Complete Guide to Silent Partnership (Mahassa) in Saudi Arabia 2026: Definition, Contract, and Legal Status After the New Companies Law
20 hours ago
Are you looking for a flexible and confidential business partnership in Saudi Arabia? Are you considering a silent partnership (Mahassa) contract but concerned about the legal status after the new Companies Law? Do you need a silent partnership contract template that protects your rights and ensures business continuity?
At HR 360 Solutions, we provide comprehensive consulting services in the field of companies and commercial contracts in Riyadh and across the Kingdom, including drafting silent partnership contracts, legal review, partner rights protection, and consultations on the best legal form for your partnership. We help you understand the legal status of the silent partnership after the new Companies Law and avoid potential legal risks.
- Specialized legal consultations for partnership and silent partnership contracts.
- Drafting and reviewing silent partnership contracts in compliance with Saudi regulations.
- Legal risk analysis and preventive solutions for partners.
- Legal representation in partnership and silent partnership disputes.
- Legal conversion from silent partnership to a registered company when needed.
Need a free consultation about a silent partnership or commercial partnership?
What is a Silent Partnership (Mahassa) in Saudi Arabia?
A silent partnership (Mahassa) is one of the forms of non-visible companies in the Saudi commercial system. Its concept is based on a private agreement between two or more persons to establish a specific commercial or investment project aimed at making profit, without having an independent legal entity or visible trade name to third parties.
A silent partnership is defined as a contract between a group of partners who agree to undertake a specific commercial activity without registering this company or announcing it to the public. One or more partners deal with external parties in their personal names, while the relationship between partners remains completely internal and confidential.
The rights and obligations of each partner, as well as profit and loss ratios, are determined according to what was previously agreed upon in the silent partnership contract, making it one of the most flexible and confidential types of companies.
Legal Status of Silent Partnership After the New Companies Law 2023
Important Legal Notice
The new Saudi Companies Law issued by Royal Decree No. M/132 in 1443 AH (corresponding to 2022 AD) abolished the official recognition of the silent partnership as an independent legal company form. Article Four of the new law specified that the types of companies in the new Saudi system are only:
- General Partnership
- Simple Limited Partnership
- Joint Stock Company (Closed and Open)
- Simplified Joint Stock Company
- Limited Liability Company (LLC)
Once the provisions of the new law took effect 180 days from its publication date in the Official Gazette (beginning of 2023), the silent partnership was abolished from the new Companies Law. This means that any partnership agreement concluded without registration according to the approved procedures in the new law does not acquire independent legal personality.
However, the silent partnership contract remains valid as a civil contract between partners subject to the provisions of the Saudi Civil Transactions Law and general contract rules, but it loses the special legal protection of registered commercial companies.
Characteristics of Silent Partnership in the Saudi System
The silent partnership is distinguished by a set of unique characteristics that set it apart from other forms of commercial companies:
Concealment and Confidentiality
The silent partnership is limited to the internal relationship between partners only. It has no visible legal entity before third parties, and cannot be invoked against external parties. The partner deals with others in his personal name.
Lack of Legal Personality
The silent partnership does not enjoy independent legal personality separate from the partners. It is not an entity in itself, and the relationship between partners does not exceed being a private contract among them.
No Registration
A silent partnership is not registered in the Commercial Register and is not subject to announcement and publication procedures. This makes its establishment procedures quick and simple, but deprives it of the legal protection of registered companies.
Personal Liability
The partner who deals with third parties bears full and unlimited personal liability for debts and obligations resulting from his dealings. No liability arises on the company as an independent entity.
Freedom of Proof
A silent partnership contract can be proven by all legal methods of proof (writing, testimony, admission, etc.). It does not require formal registration procedures like other companies.
Mutual Trust
The silent partnership is fundamentally based on mutual trust between partners. Founders share losses, profits, and other financial obligations according to the internal agreement.
When is a Silent Partnership Used?
A silent partnership contract is used in many commercial cases that require flexibility and speed in implementation:
For Temporary or Short-Term Projects
A silent partnership is used when the goal is to execute a time-limited project such as a commercial deal or temporary investment, where partners agree to start the project and end it once the goal is achieved without the need to establish a permanent company. An example of this is a seasonal tourism project or booking hospitality units for Hajj and Umrah season. For details on required licenses, review conditions for opening a tourism company in Saudi Arabia 2026.
When Exploiting a Quick Investment Opportunity
If a commercial opportunity appears that requires quick decision and immediate implementation, a silent partnership is used because it allows entering the activity without delay from legal or official procedures.
When Business Secrecy is Needed
A silent partnership is used when partners wish to maintain project confidentiality and not reveal it to others, as it has no trade name or announced legal entity.
When Pooling Capital from Multiple Parties
A silent partnership is used when the project requires joint financing from multiple parties, where each partner contributes a financial, in-kind, or expertise share.
When There is Strong Trust Between Partners
A silent partnership is often used when there is a strong trust relationship between parties, because it relies heavily on the internal agreement without direct legal oversight.
