For business leaders eyeing expansion into Saudi Arabia, understanding the local corporate governance landscape is essential. Effective governance ensures compliance, minimizes risks, and supports sustainable growth—crucial elements for any company structuring its operations in the region. Saudi Arabia’s regulatory framework offers a structured yet flexible approach, balancing mandatory rules with voluntary guidelines. This blog explores the key corporate governance regulations in Saudi Arabia.
Corporate governance in Saudi Arabia draws from three principal sources, each shaping how companies operate depending on their structure and listing status. The Companies Law serves as the backbone, applying to all entities incorporated in the Kingdom, from startups to multinationals. It sets the baseline for legal obligations, ensuring every business adheres to a consistent standard.
For joint stock companies (JSCs) listed on the Saudi Stock Exchange (Tadawul), the Corporate Governance Regulations issued by the Capital Market Authority (CMA) add a layer of oversight. These rules are binding for Tadawul-listed firms, emphasizing transparency and accountability—key concerns for executives managing investor relations. JSCs on the Saudi Parallel Market (Nomu), however, treat these as optional guidelines, offering flexibility for smaller or emerging players.
Meanwhile, the Ministry of Commerce (MOC) issues Corporate Governance Regulations for non-listed companies. Expressed as voluntary recommendations, these provide a roadmap for best practices without the force of law. For business leaders, this mix of mandatory and optional frameworks means corporate governance in Saudi Arabia can be tailored to your company’s size, goals, and market presence—a nuance Peninsula’s experts leverage to streamline business setup in Saudi Arabia.
Foreign investors typically choose between two entity types when establishing a presence in Saudi Arabia: limited liability companies (LLCs) and joint stock companies (JSCs). Each comes with distinct governance requirements, impacting how you structure leadership and decision-making.
In an LLC, shareholders hold the reins, exercising control through the company’s articles of association (AOA). This document outlines the company’s purpose, ownership, and operational rules—think of it as the company’s constitution. Some shareholders opt for a separate shareholders’ agreement to clarify their rights and obligations, though this binds only them, not third parties like suppliers or regulators.
Unlike JSCs, an LLC doesn’t require a board of directors. Instead, it must appoint at least one manager, whose powers are defined by the AOA or specific shareholder directives. Typically, managers handle day-to-day operations—signing contracts, managing staff, or representing the company in routine dealings. For executives prioritizing simplicity in business setup in Saudi Arabia, an LLC offers agility, making it a popular choice for SMEs entering the market.
JSCs, whether listed or non-listed, operate under a more formal structure, governed by their by-laws. While a non-listed JSC can technically have a single owner, multi-shareholder setups are the norm. Like LLCs, shareholders may draft a separate agreement, but the by-laws remain the public-facing rulebook.
Decision-making splits between two bodies: the ordinary general assembly (OGA) and the extraordinary general assembly (EGA). The OGA handles most company matters—approving financials, appointing directors—while the EGA tackles major changes, like amending the by-laws. This division ensures strategic shifts get the scrutiny they deserve, a safeguard executives will appreciate when scaling operations.
Every JSC must have a board of directors, with a minimum of three members, tasked with managing the company within the scope set by the by-laws or assemblies. For listed JSCs on Tadawul, additional oversight comes via mandatory committees: audit, remuneration, nomination, and risk management. Non-listed JSCs and those on Nomu face lighter requirements, offering flexibility for firms not yet ready for full regulatory rigor.
Understanding corporate governance in Saudi Arabia also means knowing what’s required to stay in good standing. For non-regulated companies—those not under CMA scrutiny—holding one board meeting annually, with documented minutes and actions, keeps governance on track. This minimalist approach suits LLCs or smaller JSCs focused on operational efficiency.
For regulated entities, particularly Tadawul-listed JSCs, the CMA imposes stricter standards. Requirements vary by industry—financial firms face tighter rules than manufacturing outfits, for example. Peninsula’s team, with 15 years of navigating these nuances, helps executives align governance with their sector’s demands.
For executives steering expansion into Saudi Arabia, mastering these regulations isn’t just about compliance—it’s about building a resilient operation. The Companies Law, CMA, and MOC frameworks provide structure, but their flexibility lets you adapt governance to your business model. Whether opting for an LLC’s streamlined management or a JSC’s robust oversight, the right setup enhances credibility with local partners, regulators, and investors.
Peninsula brings deep regulatory knowledge and practical acumen to this process. Having supported entrepreneurs, SMEs, and multinationals across the UAE and Saudi Arabia for over a decade, our team excels at simplifying business setup in Saudi Arabia. From entity formation to licensing, we ensure your governance aligns with local rules while supporting your strategic vision—think of us as your bridge to the Kingdom’s opportunities.
Alistair Paine brings 15 years of dedicated experience in Saudi market entry, guiding Fortune 500 companies and innovative scale-ups through successful establishment in the Kingdom. His expertise in Saudi company formation, licensing and market entry strategy, positions him as a leading authority and consultant in international business expansion to Saudi Arabia.
Schedule a free consultation with Alistair and the Peninsula team to understand which Saudi market entry strategy is best suited to your business.
Email: Alistair@peninsulacs.com
