while its gas reserves are estimated at around 77 million cubic feet.

Egypt’s Trade Relationship with Saudi Arabia

Egypt is a major trading partner of Saudi Arabia and has been so for a few decades. In 1989, the two countries signed a trade agreement, which was followed by several other agreements in the 1990s. The two countries continue to have strong economic ties to this day and are both members of the Arab League and the Organization of Islamic Cooperation.

Inbound Trade

Egypt imports a significant amount of Saudi Arabian products, with the number one being crude petroleum. This exchange was worth USD$1.63 billion in 2020. Saudi exports to Egypt continue to grow each year and have increased by 10.1% in total over the past two and a half decades.

Outbound Trade

Egypt also exports a significant number of products to Saudi Arabia. Refined petroleum is the number one export, representing USD$3.88 million in 2020. In total, Egypt exported USD$2.8 billion worth of products to Saudi Arabia in the same year.

Investment

Saudi Arabia is a major investor in Egypt. This year, Saudi Arabia and Egypt signed 14 agreements representing USD$7.7 billion worth of investment. The majority of these deals were signed in relation to renewable energy, fintech, and petroleum-related industries. Saudi Arabia remains Egypt’s largest source of foreign investment and continues to contribute a hefty US$10 billion to the Egyptian economy each year.

Egypt – An Economy on the Rise

The Egyptian economy is growing rapidly, driven by reforms and strong domestic demand. The country has a diversified economy with a strong focus on sectors such as agriculture, manufacturing, tourism, and oil and gas.

There are also some rapidly emerging industries, which have enjoyed recent foreign investment, such as the renewable energy sector and the fintech industry. The Egyptian government has made it easier to start and operate businesses and has worked to attract foreign investment. These reforms have helped to improve the business environment and spur economic growth.

Changes to Saudi’s legal Framework Since COVID-19

Posted on October 19, 2022 - 9:06 am by

Saudi’s legal system is based on the principles of Sharia law and has remained largely unchanged for decades. However, in recent years the government has modernised the system by introducing online court services and other technological advances. There have also been a series of legal reforms seeking to bring the commercial courts closer to international best practice.

The COVID-19 pandemic has resulted in a further acceleration of these changes, with the Saudi government taking steps to digitise the court system and make it more accessible to the public. In this article, we will explore the changes that have taken place, why they were introduced and how they are helping to modernise the Saudi legal system.

Recent Reforms to the Legal System

COVID-19 has acted as a catalyst for change in many areas of life, and one of those is the legal system. However, even prior to the pandemic, the Saudi government was already taking steps to modernise the system and facilitate a more attractive commercial environment for international investors. Here are some of the key reforms that have been introduced in recent years.

Licencing for Foreign Law Firms

In 2022, the Saudi government issued a formal licensing regime for foreign law firms to operate in the Kingdom. This is a significant development, as it officially opens up the Saudi legal market to international firms for the first time. It is also a reflection of the government’s commitment to attracting foreign investment and talent and providing a level playing field for all businesses operating in the Kingdom.

In order to apply for a licence, foreign law firms must have two partners that reside within the Kingdom, no more than 30% of their fee revenue must originate from out KSA, and no work related to Saudi law may be passed on to an external office.

Increase in Female Legal Professors

There has been a significant increase in the number of female legal professors in Saudi Arabia in recent years. This is part of a broader government initiative to encourage women to participate more fully in the workforce and give them equal opportunities to succeed.

Over a decade ago, there were no licensed Saudi female lawyers, and in 2022, there are now over 1,000. Although female lawyers may still be a minority, this figure is expected to grow steadily as more women choose law as a career.

Electronic Legal Services

One of the most significant changes has been the introduction of an online court system, which has modernised the way in which cases are heard and processed. This has resulted in a more efficient and effective system, with faster turnaround times for cases.

It is now possible to file legal documents electronically, submit evidence online, and even attend court hearings via video link. This has made the system more accessible for litigants, as they no longer need to physically attend court in all cases.

Laws for the 21st Century

With the nation’s digital transformation in full swing, it’s become necessary to introduce laws that govern new technologies and business models. In recent years, the Saudi government has enacted a number of laws relating to e-commerce, data protection, and cybercrime.

