Saudi Arabia and Kuwait: A Comparative Look at Civil Codes and Companies Laws
Saudi Arabia Focus
KSA also allows up to 100% foreign ownership of KSA companies through registration with the Ministry of Investment. This has been a game-changer for foreigners aiming to invest in the Kingdom.
Law Update: Issue 379 – Saudi Arabia
Philip KotsisPartner,Head of KSA
Ahmad Mohammad SalehSenior Associate,Corporate Commercial
There has been a great amount of activity in the legal industry of Saudi Arabia over recent years. In response to a tremendous increase in demand for legal services, law firms around the world have opened offices in the Kingdom. For us at Al Tamimi & Company, our presence in the KSA over the last two decades has grown substantially to become our second largest in the region behind the UAE. Aside from the growth of economic opportunities, the KSA has determinably overhauled its legal system, passing volumes of foundational legislation that aims to put into place globally familiar principles of law in an effort to modernize its legal system and, in doing so, attract foreign investment.
This article aims to demonstrate some similarities, and key differences, between two foundational bodies of law – the Civil Code and Companies Law – in Saudi Arabia and Kuwait. While both jurisdictions continue to drive progress and development of their systems in ways that modernize procedure and provide flexibility and reliability for investors, it is interesting to compare recent developments of one jurisdiction, Saudi Arabia, with those of another, more seasoned, jurisdiction, Kuwait. All in all, the KSA has made clear its commitment to provide flexibility and streamlined processes in favor of investors worldwide.
This comparison pays special attention to company formation requirements, the mechanics of corporate decision-making, and the rights of subcontractors. Comparative tables are included to highlight key similarities and differences.
The contractual frameworks of Saudi Arabia and Kuwait, as articulated in the Saudi Civil Transactions Law and the Kuwait Civil Code, respectively, reflect both shared civil law traditions and distinctive national approaches. These frameworks govern how contracts are formed, interpreted, performed, and terminated, and play a pivotal role in shaping commercial certainty and fairness. This section explores the core principles of contract law in both countries and highlights similarities and differences.
Contract Formation: The Meeting of Minds In Saudi Arabia, the Civil Transactions Law sets out a clear and structured approach to contract formation. A contract is established when an offer and acceptance are coupled in a manner that gives rise to legal effect, provided the parties have the legal capacity to contract and their wills are explicitly expressed. The law recognizes various forms of expressing will: verbally, in writing, by an understandable sign or actual deed, whether explicit or implicit, unless the law, agreement, or nature of the transaction requires otherwise. The making of goods and services available for sale with a stated price is generally considered an offer, unless evidence suggests otherwise — an approach that deviates from the “invitation to deal” standard western jurisdictions.
The Saudi law also addresses the dynamics of negotiation. Negotiations do not obligate parties to contract, but bad faith in negotiations — such as lack of seriousness or intentional withholding of material information — can result in liability for damages, though not for lost profits.
Kuwait’s Civil Code similarly grounds contract formation in the coupling of offer and acceptance, with the will of the parties needing to be expressed. The expression of will can be verbal, written, by customary signs, or by conduct that leaves no doubt as to intent, unless a specific form is required by law. The Code emphasizes that the existence of a will is presumed unless proven otherwise, and that the intention behind the expression of will is paramount, especially if the outward expression differs from the true intent.
Kuwait also recognizes the use of model contracts or bylaws, which apply if both parties have agreed to their use and had the opportunity to know their terms. If essential terms of a model contract are unknown to a party, the contract may be null.
Standard Form and Model Contracts: Balancing Efficiency and Fairness The Saudi Civil Transactions Law explicitly addresses standard form contracts, which are characterized by non-negotiable terms set by the offeror. Acceptance in such contracts is achieved by the offeree simply succumbing to these terms. Importantly, the law empowers courts to amend or strike out unfair conditions in standard form contracts, ensuring that justice and equity are maintained. Any agreement to the contrary is deemed null and void, reflecting a strong public policy in favor of protecting the weaker party.
Kuwait’s Civil Code takes a slightly different approach. Model contracts or standard terms are only binding if both parties have agreed to their application and had the opportunity to review them. If a party was unaware of essential terms, the contract may be void as to those terms. In contracts of adhesion—where one party must accept terms without negotiation—Kuwaiti law allows the judge to amend or relieve the adhering party from arbitrary or unjust conditions, always guided by principles of equity. Doubt in such contracts is interpreted in favor of the adhering party.