Difference Between Silent Partnership and General Partnership in Saudi Arabia
One of the common questions entrepreneurs ask: What is the difference between a silent partnership and a general partnership? Here is the comprehensive comparison:
| Criteria | Silent Partnership | General Partnership |
|---|---|---|
| Visibility to Third Parties | Not visible (concealed) | Visible and registered |
| Legal Personality | Does not have legal personality | Has independent legal personality |
| Commercial Register Registration | Not registered | Registered in Commercial Register |
| Trade Name | Has no trade name | Has a trade name derived from partners’ names |
| Dealing with Third Parties | In the partner’s personal name | In the company name |
| Liability | Personal for the dealing partner | Joint and unlimited for all partners |
| Proof | By all methods of proof | Through Commercial Register and notarized contract |
| Status in New Law | Abolished as commercial company | Officially recognized |
| Suitable For | Temporary and secret projects | Permanent partnerships and families |
Essential Clauses in a Silent Partnership Contract
A silent partnership contract template includes a set of essential clauses that regulate the relationship between partners and define their rights and obligations:
Mandatory Clauses
- Parties’ Information: Names of partners and their personal or commercial data, addresses, and contact methods.
- Company Subject: Defining the activity or project that is the subject of the company and clarifying the partnership objective.
- Capital and Shares: Determining total capital and stating each partner’s share and participation ratios (cash, in-kind, or work).
- Management: Determining the partner responsible for management and clarifying his powers and limits.
- Profits and Losses: Determining profit distribution method and stating loss-bearing ratios between partners.
- Contract Duration: Determining the silent partnership duration and possibility of renewal by partners’ agreement.
- Liability and Dispute Resolution: Determining the liability of the partner dealing with third parties and agreeing on dispute settlement mechanism (amicable, arbitration, or judicial).
- Contract Termination: Determining cases of company termination and liquidation mechanism.
Silent Partnership Contract Template in Saudi Arabia
Important Before Using the Template
The following template is a general framework for a silent partnership contract. It is strongly recommended to have the contract reviewed by a lawyer specialized in company contracts before signing to ensure it is customized to your actual situation and protects your legal rights.
Silent Partnership Contract
On day …… corresponding to …/…/…, an agreement was made between:
First Party: (Name, ID Number, Address)
Second Party: (Name, ID Number, Address)
Hereinafter referred to as “the Partners.”
Contract Preamble: Whereas the Partners have agreed to form a silent partnership among themselves to execute a project (state activity type) within the Kingdom of Saudi Arabia, without this company having an independent legal entity visible to third parties, the following has been agreed upon:
Article One: Company Subject
The Partners agree that the subject of the silent partnership shall be the management and execution of a project (define activity precisely), with the aim of achieving profits and distributing them among the parties according to what is agreed upon in this contract.
Article Two: Capital and Shares
The company capital is determined at a total amount of (…… Saudi Riyals), and each partner has contributed according to the following ratios:
- First Partner: (…%) or amount (…… Riyals)
- Second Partner: (…%) or amount (…… Riyals)
These contributions shall be cash, in-kind, or expertise as agreed upon between the parties.
Article Three: Management
The Partners agree to appoint (Manager Name) as manager of the silent partnership, who shall undertake project management and daily operations and contracting with third parties within the granted powers. He may not make fundamental decisions or major financial commitments without referring to the partners and obtaining their written approval.
Article Four: Profits and Losses
Net profits resulting from the project shall be distributed among the partners according to their capital contribution ratios, after deducting all costs and expenses. Each partner shall also bear his share of losses at the same ratio as his contribution to the project.
Article Five: Contract Duration
The duration of this contract is (……), starting from the date of signing, and it may be renewed by written approval from all partners before the expiration of the specified period.
Article Six: Partners’ Obligations
Each partner is committed to fulfilling his financial and technical obligations on time, maintaining confidentiality of project information, not disclosing any data to third parties, and not competing with the project throughout its duration.
Article Seven: Contract Termination
This contract terminates upon expiration of its term, achievement of the project objective, agreement of all partners, or occurrence of substantial losses that hinder activity continuation.
Article Eight: Dispute Resolution
In case of any dispute between the partners regarding implementation or interpretation of this contract, it shall be resolved amicably between the parties, and if that is not possible, arbitration or competent judicial authorities in the Kingdom of Saudi Arabia shall be resorted to.
Article Nine: General Provisions
This contract is confidential and no party may disclose its contents to third parties. It may not be amended except by written approval from all partners. This contract is subject to the laws and regulations of the Kingdom of Saudi Arabia.
And God is the Grantor of Success
First Party Signature: …………………
Second Party Signature: …………………
Procedures for Liquidating a Silent Partnership in Saudi Arabia
The liquidation of a silent partnership is primarily subject to the provisions contained in the founding contract between the parties. Since it does not possess legal personality, liquidation is purely contractual accounting:
Cases Requiring Liquidation
- Expiration of the period specified in the silent partnership contract.
- Achievement of the purpose for which the company was established or impossibility of its achievement.
- Agreement of all partners to dissolve the company before expiration of its term.
- Death, interdiction, or bankruptcy of a partner (unless the contract provides otherwise).