These laws are designed to encourage innovation and investment, while also ensuring that consumers and businesses are protected from harm. Influencers have also been regulated, with a new law introduced this year that requires anyone generating an income through social media to apply for a licence.

Looking to the Future

The Saudi legal system is continuing to evolve, and the pace of change is likely to accelerate in the coming years. This is positive news for businesses operating in the Kingdom, as it creates a more predictable and transparent regulatory environment.

It is also encouraging to see the government taking steps to increase female participation in the legal profession, as this can only lead to a more balanced and effective system in the long-term. With the right reforms in place, the Saudi legal landscape is well-positioned to meet the challenges of the 21st century.

International Legal Cases in Saudi Arabia

Posted on November 6, 2022 - 6:49 am by

The Saudi Arabian government has taken significant steps towards modernizing and codifying the legal system over recent years. The judicial system is governed by a combination of Islamic Sharia principles and international legal frameworks that have been adopted into Saudi law. As the government continues to promote the Kingdom as an investment destination, it has introduced new regulations and legal mechanisms to ensure that international business deals are protected under its legal system.

For international clients operating in Saudi Arabia, it is important to understand the key legal requirements that must be met when managing a legal case in the country. This includes working with local law firms or international legal teams to ensure that all necessary processes and regulations are followed.

Can You Start a Legal Case in Saudi Arabia as an Overseas Client?

The short answer is yes, you can start a legal case in Saudi Arabia as an overseas client. However, it is important to note that there are certain requirements that must be met in order to do so.

Firstly, the legal issue itself must fall under Saudi jurisdiction. This means that the case must be related to a business transaction, agreement or crime that took place in Saudi Arabia. Additionally, the target of the legal action must be residing in Saudi Arabia. If these conditions apply, then you are eligible to file a legal case in the Kingdom.

The Process of Filing a Legal Case in Saudi Arabia

Filing a legal case in Saudi Arabia is similar to the process in other countries. There are a few key steps that must be followed as outlined below.

1. Consulting with a local law firm

This is an essential first step, as the legal process will be governed by Saudi law and regulations.  Typically, each firm will have a specialty area, whether it is commercial law, family law, or criminal law. You may also need to engage the services of an interpreter if your preferred lawyer does not speak English.

2. Preparing your power of attorney

Once you have chosen a law firm to represent you, they will require you to submit a variety of documents as part of the legal process. It is essential that you provide a power of attorney, which must be notarized in your home country and attested by the Saudi Arabian embassy if you are overseas.

3. Gathering all necessary documentation and evidence to support your case

This includes notarized contracts, agreements, or other documentation related to your legal issue. Your legal representative will be able to advise you on what type of documentation is required to support your case.

4. Filing a legal complaint with the relevant court in Saudi Arabia

Once your legal representative has prepared the necessary paperwork, your representative can submit it to the relevant court in Saudi Arabia. Since the pandemic, the court system now permits cases to be heard remotely, via video conferencing. This is particularly beneficial for overseas clients, who may be unable or unwilling to travel to Saudi Arabia for a court hearing. In some cases, your lawyer will meet with the judge on your behalf to argue your case and you will not be required to attend the court.

How Quickly Will My Legal Case in Saudi Arabia Progress?

Thanks to positive reforms, the Saudi legal system moves relatively quickly, with cases often being resolved within a few months. Of course, this will depend on the complexity of your legal issue and whether it requires additional evidence or resources.

If you are taking a case during the holy month of Ramadan, then you should expect that the process may be slower than usual. During the two annual Eid festivals, the court will also close for a period. However, in general, you can expect to see your case move through the legal process relatively quickly and efficiently.

Overseas clients are treated fairly in the Saudi legal system and have the same rights as local clients. As long as you engage with your legal representative and follow the expected process, you should be able to manage your international legal case effectively in Saudi Arabia.

Changes to Saudi Arabia’s Dispute Resolution Regulations

Posted on November 9, 2022 - 10:41 am by

Dispute resolution is a growing industry in Saudi Arabia, and over the past 18 months, there have been some changes to its regulations. These changes aim to maintain high levels of efficiency and bring the system in line with international best practices.

