Sultan agreed to buy a printing business in Riyadh for SAR 1.2 million and paid SAR 400,000 as a deposit. Only then did he learn that it is a limited liability company with two partners, and that the second partner wants to use his right to buy the share himself.
The direct answer: before you agree on a price, decide what you are actually buying. If it is a company and you buy its shares, the company passes to you with all its debts and contracts, and the other partners have a right to buy the share first within 30 days. If it is a sole proprietorship, or you buy the assets only, the debts as a rule stay with the owner, with special rules if the trade name passes and for the workers' rights. After that comes the checking, and then linking payments to handover.
Asset sale or share sale: what is the difference?
| Sale of assets or the business | Sale of company shares | |
|---|---|---|
| What passes | Equipment, stock, the name, and contracts whose other parties agree to the transfer | The company itself, with everything it owns and owes |
| Earlier debts | Stay with the seller unless the creditor accepts, with special joint liability if the trade name passes | Stay with the company, so in practice the buyer carries them through the company he paid for |
| Contracts and licences | Each party or authority must agree to the transfer | Stay in the company's name, but check the change-of-ownership clauses in each contract |
| Workers | Contracts continue; earlier rights are owed jointly (Labor Law, Article 18) | The employer does not change, because the company remains |
A limited liability company has its own legal personality separate from its partners, and it alone is liable for its debts (Article 156 of the Companies Law). This protects a partner from the company's debts. But it also means that whoever buys the shares buys every obligation in the company's books, known or hidden.
Do the other partners have a right to buy the share first?
Yes. A partner in a limited liability company cannot sell his share directly to an outsider. Article 178 of the Companies Law requires him to inform the other partners, through the manager, of the buyer's name and the terms of sale. Each partner may ask to buy back (istirdad) the share at the agreed price, or the company may buy it, within 30 days of informing the manager. If they disagree on the value, an accredited valuer sets it. If the period passes without anyone buying the share and paying for it, the partner may sell to the outsider. The articles of association may set a longer period or another valuation method.
If you are the buyer, do not pay a large amount before the pre-emption period ends or the partners waive it in writing. Read the articles of association to see whether they change the period.
What should you check before buying an existing business?
- Financial statements and bank statements for at least two years, compared with the sales figures the seller gives you.
- Pending court cases, enforcement requests and claims sent to the business.
- Lease, supply and customer contracts, and whether any of them forbids transfer or lets the other party end the contract if ownership changes.
- A list of the workers and their accumulated dues and end-of-service awards.
- Zakat, taxes, social insurance (GOSI) and any government obligations.
- Ownership of the trademark and digital accounts, and who controls them.
The aim is to compare the picture you were given with the documents. A verbal profit figure is not enough. If the price is based on it, write it in the contract as a statement made by the seller.
How do you protect the price from hidden debts?
The best protection for the buyer is to link the price to clear obligations, and the best protection for the seller is to know when he will receive his money:
- A first payment at signing, in return for allowing the buyer to carry out his checks.
- A payment when ownership is officially transferred and the landlord and other important parties have consented.
- A retained amount, such as 10% to 20% of the price, held for an agreed period to pay any debt that appears from the seller's period.
- Statements and guarantees from the seller that the financial statements are correct and that there are no unlisted debts or cases, with his commitment to compensate if the opposite appears.
The 10% to 20% figure is a common negotiating range, not a legal rule.
An investor bought a bakery for SAR 900,000 and, under the contract, held back SAR 150,000 for six months.
In the fourth month, a flour supplier claimed SAR 42,000 for invoices from before the sale.
Because the contract said that debts before handover are on the seller, the claim was paid from the retained amount, and the seller received the remaining SAR 108,000 on time without a dispute.
Who pays the business's debts after the sale?
In an asset sale, your agreement that the buyer will pay a certain debt binds the creditor only if he accepts it (Article 249 of the Civil Transactions Law). If the trade name passes with the business, the earlier obligations under the name pass to the buyer unless otherwise agreed, and the seller and buyer remain jointly liable to the creditors. A claim against the buyer for the seller's debts will not be heard after five years from the transfer of ownership (Article 11 of the Trade Names Law). Moving the assets of a sole proprietorship into a company does not release its owner from its earlier debts unless the creditors expressly accept this (Article 220(3) of the Companies Law).
What if a dispute appears after the sale is completed?
If one party breaches a contract obligation, the other may, after formal notice, ask for performance or cancellation with compensation where justified. The court may refuse cancellation if the breach is minor (Article 107 of the Civil Transactions Law). Often the better solution is to settle the account from the retained amount or agree a specific compensation, not to undo a deal that has been operating for months. A dispute between two traders about their commercial business, and disputes over applying the Companies Law, are heard by the Commercial Court (Article 16 of the Commercial Courts Law).
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 seller:
- Prepare an organised disclosure file of the debts, contracts, workers and cases. It speeds up the deal and protects you from a misrepresentation claim later.
- If you are a partner in a company, inform the other partners through the manager before the final agreement with the buyer.
- Agree a fixed period for the retained amount and the conditions for releasing it, so your money is not left hanging.
- Get a release from the buyer when the period ends.
If you are the buyer:
- Do not pay most of the price before your checks, the end of the pre-emption period and the official transfer of ownership.
- Ask for written statements that the figures are correct and that there are no unlisted debts, with a commitment to compensate.
- Hold back part of the price long enough for old claims to appear.
- Check the change-of-ownership clauses in the business's main contracts before signing.
If you are negotiating the sale or purchase of a business, send us a summary of the deal and the draft contract on WhatsApp, and we will review with you the clauses that protect your rights before you pay.
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
If I buy a company's shares, do I carry its old debts?
The debts stay with the company itself, and the company is now yours, so in practice they are paid from its money. That is why a buyer needs to check the books, get statements from the seller and hold back part of the price.
Can my partner stop me from selling my share to an outsider?
He cannot stop you, but he has a right of pre-emption. You inform the partners through the manager, and each of them may buy the share at the same price within 30 days under Article 178 of the Companies Law, unless the articles of association set a longer period.
Do I need the employees' consent to sell the business?
Not to complete the sale. But their contracts continue, and their earlier rights are owed by the seller and buyer jointly under Article 18 of the Labor Law. In a sole proprietorship, moving all their earlier rights to the buyer needs their written consent.
After buying, the profits turned out lower than the seller said. Can I claim?
If the figures were written in the contract or in a statement from the seller and were proved false, you may claim compensation or cancellation under Article 107 of the Civil Transactions Law. Future expectations that did not come true are not enough on their own.
General information, not legal advice. The official Arabic texts of Saudi laws prevail over any translation. Disclaimer