The Kingdom of Saudi Arabia seeks to gather legal entities under a classification compatible with the Saudi system; most important of these entities are the holding companies and subsidiaries. Holding companies control the subsidiaries financially and administratively; therefore, the Royal Commission specifies such control under Royal Decree No. (R/132) dated 01/12/1443 AH; which we shall discuss in detail in this article.

The Holding Company

The Holding Company is a joint stock, simple joint stock or limited liability company that establishes companies or holds equity stakes or shares in existing companies that become subsidiaries thereof.

Conditions for a company to become a subsidiary

The company shall become a subsidiary of a holding company; pursuant to Article (217) of the Saudi Company Law, in any of the following cases: 

1. If the holding company is a partner or a shareholder that holds equity stakes or shares in the capital of the subsidiary, which grants it the majority of voting rights. 

2. If the holding company is a partner or a shareholder, which, by itself, controls the appointment of the manager or the majority of members of the board of directors, or has the right to dismiss the manager or the majority of board members. 

3. If the holding company is a partner or a shareholder; which solely, controls the majority of voting rights, based on an agreement with the rest of the partners or shareholders. 

4. If the subsidiary is a subsidiary of a holding company’s subsidiary.

Holding Equity Stakes or Shares in the Holding Company

Based on Article (218) of the Saudi Company Law:

The subsidiary shall not hold equity stakes or shares in the holding company. Any action that transfers ownership of shares or equity stakes from the holding company to the subsidiary shall be null and void. If the subsidiary company holds equity stakes or shares in the holding company before becoming a subsidiary thereof, the following shall be observed:

1. The subsidiary shall have no right to make or vote on decisions in the holding company. 

2. The subsidiary shall disposes of such equity stakes or shares in the holding company within 12 months following the date of its subordination to the holding company, and the competent authority may extend such a time limit. 

3. The above items shall not apply to persons authorized by virtue of the provisions of the Capital Market Law and its Executive Regulations, if their ownership of equity stakes or shares in the Holding Company occurs within the ordinary course of their business activities. The competent authority may determine other cases where the provision of this Article shall not apply.

Conclusion:

Holding companies are vital for the recovery of the economy within KSA, as it aims to include the capital of companies and individuals under a legal entity; thus creating many opportunities to achieve the Saudi Vision 2030.

We always work hard as a legal institution with legal expertise in the Saudi Law and its provisions to facilitate regulations related to the establishment of holding companies within the Kingdom of Saudi Arabia for Arab and foreign investors. Al-Saadani and Khalifa Legal Consultations is always pleased to be your partner in success and continuous development.