Question

Do a research on the the different types of partnerships under Saudi law, including the characteristics and the advantages & disadvantages of each type

Answer 1

The different types of partnerships under Saudi Law are – Partnership Companies and Limited Partnership Companies. The characteristics, advantages and disadvantages are discussed below:

Partnership companies – These are also known as joint liability companies in Saudi and is the equivalent of general partnerships. Partnership companies can be formed by two or more than two individual partners. The advantage of this partnership is that there is no taxation to the business itself and all income, deductions and credits are passed through to the individual partners. This makes the process of filing tax returns relatively easy. In terms of disadvantages liability of each partner is not limited and partners will be jointly and severally liable to third parties for the obligations of the partnership company.

Limited partnership companies – These are the equivalent of limited liability partnerships. This is formed between two classes of partners and the general partners are responsible for the day to day running and operations of the business and the limited partners are not involved in the management of the company. The advantage of this type of partnership is that it helps in spreading the risk in a better manner among different partners. General partners have full liability of the partnership obligations while the limited partners have no liability for partnership obligations beyond their capital contributions. As such attracting passive investors becomes easier. The disadvantage is that all earned profit is effectively distributed with no flexibility to hold over profit to a future tax year.