Performance and Good Faith: The Heart of Contractual Obligations Good faith performance is a cornerstone of the Saudi Civil Transactions Law. Once a contract is validly executed, neither party may unilaterally amend or terminate it except by mutual agreement or statutory provision. The law requires that contracts be performed not only according to their express terms but also in line with statutory provisions, customary practices, and the nature of the contract. Good faith is a guiding principle in both the performance and interpretation of contracts.
Kuwait’s Civil Code similarly mandates that contracts be performed in accordance with their terms and in a manner consistent with good faith and honorable dealing. The Code recognizes that contracts are not limited to their written stipulations but also encompass what is required by custom, equity, and the nature of the transaction. This ensures that the spirit of the agreement is honored, not just its letter.
Termination and Rescission: Flexibility and Judicial Oversight Saudi law provides several avenues for terminating or rescinding contracts. Contracts may be rescinded by mutual agreement, by exercise of an option to withdraw (if stipulated), by breach, or by impossibility of performance due to circumstances beyond the obligor’s control. In cases of breach, the non-breaching party may demand performance or termination, along with damages, after serving formal notice. The law also allows for automatic termination in cases of impossibility, with both parties restored to their pre-contract positions or compensated if restitution is impossible.
In Kuwait, termination and rescission are generally more formal and often require judicial intervention unless expressly agreed otherwise. A contract may be rescinded by court order if one party fails to perform its obligations, or by express agreement between the parties. The Code also provides for automatic rescission in certain cases, such as impossibility of performance due to a foreign cause. Upon rescission or nullification, the parties are restored to their original positions, or compensated if restitution is not possible.
Summary Table: Contractual Principles
Issue
Saudi Civil Transactions Law (2023)
Kuwait Civil Code (1980)
Contract Formation
Offer + acceptance, explicit will
Offer + acceptance, will must be expressed
Standard Form Contracts
Acceptance by succumbing; courts may amend unfair terms
Model contracts apply if agreed and known
Good Faith
Required in performance and interpretation
Termination/Rescission
By agreement, breach, impossibility, or option
By court order or express agreement
Interpretation
Clear terms binding; ambiguity resolved by intent
Clear terms binding; ambiguity resolved in favor of injured party
The rights and obligations of subcontractors in construction and service contracts are a critical aspect of commercial law, particularly in large-scale projects where multiple parties are involved. Both Saudi Arabia and Kuwait address the issue of subcontracting in their respective civil codes, but they do so with notable differences, especially regarding the ability of subcontractors to claim payment directly from employers. This article explores the legal frameworks governing subcontractor rights in both jurisdictions, highlighting the balance between contractual freedom, protection of subcontractors, and the interests of employers.
Subcontracting: Permissibility and Scope Under the Saudi Civil Transactions Law, subcontracting is generally permitted unless expressly prohibited by statutory provision, by the terms of the contract, or by the nature of the work itself. Article 473 provides that a contractor may assign the performance of the whole or part of the work to a subcontractor, except where such assignment is barred by law, agreement, or the specific requirements of the project—such as when the personal qualifications of the main contractor are of particular importance. This flexibility allows for the efficient execution of complex projects, while also preserving the employer’s right to insist on the main contractor’s personal performance when warranted.
Kuwait’s Civil Code adopts a similar approach. Article 681 states that the contractor may assign a subcontractor to execute all or part of the work, provided there is no contractual stipulation to the contrary or the nature of the work does not make the contractor’s personal skill essential. This provision reflects a recognition of the practical realities of modern contracting, where specialization and division of labor are common.
Liability: The Main Contractor’s Continuing Responsibility Despite the permissibility of subcontracting, the Saudi Civil Transactions Law makes it clear that the main contractor remains fully liable to the employer for the performance of the subcontractor. Article 473(2) stipulates that the original contractor is responsible to the employer for the acts and omissions of the subcontractor, ensuring that the employer’s rights and expectations under the main contract are not diminished by the involvement of third parties. This principle maintains the integrity of the contractual chain and provides the employer with a single point of accountability.
Kuwait’s Civil Code mirrors this principle. Article 681(2) provides that the original contractor remains responsible to the employer for the works executed by the subcontractor. This ensures that the employer is not exposed to the risk of defective performance or non-performance by parties with whom they have no direct contractual relationship. The main contractor acts as a buffer, absorbing the risks associated with subcontracting and preserving the employer’s remedies.
Direct Claims: The Right of Subcontractors to Claim Against Employers A key distinction in the Saudi legal framework is the limited ability of subcontractors to claim payment directly from the employer. As a general rule, subcontractors do not have a statutory right to direct payment from the employer. Their contractual relationship is with the main contractor, and any claim for payment must be pursued against the main contractor, not the employer. The only exception arises when the main contractor assigns its right to payment to the subcontractor and the employer expressly accepts this assignment (Article 474). In such cases, the subcontractor may claim payment directly from the employer, but this is contingent on the employer’s consent to the assignment. Absent such an assignment, the subcontractor’s recourse is limited to the main contractor.
