How to Establish a Family Business and Choose the Most Suitable Legal Structure in Saudi Arabia?
Family enterprises are part of the global economic landscape. They are run by families who pass ownership across generations and enjoy advantages over non-family enterprises due to shared values and mutual understanding.
According to data from the National Center for Family Enterprises, family businesses represent 95% of all companies in Saudi Arabia, making them a key pillar of the Saudi economy.
In this article, Salamah Law Firm will explain how to establish a family business and choose the most appropriate legal structure in Saudi Arabia.
What is a Family Business?
The Companies Law does not provide a specific definition for family businesses. Instead, it is left to legal scholars and the judiciary to formulate legal definitions.
Jurisprudence defines a family business as a company that is family-owned, where the family controls a majority of the voting shares, or has influence over the board of directors, including the ability to appoint the CEO.
A company is generally classified as a family business when:
- A majority of ownership is held by the company’s founder, a family member, or an acquirer from the same family.
- The family plays an active role in the company’s management.
The Global Family Business Index defines a publicly listed family business as one in which the family holds 32% or more of the voting rights.
What is the Legal Form of a Family Business?
The Saudi Companies Law restricts the legal forms of companies to the following five types:
- General Partnership
- Limited Partnership
- Joint Stock Company (JSC)
- Simplified Joint Stock Company (SJSC)
- Limited Liability Company (LLC)
There are no legal restrictions preventing a family business from adopting any of the above forms.
However, most family businesses in Saudi Arabia take the form of an LLC, as this structure aligns more closely with the legal and social realities of Saudi families.
Others adopt the Closed Joint Stock Company model, which emerged in practice before being formally recognized by law.
The new Companies Law includes specific provisions for Closed Joint Stock Companies, as they are increasingly seen as a suitable option for many family businesses.
How to Choose the Right Legal Structure for Your Family Business?
The Simplified Joint Stock Company (SJSC) is considered the most suitable form for Saudi family businesses due to its flexible legal features:
- Shareholders can design the company’s structure and operations in its articles of association.
- Shareholders take the place of both the ordinary and extraordinary general assemblies. The articles of association may assign these powers to any person or body.
- The President, Manager, or Board of Directors, as applicable, exercises all powers normally vested in a joint stock company’s board.
- The minimum capital requirement applicable to a JSC does not apply to an SJSC—there is no capital minimum.
- The management structure of an SJSC is determined in its articles of association. Management can be vested in a president, one or more managers, a board, or otherwise. The articles must specify how managers are appointed, dismissed, and the scope of their powers. In the absence of provisions, shareholders will assume these responsibilities.
- The President, Manager, or Board of an SJSC—whichever applies—has the broadest authority to manage the company to achieve its objectives, except where the law or articles reserve specific powers to shareholders. These authorities may be delegated.
- The President or other authorized representative of the SJSC represents the company before courts, arbitration tribunals, and third parties. Delegation of this power is possible if permitted under the articles.
- The company is bound by the acts of its President, Manager, or Board—even if such acts fall outside their scope of authority—unless the other party acted in bad faith or knew of the limits of authority.
Thus, the Simplified Joint Stock Company is the most appropriate structure for family businesses—particularly because of its flexibility in exit strategies, share transfers, liability limitations, and management structures.
Establishing a family business and choosing the appropriate legal structure—or preserving its continuity—is a strategic step toward enhancing legal and financial stability, facilitating growth and investment opportunities.
Such businesses benefit from stronger legal credibility, greater expansion potential, and financial and regulatory autonomy that enhances their competitiveness both locally and globally.
For this reason, Salamah Law Firm provides a professional legal team specializing in the establishment and development of family businesses.
Our extensive experience in corporate law enables us to offer high-quality, integrated services tailored to the client’s best interests and long-term sustainability.
Don’t hesitate to contact us.