Another significant change concerns the power of KSA’s enforcement courts. In this article, we will outline what these courts are, and what they can do to help ensure the efficient resolution of disputes.

Updates to the Dispute Resolution Framework

Dispute resolution was not a particularly well-developed area of law in Saudi Arabia until recently. In 2012, the government passed the Saudi Arbitration Law, which introduced a new framework for resolving disputes in the Kingdom. The introduction of this law was in response to growing levels of international arbitration, and it is part of a wider plan by the government to improve its legal infrastructure. Since then, a number of changes have been made to this framework to keep pace with international best practices, including the ones outlined below.

Electronic submissions

The introduction of an online dispute resolution system allows businesses to submit and manage disputes electronically. Since the COVID-19 global pandemic, this has become increasingly popular as it allows disputes to be dealt with remotely at a much faster pace than traditional face-to-face proceedings.

New Fee Structure

A new fee structure is one of the most recent changes to Saudi Arabia’s dispute resolution framework. Under this structure, parties who lose in court will be required to pay a fee of 2-5% of the claim value. This is intended to discourage frivolous claims and ensure that disputes are not being pursued to simply pressure the other party.

Saudi Arabia’s Enforcement Court

Saudi Arabia’s enforcement court has considerable power and is responsible for dealing with a wide range of disputes. These include:

  • Enforcement of court judgments from other countries that apply to people or entities resident in Saudi Arabia.
  • Enforcement of arbitration awards issued in accordance with the new arbitration law.
  • Enforcing family law judgments concerning the division of assets and child custody.
  • Ensuring that financial obligations (such as debts or alimony) are met following a divorce.
  • Enforcing intellectual property rights, such as trademarks, patents, and designs.

The role of the enforcement court is to ensure that these disputes are resolved in a fair and timely manner, which benefits businesses and individuals alike. With its extensive power, it is an important facet of the Saudi legal system.

In the case of arbitration and dispute resolution, the enforcement court has the power to enforce arbitration awards issued under the new arbitration law. This means that, should one party fail to comply with the award, the other party can seek enforcement of it in court. This gives businesses a level of security and ensures that any awards are respected.

Overall, the changes to Saudi Arabia’s dispute resolution framework have introduced higher levels of efficiency and international best practice to the legal system. This has benefited businesses and individuals alike, making Saudi Arabia a more attractive region for investment and entrepreneurship.

Amendments to the Saudi Commercial Agency Law

Posted on December 6, 2022 - 1:21 pm by

Every commercial agency operating in Saudi Arabia is governed by the Law of Commercial Agencies. This law was enacted by Royal Decree back in 1962 and it sets out the legal requirements for businesses to operate as commercial agents in Saudi Arabia. As the Kingdom of Saudi Arabia continues to modernize and develop, the government has decided to review and amend the law in order to help ensure that businesses can operate more efficiently and in line with economic developments. In this article, we will discuss some of the key amendments to the Saudi Commercial Agency Law and how this will affect businesses moving forward.

What’s Changing?

Under Saudi law, a commercial agent can be defined as any entity that “contracts with a manufacturer or his representative in his country for commercial activities”. This covers agents, distributors or franchisees. The Law of Commercial Agencies was originally designed to protect the interests of Saudi citizens against the influx of foreign labor and capital. Currently, the law puts forth that only Saudi citizens may act as commercial agents within the Kingdom. This means that foreign companies were required to partner with a local agent in order to do business. Additionally, local residents who did not hold Saudi citizenship were unable to enter into commercial agency agreements.

However, with the growing presence of international businesses in Saudi Arabia, the government has recognised that there is an opportunity for economic growth if foreign companies are allowed to operate directly. To this end, the government has proposed amendments to the law that would allow foreign companies to appoint either local or foreign commercial agents to operate in Saudi Arabia. This would create a more open market for foreign businesses and could lead to increased competition and investment within the Kingdom.

The new law will also put forward several other changes that may affect businesses operating within Saudi Arabia as shown below.

Intellectual Property Rights

The upcoming law will let commercial agents and distributors use their principals’ trademarks and other intellectual property within the terms of the agreement. This means some registration requirements from Saudi IP law can be bypassed.

