General Partnership Vs Limited Liability Company

A "company", in general, is a legal body formed as a result of commercial activities, i.e. activities undertaken as part of a commercial enterprise, by trader/traders who are engaged in buying and selling. Companies play a significant role in maintaining a healthy economy. The Companies Law, promulgated by a Royal Decree in 1965, as revised in 1967 and 1982 by following Royal Decrees, is the chief body of legislation for formation and operations of business entities in the Kingdom of Saudi Arabia. The provisions of the Companies Law are widespread and cover all sorts of commercial activities in the Kingdom. Under the Companies Law, Saudi Arabia's Regulations, define a "company" as a joint undertaking to participate in an enterprise with a view to profit. Therefore, a registered company is considered to be a commercial entity, no matter what its objectives may be. Upon registration, the company obtains legal personality. The Companies Law recognizes mainly eight types of business entities which include General Partnership, Limited Partnership, Partnership limited by shares, Limited Liability Company, Variable Capital Company, Joint Stock Company (corporation), Cooperative Company and Joint Venture. However, out of these eight types of entities, General Partnership and Limited Liability Company would be explained and compared in terms of characteristics, advantages and disadvantages.

To begin with, a General Partnership is defined as an association or entity of two or more partners who are jointly liable for the debts of the partnership to the extent of their personal fortunes. An example is Zuhair Fayez Associates that serves sectors such as real estate, construction, IT and business services. In a General Partnership, a partner will be accountable individually, even on his own property, to cover the debts of the company, whatsoever his shares. The name of the partnership must be associated to one or more of the partners and coupled with business activities of the partnership. Moreover, a partner cannot transfer or hand over their shares without the approval of the other partners and also, the shares are not publicly tradable. There are also limitations on partners being engaged in any other activities related to that of the partnership. Furthermore, no minimum amount of capital is required for a General Partnership. In regard to the management, one of the partners maybe appointed managers and the articles of association should stipulate what functions are allowed further than what is routine partnership management. The profits, losses and shares of the partners are determined at the end of the financial year and based on the profit and loss account of the partnership. In addition, foreign ownership of General Partnership is permitted in Saudi Arabia. At last, termination occurs (unless stated differently in the contract) if either one of the partners dies or is forbidden from acting as a partner or is declared bankrupt or insolvent or withdraws from the partnership until further notice.

In contrast, a Limited Liability Company is defined as a company that consists of two