Title Entrepreneurial Enterprise in Saudi Arabia Analyzing its

Title: Entrepreneurial Enterprise in Saudi Arabia Analyzing its Legal Phenomena and Possible Recommendations Dr. Faisal M. Atbani, Ph. D (Lond) Assistant Professor of law King Abdulaziz University - IEI famaat@gmail. com Jeddah 12 Safar 1439 H

THE DEATH OF ENTREPRENEURSHIP STARTUPS: • The valley of death describes the point where a business has a working prototype for a product or service that has not yet been developed enough to earn money through commercial sales. • Why do most firms die young? ü ü Financial Resources. Managerial Human Capital. Risk Management. Uncertainty Factors. • Obviously, in order to pass over the Death Valley, businesses need efficient systems for operations like managing tax, managing risks, protecting patents, complying with laws and regulations and the provision of basic business information about the legal requirements of running the business.

THE IMPORTANCE OF ENTREPRENEURSHIP: • To follow the incentive of Shariah “Islamic Law”; ü The only legal system totally joins between religion and work. • To be in line with the Saudi vision 2030; ü Improving the business environment (Legal Environment). ü A bigger role for small and medium-sized enterprises. • To take advantage experience; of international ü Small and medium-sized enterprises (SMEs) represent 99% of all businesses in the EU (European Commission).

THE LEGAL FRAMEWORK OF A BUSINESS: • Recognition of an activity in Islamic Law: 1. “Imperative Law”: An order to do an activity; paying Zakat 2. “Preventive Law”: An order not to do an activity; committing Riba 3. “Neutral Principles”: A neutral action towards an activity; commencing trade.

THE LEGAL FRAMEWORK OF A BUSINESS: In Islamic legal heritage, the story of a poor young man came to ask (begging) the Prophet Mohamed (PBUH) for aid (charity). The Prophet found him very healthy and capable to work, so the Prophet didn’t give him any charity, but instructed him to bring some of his properties and the Prophet sold it with two Dirhams and asked the man to buy an axe and to commence firewood gathering. The man came to the Prophet after some days with extra money that he had gained.

THE LEGAL FRAMEWORK OF A BUSINESS: We may think of some questions: (1) why the Prophet did not respond to his “begging”? (2) What advice did the Prophet provide him? (3) How did the Prophet finance him? (4) Why the Prophet didn’t ask him to work with another trader as an employee?

THE LEGAL FRAMEWORK OF A BUSINESS: • Legislation is the process through which statutes are enacted by a legislative body that is established and empowered to do so. • Islamic primary legislation is a set of all rules made by Allah (SWT) and His Prophet (PBUH), while Islamic relatively-primary legislation the process of making laws (Ijtihad), which is derived from the Qur’an and Sunnah and applied to the public and private lives of Muslims within Islamic states. ü Any relatively-primary legislation is valid only when it does not conflict with any of the above mentioned general principles.

THE LEGAL FRAMEWORK OF A BUSINESS: 1. Commercial law is pragmatic: commercial law is a way by which lawyer can solve problem, and formulate contracts as well as other legal instruments in order to meet the legitimate needs of the market. 2. It is responsive as it is developed in response to the needs of commerce. 3. It is a facilitator as it sustains the effectiveness of commercial transactions. 4. It is considered to be consequentialist, which means that a law is concerned with providing firm outcomes rather than philosophical norms.

LEGISLATION: EXAMPLE Ø The JOBS Act, is American law that intended to encourage funding of small businesses (entrepreneurship) in the United States by facilitating many of the country's securities regulations. It passed with legislative process, and then was signed into law by President Barack Obama on April 5, 2012. Ø It is a legislation that eases regulatory restrictions for new businesses to make it easier for startups to get established. Ø The intention of the Act is to encourage more business startups, foster their success, and as a result, create more jobs and stimulate the economy.