Exclusivity

Furthermore, the latest edition of the law modifies how exclusive agency and distributorships are to be treated. In general, exclusive agreements are allowed. However, if necessary, goods or services in the Kingdom would be prevented from being supplied due to said exclusivity, then the Ministry of Commerce has the authority to nullify the agreement.

Consequently, if the exclusive agent or distributor is unable to meet the market’s demands, or if the agent/ distributor creates scarcity artificially, then exclusivity may be voided by the Ministry. In addition to safeguarding supply and market integrity, this policy towards exclusivity also gives principals leeway to revoke an agent/ distributor’s exclusivity in Saudi Arabia should they fail to perform adequately.

Termination & Indemnity

The new law’s provisions concerning terminating limited-term agreements largely resemble those for commercial agency or distributor agreements. Limited-term agreements can only be ended before their expiration date if (1) both parties agree to it, or (2) there is justifiable cause. What entails justifiable cause for termination is specified in a catalog found within the draft of the new law and notably, force majeure does not qualify.

The new law not only changes but also thoroughly explains how to end an agreement that doesn’t have a set expiration date. If you want to dissolve a business relationship with someone who you’ve had an open-ended contract with, you must now give one month’s notice for each year the agreement was effective.

What Does the New Law Mean for Business?

The new amendments to the Saudi Commercial Agency Law are a major development for businesses operating in the Kingdom of Saudi Arabia. Not only will this open up the market to foreign companies by allowing them to appoint either local or international commercial agents, but it also empowers principals to better manage their contractual relationships with agents or distributors. Finally, the proposed amendments give all parties in an agreement a secure platform from which to operate, as it sets forth protocols for termination and indemnity. These amendments are expected to come into force around mid-2023, so businesses should prepare for the changes ahead of time.

Overall, these amendments to the Saudi Commercial Agency Law are a step forward in creating a more equitable business environment in the Kingdom and opening opportunities for foreign businesses and local businesses alike.

Investment Strategies & Access to Finance in KSA

Posted on December 11, 2022 - 10:37 am by

Saudi Arabia is a lucrative market for businesses to expand their operations, with a booming economy and a rapidly diversifying range of industries. But every business requires a certain amount of capital before they can begin trading in a new market, so understanding investment strategies and how to access finance is crucial. Thankfully, Saudi Arabia is a favorable investment destination for corporations, with many pathways available to secure the necessary funding. In this article, we will outline some of the investment strategies and forms of finance available to businesses in KSA.

Finance Options for Saudi Businesses

There are a variety of investment strategies available for businesses considering entry into KSA, depending on the business’s goals and risk profile. If your business is already well-established outside of KSA and looking to expand its operations, your options will be more diverse. Here is a breakdown of some of the finance options available:

Venture Capital

One of the most popular investment strategies is venture capital. Venture capitalists will usually provide companies with access to funding in exchange for a stake in their business and/or influence over how it is run. In KSA, venture capitalists often seek out ambitious projects that can generate high returns in a relatively short period of time. If you have an especially innovative or ground-breaking idea for a business that seems to have potential, you might have more success in catching the attention of venture capitalists.

Joint Venture/Partnership

A joint venture or partnership is a great way for businesses to gain access to the Saudi Arabian market without having to go it alone. By partnering with an established local business, companies can benefit from their knowledge and experience of the local environment as well as access to capital, resources, and a ready-made customer base. It is important to do your due diligence before entering into any joint venture or partnership, as it can be a risky venture if the partner company is not fully vetted.

Mergers and Acquisitions

Merging with or acquiring an existing company in KSA is one way to quickly gain a foothold in the region. This is often the strategy of choice for larger companies looking to expand their operations into KSA. Businesses should be aware that the process of acquiring a company in KSA can be complicated and may require specialist legal advice.

Private Finance

Businesses in KSA can also access finance through bank loans. Banks in the region offer a range of financing options, including long and short-term loans, letters of credit and mortgages. Companies should be aware that different banks have different requirements for obtaining finance, so it is important to do your research before applying.