This approach reflects the principle of privity of contract, which holds that only parties to a contract are entitled to enforce its terms. It also protects employers from the risk of multiple, potentially conflicting claims from parties with whom they have no direct contractual relationship.
Kuwait’s Civil Code, by contrast, provides subcontractors and workers with a statutory right to claim directly from the employer. Article 682 establishes that both subcontractors and workers employed by the main contractor may claim directly from the employer the amounts owed to them by the contractor, but only up to the amount that is due from the employer to the main contractor at the time the claim is made. This right is not dependent on an assignment or the employer’s consent; it is a direct statutory remedy designed to protect the interests of those who have contributed labor or materials to the project.
Furthermore, Article 683 grants subcontractors and workers priority over other creditors in receiving payment from the sums due to the main contractor. In the event of competition among multiple claimants, they are to be paid pro rata. This mechanism ensures that those who have actually performed work or supplied materials are not left unpaid due to the insolvency or default of the main contractor, and it provides a measure of security that encourages participation in large projects.
Summary Table: Subcontractor Rights
Can subcontractors claim directly from employer?
No, unless main contractor assigns right and employer accepts
Yes, up to amount due to main contractor at time of claim
Priority of claims
Not specified
Subcontractors/workers have priority over amounts due
Liability of main contractor
Remains liable to employer for subcontractor’s work
Legal Forms of Companies: Breadth and Innovation
Saudi Arabia’s Companies Law (2022) offers a modern and flexible array of company types, reflecting the Kingdom’s drive to attract investment and facilitate business. The law recognizes five principal forms:
General Partnership
Limited Partnership
Joint Stock Company (JSC)
Simple Joint Stock Company (SJSC)
Limited Liability Company (LLC)
A notable innovation is the Simple Joint Stock Company (SJSC), a hybrid structure that combines features of the traditional joint stock company with greater flexibility, particularly for startups and venture capital-backed enterprises. The law’s approach is designed to accommodate a wide range of business needs, from small family businesses to large, publicly traded corporations.
Kuwait’s Companies Law No. 1 of 2016 provides for a broader spectrum of company forms, many of which reflect traditional civil law concepts:
Joint Liability Company
Simple Commandite Company
Partnership Limited by Shares
Joint Venture
Public Shareholding Company (K.S.C.P.)
Closed Shareholding Company (K.S.C.C.)
Limited Liability Company (W.L.L.)
Sole Proprietorship
Professional Company
Holding Company
While this diversity allows for tailored solutions to various business scenarios, Kuwait does not have an equivalent to Saudi Arabia’s Simple Joint Stock Company. The closest parallel is the closed shareholding company, but it is subject to stricter formation requirements.
Single-Shareholder Companies: Flexibility vs. Formality A hallmark of the Saudi Companies Law is its explicit recognition of single-shareholder companies. Both LLCs and JSCs—including the SJSC—can be established by a single natural or legal person.1 This innovation is significant for entrepreneurs, family businesses, and corporate groups seeking to establish wholly owned subsidiaries or special purpose vehicles. The law’s flexibility extends to the possibility of converting multi-shareholder companies into single-shareholder entities and vice versa, depending on changes in ownership.
Kuwait permits the formation of sole proprietorships, which are companies wholly owned by one person and enjoy limited liability. However, for shareholding companies—whether public or closed—the law generally requires a minimum of five incorporators, unless the State or a public entity is the sole founder. This requirement reflects a more traditional, formalistic approach, emphasizing collective ownership and governance in larger corporate forms. The sole proprietorship is the only vehicle for single-person limited liability, and if additional shareholders join, the company must convert to a limited liability company.
KSA also allows up to 100% foreign ownership of KSA companies through registration with the Ministry of Investment. This has been a game-changer for foreigners aiming to invest in the Kingdom. Comparatively, Kuwait allows up to 100% foreign ownership of Kuwaiti companies via application to the Kuwait Direct Investment Promotion Authority (KDIPA).
Incorporation Process: Streamlining vs. Tradition The Saudi Companies Law has embraced digital transformation, and aims for the entire incorporation process to be completed electronically. Currently in practice, only 100% Saudi-owned KSA companies may incorporate electronically – foreign ownership in a KSA company to be incorporated requires physical signing at the Ministry (which is often accomplished via power of attorney). Companies acquire legal personality upon registration in the commercial register, and the process is designed to be swift and efficient. The law also provides for the electronic submission of documents, electronic signatures, and the use of modern technology for notifications and meetings. This approach reduces administrative burdens and accelerates time-to-market for new businesses.