- Issuance of a final court judgment dissolving the company upon request of an interested party.
- Transfer of all shares to one partner, thus losing the multiplicity element.
Liquidation Steps
Liquidation Procedures
- Submit a liquidation request attached with partners’ decision signed by all.
- Submit a financial report on the company’s status and liquidation date certified by a legal accountant.
- Submit the final account regarding company operations authorized by an accountant and approved by partners.
- Determine the liquidator responsible for managing the liquidation process.
- Settle internal accounts between partners after fulfilling external debts.
Partners’ Liability After Liquidation
The partner who dealt with third parties remains personally liable and liquidation does not affect his obligations toward external creditors. Internal accounts between partners are settled only after fulfilling all debts.
Advantages and Disadvantages of Silent Partnership
| Advantages | Disadvantages |
|---|---|
| Easy and fast establishment without complex registration procedures. | Lack of legal protection as there is no Commercial Register to guarantee rights. |
| Complete confidentiality in commercial activity and partners not visible to others. | Full personal liability of the dealing partner toward third parties. |
| Legal flexibility in determining partnership conditions between partners. | High rate of disputes between partners due to lack of legal oversight. |
| Does not require registration fees or publication in official newspaper. | Cannot conclude contracts in its name or own assets independently. |
| Easy liquidation compared to registered companies. | Bankruptcy of one partner may affect project continuity. |
| Suits temporary projects and short-term investments. | Clients’ ignorance of company partners may cause problems in commercial dealings. |
Want to draft a legal silent partnership contract that protects your rights and ensures project continuity?
Frequently Asked Questions About Silent Partnership in Saudi Arabia
Was the silent partnership abolished in the new Saudi system?
Yes, the new Companies Law issued by Royal Decree No. M/132 in 1443 AH abolished the official recognition of the silent partnership as a legal company form. The types of companies in the new Saudi system are now: General Partnership, Simple Limited Partnership, Joint Stock Company (Closed and Open), Simplified Joint Stock Company, and Limited Liability Company only.
Must a silent partnership contract be officially notarized?
Not legally required; a written and signed contract between partners is sufficient. However, notarization is preferred to preserve rights and reduce disputes. The contract can be proven by all legal methods of proof.
Does a silent partnership appear in the Commercial Register?
No, a silent partnership is not registered in the Commercial Register and does not have a legal entity or visible trade name. Dealings are conducted in the personal name of one or more partners.
Who usually manages a silent partnership?
It is managed by one of the partners or a manager agreed upon, where his powers are defined in the contract and he is committed to referring to other partners for fundamental decisions. The managing partner deals with third parties in his personal name.
May a partner sell his share in a silent partnership?
Yes, a partner may sell his share in the company, provided that such sale does not affect the rights of the remaining partners, who have right of first refusal to purchase his share.
What are the penalties for not registering a partnership in the Commercial Register?
If the partnership requires registration according to the new Companies Law and is not registered, it is considered a silent partnership and does not enjoy legal personality. Partners bear personal liability for its obligations, and third parties have the right to prove the company’s existence and recourse against them jointly.
Tips to Avoid Common Mistakes in Silent Partnership Contracts
Based on our experience at HR 360 in helping hundreds of entrepreneurs, here are the most important mistakes to avoid:
- Neglecting contract drafting: Relying on verbal agreements or ready-made templates without customization causes future disputes. Seek a specialized lawyer.
- Unclear profit and loss ratios: Define from the beginning how profits are distributed and losses are borne to avoid financial disputes.
- Absence of dispute resolution mechanism: Write a clear clause for arbitration or amicable settlement to avoid lengthy litigation.
- Not defining manager’s powers: Define precisely what the manager may do on his own and what requires partners’ approval.
- Neglecting confidentiality clause: Include an explicit clause preventing partners from disclosing project information to third parties.
- Not reviewing legal status: After abolishing Mahassa in the new law, consult a lawyer to determine whether the most suitable legal form is conversion to a Limited Liability Company.
Why Choose HR 360 for Silent Partnership Contract Drafting or Partnership Consultations?
HR 360 provides comprehensive services in the field of companies and commercial contracts in Riyadh and across the Kingdom, with a specialized team that ensures:
| Service | What HR 360 Offers |
|---|---|
| Legal Consultations | Analyzing your situation and determining the optimal legal form for your partnership (silent or registered). |
| Contract Drafting | Preparing customized silent partnership contracts that protect all partners’ rights and comply with regulations. |
| Legal Review | Reviewing existing contracts and sealing legal gaps that may cause disputes. |
| Legal Conversion | Assisting you in converting a silent partnership to a Limited Liability Company or General Partnership. |
| Dispute Resolution | Legal representation in partnership and silent partnership disputes before courts or arbitration. |
| Ongoing Support | Post-establishment consultations for partnership management and regulatory compliance. |
Protect Your Partnership with a Sound Legal Contract
Don’t leave your business partnership to chance. The HR 360 team is ready to help you draft a robust silent partnership contract or convert your partnership to a registered company with full legal protection. Book your free consultation now and make the right decision for your project’s future.