Grants

In some cases, businesses may be eligible for grants or other forms of financial assistance from the Saudi Arabian government. These grant programs are highly competitive, and businesses should ensure they meet all the necessary criteria before applying. Certain regions, such as new economic cities, may offer various incentives and subsidies to businesses as well.

Preparation is Key

Ultimately, the success of any business venture in KSA depends on preparation. Understanding the investment strategies available, and how to access finance, is a crucial step in the process. With careful research, planning, and execution, businesses in KSA can be successful and profitable.

There are a few key things to remember when embarking on an investment strategy in KSA:

● Do your research. Make sure you understand the local market, regulations and procedures before starting.

● Develop a comprehensive business plan that outlines your goals, objectives and strategies for achieving them.

● Utilize all available resources, from local businesses to grant programs, to maximize your chances of success.

● Talk to professionals and experts in the field who can provide advice and guidance.

● Make sure you clearly understand the associated risks with each investment strategy.

● Be patient and flexible; the process of setting up a business in KSA can take time, but your efforts will be rewarded.

By taking the time to understand the investment strategies available, and doing your research on finance options, your business is more likely to experience success in KSA. The market has a lot of potential for growth and profit, and with the right preparation and strategy, businesses can enjoy excellent returns.

The Liability of Management and Good Governance in a Saudi Arabian Context

Posted on December 14, 2022 - 2:33 pm by

Across the globe, businesses are under increasing pressure to adopt sustainable and ethical practices. Known as ESG (Environmental, Social, and Governance), this focus on responsible business practices is becoming more and more important for companies looking to protect their reputation and ensure long-term success.

In Saudi Arabia, where businesses are just starting to come to terms with the need for ESG compliance, there is still some work to be done to create a corporate culture that embraces these values. In this article, we will explore the importance of effective management and good governance in a Saudi Arabian context, looking at what this means in practice and the benefits that will be gained by businesses that fully embrace it.

What Is Governance?

At its most basic level, governance refers to the systems and processes that are put in place by an organization to ensure that operations run smoothly and effectively. Often used interchangeably with management, governance is a broader concept than simply managing day-to-day operations; it encompasses a range of different factors such as ethics, risk management, compliance requirements, and stakeholder relationships, among others.

In Saudi Arabia, the importance of governance has become particularly clear in recent years. Hence, the Capital Market Authority (“CMA”) issued the Corporate Governance Regulations by Resolution No. 8-16-2017 dated 12-02-2017 G (The “Regulations”) as it aims to enforce the global governance standards on the joint stock companies.

The Regulations broadly define Governance as a set of rules that aim to regulate the relationship between the management team and the shareholders of the company, by establishing rules and procedures in relation to the mechanisms of decision-making, add clarity and more transparency and credibility in order to protect the rights of shareholders, achieve greater clarity and more transparency on the Saudi Stock Exchange and the business environment in general.

As the local authorities have come to realize the importance of governance and the potential risks and liabilities associated with not following its best practices, the Ministry of Commerce issued the Corporate Governance Regulations for Non-Listed Joint Stock Companies (commonly known as Closed Joint Stock Companies) for guidance. Both regulations aim at establishing an effective legal framework to govern the company, and particularly aim at (i) enhancing the role of the company’s shareholders and facilitating the exercise of their rights; (ii) stating and clarifying the rules and responsibilities of the management team; (ii) enhancing the role of the management team and the internal committees in order to develop their capabilities to enhance the company’s decision-making mechanisms; (iv) achieving transparency and credibility to reach greater clarity and more transparency between the management team, shareholders, related parties, and any person is dealing with the company; (v) providing effective and balanced tools to deal with conflicts of interest; and (vi) enhancing accountability and control mechanisms for the Company’s employees.

Why is Good Governance Essential for Saudi Businesses?

There are many benefits for Saudi business owners who embrace good governance and effective management. For one, this approach helps companies maintain strong reputations, both within the local community and on a global scale. It also ensures compliance with regulatory requirements, which can reduce risk and help to prevent any potential legal liabilities for the management team that may have direct or indirect impacts on the company’s operations.

As the management’s liability differs according to the type of company, the recent Companies Law sets out general and strict governance rules that apply to the management team regardless the type of the company.

