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What does Saudi Arabia’s Companies Law mean for family-owned businesses?

03 August 2022

The implications of this law are far-reaching with significant opportunities for the family-owned business market, as the Kingdom of Saudi Arabia (“KSA” or “the Kingdom”) seeks to simplify its corporate code, increased flexibility and attract inward investment.

On the June 28, 2022, the Saudi Council of Ministers approved the new Kingdom of Saudi Arabian (“KSA” or “the Kingdom”) Companies Law, and the final approved version of the law was issued on July 4, 2022. This reform of the Companies Law - only seven years after its previous iteration - underlines the current appetite within Saudi Arabia to continue the transformation of its business landscape. It comes as part of a broader initiative to implement regulation at an internationally competitive level supporting the economic reform program of the Kingdom’s Vision 2030.

We believe that the implications of this law are far reaching with significant opportunities for the family-owned business market as the KSA seeks to simplify its corporate code, increased flexibility and attract inward investment. Talal Al Ajlan, KSA Transformation & Strategy Subject Matter Expert & Advisor comments: “The new corporate law represents a new era for the family businesses in Saudi Arabia. It is a major step toward ensuring sustainability and growth in family businesses. It is a very important step towards attracting multi-national companies to open and operate in Saudi Arabia. Through the changes that took place in the corporate law we can anticipate that the environment has improved a lot to create multiple kinds and formations of companies in Saudi Arabia.”

KSA remains one of the most compelling markets in the Middle East and we welcome the introduction of this sophisticated and ‘fit for purpose’ new legal framework which removes certain perceived limitations compared with the structures and ecosystems commonly seen across global markets.

Here, we outline some of the key changes introduced by the newly passed Companies Law.

Most significantly, the new Companies Law allows for the introduction of a family charter in the articles of association to regulate ownership, governance, management, work policy, relatives’ employment, and dividends distribution in family-owned companies. Ensuring the long-term sustainability and stability of family-owned businesses is complex, as a family grows, and succession events inevitably occur. This charter provides structure to succession planning and clarity to what is frequently a complex inheritance landscape with domestic assets and business being handled under Sharia law and international assets under foreign civil/common law. Walid S. Chiniara, Advisor to Business Families comments: “The new Saudi legislation offers families in business state of the art tools that will help them secure the sustainability and the security of their wealth in the hands of future generations.”

While many families have existing charters or their equivalent, and despite the fact that many are very detailed, family members have historically been sceptical about their legal veracity. Therefore, being able to make these documents part of the legal construct of the business is significant and should give the wider family the transparency and security – now and in the future. Al Ajilan adds: “The new corporate law definitely enhances sustainability in family businesses through the acceptance of the family constitution as a binding document that will and can be used in a court of law to solve disputes that might happen between the partners from the family businesses.” Clearly, all families and their business are different, and as such so are their needs, priorities and values. This framework provides flexibility which allows for the inclusion of these nuances, and as such should encourage more families to either revisit their existing documents or start afresh.

By way of boosting entrepreneurship, the new law also allows for a new form of company — called a Simplified Joint Stock Company (“SJSC”) — that meets the needs of business founders and venture capital investors. SCJSCs combine all the benefits of an LLC in terms of no minimum share capital, ease of management, ease of establishment, ease of making shareholders’ resolutions as well as the benefits of a Closed Joint Stock Company in terms of the ease to trade shares, creating any type of special shares like non-voting shares or premium shares. Al Ajlan notes: “The new corporate law presents multiple choices for families between different kinds of voting rights for the shareholders and the family business. In addition to that, it comes with a new structures to allow companies to either divide or to merge and enhance the new structures for acquisitions and set the way for families and family businesses to become more organised and governed plus it will allow them to become compliant with the requirements of the capital markets authority which will ease the process for the family businesses to become listed on the Saudi Stock Exchange.”

The new law also reduces the legal requirements and procedures for small and medium enterprises and simplifies the procedures for establishing companies. Under the new law, many restrictions in the incorporation, practice and exit phases and restrictions on company names have been removed.

This new legislation is a significant achievement for the National Center for Family Businesses (“NCFB”), and all involved should be congratulated for their work in recent years to bring this important new law to fruition. Apex Group’s clients have welcomed the announcement of the new law, heralding a refreshed environment for family-owned businesses in the Kingdom, post-pandemic. Governance, succession planning and the separation of the business assets from those held privately, all persist as priority issues. The new law will give confidence to business owners and the next generation that their needs and wishes will be accommodated and have the support of lawmakers to make sure they are enacted.

Apex Group’s single-source solution includes services such as independent trusteeship, directorships, council members so that families are rest assured that a global well respected international company is independently managing the family wealth and business. We are experts in helping businesses of all sizes to navigate changing regulatory landscapes, and to identify and seize the opportunities created by new legislation.

To learn more about how Saudi Arabia’s new Companies Law could impact you, or to understand how Apex Group can support your family business or office, contact us.


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