Holding company and subsidiary in the Saudi system

The Kingdom of Saudi Arabia is working to attract legal entities under a single entity with rules that are consistent with the Saudi system. Among the most important of these legal entities are holding and subsidiary companies. Holding companies control their subsidiaries financially and administratively. The Royal Commission clarified the controls for this under Royal Decree No. (M/132) dated 1-12-1443 AH, which we will discuss in this article.

The Concept of a Holding Company in the Saudi System

A holding company is a joint-stock company, a simplified joint-stock company, or a limited liability company that establishes companies or owns shares or stocks in existing companies to become its subsidiaries.

Conditions for a Company to be Considered a Subsidiary

A company is considered a subsidiary of a holding company if the conditions stipulated in the Saudi system are met, as stipulated in Article 217, as follows:

If the holding company is a partner or shareholder who owns shares or stocks in the subsidiary company's capital, granting it a majority of the voting rights therein. If the holding company is a partner or shareholder, it has sole control over the appointment of the director or the majority of the board members, or the power to dismiss the director or the majority of the board members.
If the holding company is a partner or shareholder, it has sole control over the majority of voting rights, based on an agreement with the remaining partners or shareholders.
If the subsidiary is a subsidiary of the holding company.
Requirements for Ownership of Shares in the Holding Company
Article 218 of the Saudi Law stipulates that:

A subsidiary may not own shares or stocks in the holding company, and any action that transfers ownership of shares or stocks from the holding company to the subsidiary is null and void. If the subsidiary owns shares or stocks in the holding company before becoming a subsidiary, the following must be observed:

The subsidiary shall not have the right to make or vote on decisions within the holding company.
The subsidiary shall dispose of these shares or stocks within 12 months from the date of its affiliation with the holding company, and the competent authority may extend this period.
This does not apply to persons licensed under the provisions of the Capital Market Law and its implementing regulations, if their ownership of shares or stocks in the holding company falls within the normal scope of their activity. The competent authority may determine other cases.

In conclusion,
we find that holding companies are one of the most important factors in economic recovery within the Kingdom. They work to integrate the capital of companies and individuals under a legal entity, creating numerous opportunities to achieve the Kingdom of Saudi Arabia's Vision 2030.

As a legal firm with legal expertise in the Saudi system and its provisions, we always strive to facilitate everything related to establishing holding companies within the Kingdom of Saudi Arabia for Arab and foreign investors. Therefore, Al-Saadani & Partners Legal Consultancy is pleased to be your partner in success and continuous development.