As shown hereunder, these rules aim to enhance transparency and credibility between the management team and shareholders:

  1. Declaring Interest: without obtaining shareholders’ approval, none of the management team shall have direct or indirect personal interest in the business activities and contracts executed on behalf of the company.
  2. Declaring Competition: without obtaining shareholders’ approval, none of the management team may participate in any business that would compete with the company or may compete with any business area that the company is practicing.
  3. Exploitation: none of the management team shall exploit the company assets, information or investment opportunities presented to him in his capacity as manager or presented to the company to achieve a direct or an indirect interest for himself.

In addition to the above, robust management practices have been shown to improve employee productivity and foster creativity and innovation in the workplace, while good governance helps companies attract investors and achieve long-term success.

What Does Effective Management Look Like?

While there is no single definition of effective management, we may consider several key factors. These include clear and consistent communication, an emphasis on accountability and transparency, and overall, the ability of an organization and its leaders to effectively plan, organize, and implement strategies that enable it to achieve its objectives. This often involves a focus on metrics such as profitability, productivity, efficiency, and customer satisfaction, as well as values such as integrity, responsibility, and trust.

The following are some key strategies that Saudi businesses can implement to improve their management and governance practices:

  1. Establish a culture of accountability and transparency. This requires creating clear processes for employee evaluation and promotion, as well as allowing employees to provide input on important decisions and policies affecting the organization.
  2. Build systems for measuring performance and monitoring progress. This can involve the use of tools such as dashboards, KPIs, and performance scorecards.
  3. Invest in leadership development programs. This can help managers to grow and develop their skill sets. It may include the provision of training on topics such as project management, HR best practices, and change management.
  4. Commit to ongoing learning and education. Businesses can achieve this by forming partnerships with local educational institutions and professional organizations. This can help to foster a spirit of innovation and continuous improvement in the workplace.

Ultimately, good governance and effective management are essential for building strong businesses in Saudi Arabia. By embracing these principles, companies can ensure that they are meeting the highest standards of ESG compliance and maintaining their reputations as responsible corporate citizens.

The Rise of Employee Stock Options in KSA

Posted on December 14, 2022 - 2:36 pm by

Employee share option plan (the “ESOP”) have seen an impressive rise in popularity across the globe, with more companies offering them as a form of compensation. In KSA, employee share options have recently become a prime option for employers specially tech companies due to the increased flexibility and potential for financial gain that they provide.

Why ESOP are Growing in Global Popularity

ESOP shares offer number of advantages that make them an attractive tool for companies to reward their employees and motivate them to stay with the company: They also provide certain benefits such as:

  1. Equity – ESOP provides employees with a form of equity, allowing them to benefit from the financial success of the company without having to purchase the actual shares.
  2. Potential Gains – ESOP shares offer employees the potential for long-term financial gain as well as short-term performance. This makes them an attractive option for employees looking to benefit from the future success of their company.
  3. Increased Engagement – ESOP shares can also help to increase employee engagement and loyalty by being a shareholder in the company. By providing employees with a sense of ownership in the company, employers can help to boost morale and create a more motivated workforce.

HOW DOES IT WORKS

Usually, the company’s board of director approves the ESOP and set the rules in the form of a plan on how it will work for employees and in most cases grant the chief executive officer of the company the authority to grant the ESOP shares (within the authorised number of shares) based on performance and for talent acquisition purposes since the chief executive office manage the day-to-day business of the company.

We often see in early-stage companies, the board is the administrator of the plan; however, with the growth of the company usually the administration is outsourced to a service provider mainly to assign the fiduciary risk away from management, as well as freeing up of time which the board can instead redirect towards growing the company.

Why Is KSA Prime for ESOP?

Until recently, it was not common for companies in KSA to offer ESOP as a form of compensation. However, the tide is changing, and more employers are now offering them as an attractive option for their employees. Companies have freedom to tailor their ESOP to fit the needs of both the company and the employees, and to modify it as their needs may change. However, stipulations exist on the rights of both the employee and the company when it comes time to “cash-out”.

ESOP is now positioned as the prime option for employers and employees in KSA due to a number of key factors such as (i) being attractive to institutional investors; (ii) cost effective; (iii)result a high retention and attracts talents.