DEFINING ENTREPRENEURIAL ENTERPRISE: Literally: ü entrepreneur is a person who sets up a business or businesses, taking on financial risks in the hope of profit. The (OECD) study has summarized the definition of entrepreneurship as follows: ü Entrepreneurs are those persons (business owners) who seek to generate value, through the creation or expansion of economic activity, by identifying and exploiting new products, processes or markets.

LEGAL DIMENSIONS OF ENTREPRENEURSHIP: • Legal take-off: the Prophet (PBUH) said: “Every one of you is a shepherd and is responsible for his flock. The leader of people is a guardian and is responsible for his subjects. A man is the guardian of his family and he is responsible for them. A woman is the guardian of her husband’s home and his children and she is responsible for them. The servant of a man is a guardian of the property of his master and he is responsible for it. No doubt, every one of you is a shepherd and is responsible for his flock” ü Considering legal risks is an accountability of an entrepreneur.

LEGAL DIMENSIONS OF ENTREPRENEURSHIP: • Legal Structure of the Entity: ü All legal systems require certain form or structure of any business. ü This should be according to the law requirements, such as type of a company, licenses required, etc. ü Working in any business through unknown legal entity is unlawful and sometimes a crime. ü In Islamic law, this can be categorized within “Public Interest”. ü Legal structure of an entity could be regulated by “Imperative Law” or “Preventive Law”.

LEGAL DIMENSIONS OF ENTREPRENEURSHIP: • Contractual Method of finance: Ø As capital is one main part of enterprises. The legal challenges are: 1. To select un-Islamic mode of finance (i. e. interestbased loan); 2. To Select free-interest loan, which almost unavailable in commercial environment. 3. To select PLS or equity-based finance. Ø Most practical equity-based finance contracts for entrepreneurship are combined contracts between Mudharaba and Musharaka Mintahia Biltamlim, as entrepreneurs want to be free after a while. Ø So, selecting the right contract indicate to the sustainability of the business.

LEGAL DIMENSIONS OF ENTREPRENEURSHIP: • Intellectual Property Rights: Ø An IP is one of main challenges that cause dispute, as entrepreneurs want to maintain their ideas from any equity. Ø The line between an entrepreneur’s IP right and the financier right should be initially settled in the finance contract.

LEGAL DIMENSIONS OF ENTREPRENEURSHIP: • Contractual Rights and Accountability: Ø Relations with; partners, financiers, employees, providers, and other third parties should be legally well-documented. Ø Legally well-documented contracts are not enough, there should be prudential follow-up process to ensure that terms and conditions of a contract are in compliance. Ø In case of non-compliance, there should be dynamic approach of recovery to retrieve any breach in the contract, as most of legal risks came not from mistakes, but from the failure to correct mistakes.

LEGAL DIMENSIONS OF ENTREPRENEURSHIP: • License Rights: In some businesses, a license is considered as an asset. So, registering name of the license is the owner of the license, unless otherwise is documented. License could be sold, so identifying legal right of the license owner should be settled.

LEGAL DIMENSIONS OF ENTREPRENEURSHIP: • Trademarks Rights &Goodwill: Ø Failing to protect trademarks rights and goodwill rights is one of the most reasons for disputes among partners, particularly; entrepreneurs and financiers. Ø In legal environment, there are laws, court precedents as well traditions which applied in this relation.

LEGAL DIMENSIONS OF ENTREPRENEURSHIP: • Incorporation of Terms and Conditions: Ø T&Cs are the details that clarify the actual rights and duties of contractual parties. Ø Solely writing a contract is not enough to protect business, there should be detailed T&C in any form to document these responsibilities against any action taken by the counterparty.

FINAL REMARKS Ø It has been noticed that the legal infrastructure's role in Silicon Valley's continued success has an obvious implication for regional planners seeking to create or preserve local industrial districts. Ø The better approach for sustaining new businesses is to craft a legal infrastructure that has the flexibility to accommodate the different balance and protection of rights among stakeholders in different industries. Ø I believe “Technology” has facilitated business operations, but has added more legal burdens of entrepreneurs to comply with in order to be survived.

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