Partner Exit from an LLC in Saudi Arabia: Share and Guarantees

A partner posts in the company group chat: "Consider me out from today. Give me back my SAR 300,000 capital." He stops coming in. But his name is still in the commercial register as a 30% partner, and his signature is still on a personal guarantee for the company's bank financing.

The short answer: this message takes him out of nothing. In a limited liability company (LLC), leaving is a deal over the share: a sale to a partner or an outsider, with the other partners' pre-emption right, or a buy-back by the company if its articles allow it. Ownership only moves when the transfer is recorded in the commercial register, and personal guarantees end only if the creditor releases them.

Can a partner withdraw from an LLC by his own decision?

The right to withdraw by giving partners 60 days' notice appears in Article 46 of the Companies Law, in the rules for general partnerships. The law gives LLCs no similar provision. In an LLC, a partner leaves by selling or transferring his share under Article 178, or by the company buying it if its articles allow.

Article 184 reassures the others: an LLC does not end when a partner withdraws, dies or becomes insolvent, unless the articles of association say so. So there is no need to fear that one partner leaving brings the whole company down.

First define what you want to end. Leaving management is one thing, leaving a job is another, and selling ownership is a third. A removed manager remains a partner with his full share, and a partner who stops coming to work loses nothing of his ownership.

Then separate the price of the share from your other rights and obligations. Do you have a loan to the company, or profits declared but not received? Are you a guarantor for it with a bank or supplier? Mixing all of this into one figure is one of the most common causes of disputes after signing. The first document to read is the articles of association, together with any partners' agreement. Article 11 makes a partners' agreement binding, and it may regulate share transfers and valuation or set longer periods.

Selling to a partner or to an outsider

A share may be transferred to any of the partners under the conditions in the articles of association. Selling to an outsider, with or without payment, requires the seller to notify the other partners through the manager of the buyer's name and the terms of sale, and the manager must inform them as soon as he receives the notice. Calling it a "gift" does not exempt you from notice. Write the offer clearly: number of shares, price, payment method and dates, and the buyer's identity. Keep proof of the date it arrived, because the pre-emption period runs from it.

Each partner may ask to buy back the share and pay its value, or ask the company to buy it, within 30 days of the manager being notified of the agreed price. If more than one partner asks, the share is divided between them in proportion to their shares in the capital. If they disagree on value, one or more accredited valuers set the fair value, at the cost of the partner asking for pre-emption or the company. If the period ends without a request, or the requesting partner does not pay, the seller may sell to the outsider. The articles may set other notice procedures, a longer period or a different valuation method.

The pre-emption right does not apply when a share passes by inheritance, by will, or by court judgment, under Article 178. If you change your terms after the notice, for example a lower price or a different payment method, it is safer to give notice again, because the partners decided based on the first offer.

Khalid owns 30% of a company and agrees with an outside investor to sell his share for a set price.

He sends notice to the partners through the manager with the buyer's name, the price and the payment method, and keeps proof of sending.

His partner Saad asks in writing to buy back the share within the period, but disputes the price.

They go back to the valuation method in the articles if there is one. Otherwise, an accredited valuer sets the fair value at Saad's cost.

How is the value of a share calculated?

The registered capital is not the share's value today. The company may have made profits or losses or built up debts. Prepare the latest financial statements, a list of the company's debts and what customers owe it, the stock, and current contracts. Agree on the valuation date and what is included, because last month's figure may differ from today's. Do not base the price on expected profits without documents. A written valuation from a neutral party prevents many disputes, especially when the buyer is one of the partners.

Can the company buy the exiting partner's share?

Yes, provided the articles of association allow it (Article 180). Article 66 of the Implementing Regulations requires the partners to approve the purchase and waive their pre-emption right, and to authorise the manager to complete the purchase within 30 days of their approval, unless the articles set a longer period. Shares bought by the company have no votes in the general assembly.

This route helps when the remaining partners lack cash to buy, but it takes money out of the company's funds. Before approving, check its effect on the company's obligations and its ability to pay its debts. It is different from a partner buying the share with his own money. Make clear in the agreement who pays, to whom the share passes, and who signs. Company money must not be used to complete a personal deal.

The partners do not have to buy your share just because you want to leave. The exception is where the articles, with the approval of partners holding at least 90% of the capital, include a clause giving the minority the right to require the majority to secure the sale of the minority's shares on the same price and terms when the majority sells (tag-along), or giving the majority the right to require the minority to accept a good-faith buyer's offer for all shares (drag-along) (Article 181).

A special case: extending the company's term

If the company has a fixed term and the partners decide to extend it, Article 183 gives a partner who does not want to continue the right to exit, and his share is valued under Article 178. The extension takes effect only after his share is sold and its value paid to him, unless he agrees otherwise with the others. This right is tied to the extension decision. It is not a basis for every wish to leave a company without a fixed term.

When does ownership actually move, and when does the guarantee end?

Signing the sale contract and receiving the price are not enough. Article 25 states that ownership of shares in an LLC passes by registration in the commercial register, and the transfer counts against the company and third parties only from the date of registration. So link the last payment of the price to completing the registration, and state in the agreement who handles the procedure and when.

A personal guarantee to a bank or landlord is a contract between you and the creditor. Article 99 of the Civil Transactions Law states that a contract does not create an obligation on a third party. So your agreement with the buyer that he takes your place does not bind the bank unless it agrees. Ask the creditor for a written release, or a replacement guarantor, before the final signing.

If your share is pledged to a creditor, Article 180 allows pledging shares and gives the pledgee the right to collect their profits unless agreed otherwise, and Article 68 of the regulations sets the rules for such pledges. Arrange release of the pledge, or the pledgee's consent, before you offer the share for sale.

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 both sides

If you are the partner who wants to leave:

• Start by reading the transfer conditions and valuation method in the articles of association and the partners' agreement before promising anything to a buyer.
• Notify the partners in writing through the manager of the buyer, the price and the payment method, keep proof of the date, and notify again if the terms change.
• Separate the share's value from any loan you gave the company and your declared profits, and write an amount and date for each instead of a verbal agreement.
• Do not hand over your powers or close the deal before arranging the release of your personal guarantees and any pledge on the share.
• Link the last payment to registration of the transfer in the commercial register, and do not sign a full release before receiving the price and understanding what it covers.

If you are one of the remaining partners or the buyer:

• If you want to exercise pre-emption, ask in writing and have the money ready within 30 days of the manager being notified of the price. If you disagree on price, ask for an accredited valuer instead of refusing the sale.
• Review the financial statements, contracts and debts before buying, and ask the seller for a written statement of the obligations he knows about.
• Check whether the articles allow the company to buy the share, and calculate the effect on cash flow.
• If the seller is a manager, require handover of files and accounts on a set date, and remove his signing authority after registration and update the banks.
• Negotiate a replacement guarantor with the creditor early so the deal is not held up.
• If you learn the share was sold to an outsider without notice to you, object in writing and keep a record before registration is completed.

Exit details differ from one set of articles to another. Send us the articles of association and a summary of the offer you have on WhatsApp, and we will go through the steps and risk points with you before you sign.