ESOP in KSA: The Future of Compensation

It is clear that ESOP shares set to be a solid option for employers and employees in KSA, with a stable economy, growing stock market, and low cost, they offer a unique combination of flexibility and potential for financial gains that make them an attractive option for both employers and employees.

As more businesses begin to offer ESOP shares, they may soon become the norm in KSA. By harnessing their potential; however, resident companies in KSA must be mindful of the tax implications of offering ESOP shares to foreign employees operating in the Kingdom as the company may be subject to a 20% tax on income generated by shares owned by non-Saudi shareholders. If you are an employer looking to offer ESOP in KSA, be sure to speak with legal advisors who can help ensuring your compliance with the relevant regulations and maximize the potential of this form of compensation.

The Importance of Effective Family Governance

Posted on December 14, 2022 - 2:38 pm by

Family governance is essential for family businesses to achieve their goals and maintain success across generations. A well-structured family governance model covers all aspects of the family system, including communication, values and traditions, decision-making, conflict resolution, and succession planning. The one thing all family businesses have in common is the need to maintain trust and unity, as well as a shared vision of success. Establishing effective governance helps ensure that family members have the same understanding of values, goals, and objectives.

In this article, we will discuss the importance of good family governance, what it involves, and why families need to institutionalize their governance model.

Institutionalizing Family Governance: The Need for Change

In today’s competitive, globalized market, family businesses must be prepared to face new challenges and changing conditions. Family businesses are increasingly being challenged by competition, new industries, emerging markets, and international investment. As a result, it is essential that family businesses adopt a progressive governance model that allows for agility and adaptation. Institutionalizing a governance system ensures that the family business is run efficiently and effectively, with clear roles and responsibilities, and long-term goals are met.

Here are a few key reasons why it is important to institutionalize family governance:

  1. To remain competitive. International players are increasingly entering family businesses’ traditional markets, making it more difficult for them to maintain their competitive edge. By institutionalizing the governance model, families can ensure that they remain competitive in today’s fast-moving market and deliver strong, consistent performance.
  2. To comply with global best practices. The world of business is increasingly interconnected. Standards of corporate governance are becoming more stringent, and families must ensure they comply with international rules and regulations if they want to enjoy market access. Instituting a formal governance system ensures that family businesses remain compliant and do not fall foul of international standards.
  3. To meet consumer needs. Customers expect the highest level of service and quality, regardless of a company’s size or structure. Delivering on these needs requires good governance and effective decision-making. By institutionalizing a sound framework, families can ensure that their business is ready to meet the needs of customers.
  4. To meet ESG requirements. Environmental, social, and governance (ESG) considerations are becoming increasingly important in the business world. Expectations around responsible and sustainable business practices are higher than ever before, and family businesses must ensure that their governance model is fit for purpose.

Legal Elements of Good Governance

The legal elements of effective family governance are essential. The law provides a useful framework for families to manage their businesses and protect the family’s wealth. It is important to recognise the legal implications of any business decisions and ensure that family governance documents, such as wills, trusts, and shareholder agreements are up to date. Families must be aware of the relevant legal requirements in their jurisdiction and ensure that they comply with them.

Here are a few key legal elements to consider:

  1. Shareholder agreements. Shareholder agreements are legally binding documents, which set out the rights and obligations of the shareholders in relation to the business. These documents can include information about board structure and responsibilities, transfer of shares, decision-making processes, dividend policy, and much more.
  2. Family constitutions. Family constitutions provide families with a framework for decision-making and help ensure that the family’s interests are represented in the business. These documents should be adapted to the evolving needs of the family and updated regularly.
  3. Wills. Wills are a key part of succession planning and should be reviewed and updated periodically. Doing so ensures that the family’s assets are distributed according to their wishes and that any tax liabilities are minimized.
  4. Trusts. Trusts can be used to protect family assets and provide tax benefits. It is important that families understand the legal implications of setting up a trust and ensure that it is tailored to their needs.