In contrast, Kuwait’s incorporation process remains more formal and traditional. Companies are formed by agreement among the founders and must be registered with the Ministry of Commerce and Industry. The process typically involves in-person steps, including the notarization of the memorandum of association and the submission of original documents. While some steps have been streamlined in recent years, the process is still more cumbersome than in Saudi Arabia, reflecting a preference for formalities and official oversight.
Decision-Making: Resolutions by Circulation and Shareholder Meetings A further example of Saudi Arabia’s modern approach is the express allowance for resolutions by circulation. Both shareholders and partners may adopt resolutions without convening a physical meeting, provided the company’s articles of association permit it and the procedures provided for in the Saudi Companies Law is followed. This mechanism is particularly advantageous for companies with a small number of shareholders or for urgent matters requiring prompt action. It also aligns with international best practices, supporting remote and flexible corporate governance.
Kuwait’s Companies Law does not expressly provide for resolutions by circulation. Instead, shareholder and partner resolutions generally require physical meetings or written consents in accordance with the law and the company’s articles. While written resolutions are possible in some circumstances, the default expectation is that decisions will be made in duly convened meetings, with proper notice and quorum requirements. This approach prioritizes transparency and collective deliberation but may slow down decision-making in fast-moving business environments.
Foreign Companies: Registration and Regulation Foreign companies wishing to operate in Saudi Arabia must register branches or representative offices in the Kingdom and comply with local laws. The Companies Law provides a clear framework for the registration, operation, and supervision of foreign entities, ensuring that they are subject to the same standards of governance and accountability as domestic companies. The law also requires foreign companies to maintain a local presence and to adhere to Saudi accounting and reporting standards.
KSA also allows up to 100% foreign ownership of KSA companies through registration with the Ministry of Investment. This has been a game-changer for foreigners aiming to invest in the Kingdom. Comparatively, Kuwait allows up to 100% foreign ownership of Kuwaiti companies via application to the Kuwait Direct Investment Promotion Authority (KDIPA). The process with KDIPA is more selective and requires a process that takes months, compared to KSA’s streamlined and open process with its Ministry of Investment.
Kuwait’s Companies Law does not contain a dedicated section for foreign company branches. Instead, the regulation of foreign entities is addressed in other commercial and investment laws. Foreign companies must generally obtain a license from the Ministry of Commerce and Industry and may be subject to additional requirements under the Foreign Direct Investment Law. The absence of a unified framework within the Companies Law itself can create uncertainty and necessitates careful navigation of multiple regulatory regimes.
Summary Table:
Feature
Saudi Arabia (2022)
Kuwait (2016)
Legal Forms
Partnership, Limited Partnership, JSC, SJSC, LLC
Partnership, LLC, JSC, K.S.C.C., Sole Proprietorship
Simple Joint Stock Company
Yes (can be single shareholder)
No
Closed/Private JSC
Not a distinct form; JSC can be single shareholder
K.S.C.C. (minimum 5 founders, not single shareholder)
Minimum Shareholders
1 (for LLC, JSC, SJSC)
5 (for JSC, K.S.C.C.), 1 for sole proprietorship/LLC
Resolutions by Circulation
Expressly permitted for shareholders and boards
Not expressly permitted; meetings generally required
Incorporation Process
Electronic, streamlined, single window
Formal, requires in-person steps and notarization
Foreign Companies
Must register branch/office, comply with local law
Regulated under other laws, not detailed in Companies Law
While Saudi Arabia and Kuwait share many foundational principles in civil and commercial law, their approaches to company formation and corporate governance differ significantly. Saudi Arabia’s Companies Law is more flexible, allowing for single-shareholder companies (including JSCs and SJSCs), streamlined electronic incorporation, and the express use of resolutions by circulation. Kuwait, by contrast, requires a minimum of five founders for shareholding companies (except for state-owned entities), does not recognize the simple joint stock company, and generally requires physical meetings for shareholder and board decisions.
These differences have practical implications for investors, entrepreneurs, and legal practitioners. Saudi Arabia’s framework is more accommodating for single investors and remote decision-making, while Kuwait’s system emphasizes collective formation and traditional meeting procedures. Understanding these distinctions is essential for effective company structuring, governance, and risk management in the Gulf region.
For further information,please contact Philip Kotsis and Ahmad Mohammad Saleh.
Published in September 2025
