You find a company that sells an excellent product. Its financial statements show good profits, and the price is attractive. Two months after signing, an old zakat claim and a group labour case appear. What you bought was not only the profits; it was the company with all its obligations.
The short answer: when you buy shares in a company, you buy the company with all its existing debts, cases and obligations, because they stay with the company, not with the seller. So you protect yourself with three things: due diligence before signing; written representations and warranties from the seller, with part of the price held back; and the legal approvals, such as the other partners' redemption right and notification to the General Authority for Competition (GAC) where it applies, followed by registration of the transfer in the Commercial Register.
What should due diligence cover before buying shares in a Saudi company?
Due diligence is an organised review of the company before purchase: legal, financial, tax and employment. No specific law requires it, but it is the practical way to know what you are buying. It usually covers:
- The articles of association, the commercial registration and the licences.
- Key contracts and their change-of-control clauses.
- Existing and possible court cases.
- Zakat, tax and social insurance (GOSI) obligations.
- Ownership of assets and trademarks.
- Employees and Saudisation (Nitaqat) levels.
Can the other partners stop the sale? The redemption right in an LLC
A partner who wants to transfer his share to a non-partner must notify the other partners, through the manager, of the buyer's name and the terms of sale. Each partner may ask to redeem the share, or ask the company to buy it, within 30 days of the manager's notice, at the agreed price. If they disagree on the value, an accredited valuer decides it. The seller may transfer to the outsider only after this period ends without redemption (Article 178 of the Companies Law). The articles of association may set a longer period or other procedures, so read them first.
When does ownership of the shares actually pass?
Signing the sale contract alone is not enough. Ownership of shares in a limited liability company passes by registration in the Commercial Register, and the transfer has no effect against the company or third parties until that registration. In unlisted joint stock companies and simplified joint stock companies, transfer takes place by entry in the shareholders' register (Article 25). So link payment of most of the price to completion of the registration.
When must the General Authority for Competition be notified?
The Competition Law treats as an economic concentration any act that transfers ownership of assets, shares or interests of one business to another, fully or partly, or that combines two managements (Article 1). The businesses involved must notify the Authority at least 90 days before completing the deal if their total annual sales exceed the amount set by the Implementing Regulations (Article 7). The deal may not be completed without written approval, or until 90 days pass after notification without a response (Article 11). A violation can lead to a fine of up to 10% of total annual sales related to the violation, or SAR 10 million where sales cannot be calculated (Article 19).
That amount is set by the Competition Law Implementing Regulations: notification is required if the total annual sales of all businesses taking part in the concentration exceed SAR 200 million (Article 12(1) of the Regulations). Under the merger review guidelines the Authority updated in April 2025, an acquisition must be notified when three conditions are met together: combined worldwide sales of the acquirer and the target above SAR 200 million, worldwide sales of the target alone above SAR 40 million, and their combined sales in the Kingdom above SAR 40 million. Check the current version of the guidelines on the Authority's website before setting the completion date.
Which clauses protect the buyer in a share purchase agreement?
- The seller's representations and warranties on the company's position, debts and cases.
- Indemnity for the buyer against past obligations that were not disclosed.
- Holding back part of the price for a set period as security for the representations.
- Conditions before completion: approvals, waiver of the redemption right, and approvals of the authorities.
An investor buys 60% of a distribution company for SAR 3 million. Due diligence reveals a key distribution contract that ends automatically if control of the company changes, and a labour case claiming SAR 180,000.
The solution in the contract: a condition before completion that the supplier agrees the distribution contract will continue, and SAR 300,000 of the price held back for a full year to cover the labour case and any undisclosed past obligation.
Without due diligence, the buyer would have discovered both problems after paying the full price.
This is general information based on the official Arabic texts of Saudi laws, which prevail over any translation. It is not legal advice for your specific case.
Practical solutions for the buyer and the seller
If you are the buyer:
- Do not sign before due diligence that fits the size of the deal.
- Link part of the price to the accuracy of the seller's representations, and hold it back for a set period.
- Check whether the deal needs notification to the General Authority for Competition before you fix the completion date.
- Get the partners' written waiver of the redemption right, or wait for its period to end.
- Link most of the price to registration of the share transfer in the Commercial Register.
If you are the seller:
- Disclose known obligations in a written schedule; disclosure limits your liability.
- Set a cap and a time limit for the seller's warranties in the contract.
- Organise the company's files before offering it; good due diligence results raise the price.
A successful acquisition is built before signing. Send us a summary of the deal, the type of company and the percentage of shares on WhatsApp, and we will plan with you the scope of due diligence and the clauses that protect your position.
Need advice on your own case?
Every case turns on its own facts and documents. Send us a short summary and we'll arrange a session with a licensed Saudi lawyer who will tell you clearly where you stand.
Frequently asked questions
Is due diligence mandatory in Saudi Arabia?
No law requires it, but it is the practical way to know the obligations before buying, because the company's debts stay with it after the sale.
When must the General Authority for Competition be notified?
If the deal is an economic concentration and the parties' total annual sales exceed SAR 200 million (Article 12(1) of the Regulations); under the Authority's guidelines updated in 2025, an acquisition also requires the target's worldwide sales to exceed SAR 40 million and the parties' sales in the Kingdom to exceed SAR 40 million. Notification is due at least 90 days before completion (Article 7 of the Law).
Can another partner block the deal?
In an LLC, he has the right to redeem the share at the same price within 30 days of the manager's notice (Article 178), unless he waives it.
We signed the share sale contract. Am I now a partner?
Not against the company and third parties until the transfer is registered in the Commercial Register (Article 25 of the Companies Law).
The seller hid a debt of the company. Can I claim from him?
It depends on the contract. The seller's representations, the indemnity clause and the held-back amount are your main tools, so they must be written precisely before signing.
General information, not legal advice. The official Arabic texts of Saudi laws prevail over any translation. Disclaimer