Family Businesses Must Prepare for the Future

Family businesses are the backbone of many economies. Their longevity and resilience make them an attractive option for investors, customers, and employees alike. But to remain competitive and successful in an ever-changing business environment, families must ensure they have the right governance model in place. By instituting a formal framework and keeping on top of the legal elements, they can ensure that their business is ready to meet the challenges of tomorrow. If done well, family governance can be the key to a successful and prosperous future.

The 2022 Saudi Arabia Legal Roundup

Posted on January 12, 2023 - 2:29 pm by

The Kingdom of Saudi Arabia (KSA) is a vibrant and rapidly changing nation, with new laws and regulations being introduced at an unprecedented pace. In this article, we take a look back at the major legal developments that took place in KSA during 2022 and what to expect in 2023.

From changes to family law to new measures designed to promote economic growth, there have been a number of significant legislative moves made by KSA over the past year. We review these important changes here and consider how they may affect businesses operating in the country going forward.

New Laws Introduced in 2022

As part of the National Transformation Program, KSA implemented several new laws in 2022. Some of the areas of focus included family law, corporate governance and data protection. These changes bring greater clarity and certainty to both businesses and residents in KSA.

Personal Status Law

One of the most significant changes to be implemented in 2022 was the new Personal Status Law. The law addressed several issues related to marriage, divorce, inheritance and child custody. It was designed to protect the stability of Saudi families and provide a clear legal framework for resolving disputes. The law has been widely praised by the legal community for its provision of greater legal clarity for matters related to the family.

Evidence Law

In 2022, KSA also introduced a new Evidence Law, which aimed to streamline the process of collecting, presenting, and assessing evidence in civil and commercial cases. With the imminent enforcement of the Evidence Law, it will supersede all provisions found in both the Law of Civil Procedure and the Law of Commercial Courts regarding evidence law.

The new law brings a breadth of evidence types to the table, ranging from judicial and non-judicial, written in both official or ordinary documents, digital records, testimonies through custom, and habit or oaths taken by witnesses. Additionally, any evidence regulated by Sharia laws can also be entered into consideration.

Companies Law

The new Companies Law streamlined the business registration process and provided greater flexibility to entrepreneurs looking to start their own ventures in KSA. The newest Law, reflecting the Kingdom’s 2030 Vision, introduces far-reaching changes to enable businesses more flexibility while safeguarding their interests. It is also carefully crafted to empower the private sector and adhere to global best practices.

With the New Law in effect, investors are now able to form any of these five types of businesses: Joint Liability Company, Limited Partnership Company, Joint Stock Company, Simple Joint Stock Company, and Limited Liability Company.

Executive Regulations for the Personal Data Protection Law (PDPL)

The Executive Regulations for the Personal Data Protection Law (PDPL) was due to come into force in 2022, although it was first introduced in 2021. The PDPL is designed to increase consumer rights and ensure that organizations are taking appropriate measures to protect personal data.

Under the new regulations, organizations must appoint a privacy officer and implement robust data security measures. They must also ensure that all employees receive data protection and privacy training. Additionally, organizations are required to keep records of their data processing activities and provide clear information about how personal data will be used. However, after consultation with concerned stakeholders, the full enforcement of this legislature is delayed until 2023.

Looking Ahead: 2023

KSA is expected to make further steps towards introducing new legislation in 2023, aimed at strengthening and accelerating the Kingdom’s economic development.

Proposed laws include a new bylaw, which allows tourists to rent short-term accommodation in Saudi, such as through Airbnb and HomeAway. This will open the door to the tourism industry and create increased opportunities for Saudi homeowners to make additional income.

By June 2023, regulations related to the licencing of law firms in the Kingdom are set to change, and legal businesses are encouraged to prepare now. All foreign law firms wishing to operate in Saudi Arabia must now submit an application for a license from the Ministry of Justice and demonstrate that they meet certain prerequisites.

The Executive Regulations for the Personal Data Protection Law (PDPL) will also undergo another review before it comes into full force in March 2023. It is expected that this law will be further enhanced to ensure proper implementation.

Saudi’s efforts to modernize and globalize its legal system will continue, with further laws and regulations being explored in 2023. Looking forward, it is clear that the Kingdom is determined to create a compliant and secure legal environment for all businesses, consumers and investors.

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