Holding and Subsidiary Companies Under the Saudi Companies Law (1443H): A Comprehensive Guide

The Saudi Companies Law has undergone a major legislative transformation in recent years, driven by the Vision 2030 objectives of enhancing the competitiveness of the business environment, developing corporate structures and achieving the highest levels of transparency and governance in both the public and private sectors. With the growing importance of holding companies as a strategic investment tool, whether through the Public Investment Fund or private groups, it has become essential to understand the legal framework governing the relationship between the holding company and the subsidiary. In this article Shehab Alsaleh Lawyers & Legal Advisors provides a comprehensive explanation of the definitions, types, statutory restrictions and key differences between them under the new Companies Law.

1. Definition of a Holding Company Under Saudi Law

Article 216 of the Companies Law defines a holding company as:

A joint stock company, simplified joint stock company or limited liability company that establishes companies or owns shares or interests in existing companies, which become its subsidiaries.

The legislator therefore did not create a new, independent legal form; the holding company is a functional description that applies to any company (joint stock, simplified joint stock or LLC) that controls or invests in other companies.

The Strategic Role of Holding Companies in the Kingdom

Holding companies are among the most important tools for implementing Vision 2030, contributing to:

  • Managing large investment portfolios
  • Diversifying income sources and spreading risk
  • Integrating subsidiaries across multiple sectors (real estate, retail, energy, technology, etc.)
  • Strengthening governance and reducing financial risk

2. Types of Holding Companies in Saudi Arabia

Public Holding Company (Government or Semi-Government)

The State or one of its entities holds the majority stake; often used for strategic projects (infrastructure, energy, transport, urban development).

Private Holding Company

Established by individuals, families or private investors to diversify investments, protect family assets, or manage a group of companies in real estate, retail, contracting and services.

Mixed Holding Company

Jointly owned by the State and the private sector (or foreign investors), combining commercial and national objectives, and usually subject to government oversight of key decisions.

3. Statutory Restrictions on Cross-Ownership

Article 218 of the Companies Law sets strict rules to prevent abuse of control structures:

  1. A subsidiary may not own shares or interests in its holding company; any such disposition is void.
  2. If the subsidiary owned shares before becoming a subsidiary, it must:
    • Not vote those shares in the holding company
    • Dispose of them within 12 months (extendable by decision of the competent authority)
  3. Entities licensed under the Capital Market Law (such as investment funds) are exempt.

For the full text of the Companies Law: Laws portal – Bureau of Experts

4. Definition of a Subsidiary

Article 217 provides that a company is a subsidiary if any of the following applies:

  1. The holding company holds the majority of its voting rights
  2. The holding company controls the appointment or removal of the majority of its board members or its manager
  3. The holding company controls the majority of voting rights by agreement with other partners/shareholders
  4. The company is a subsidiary of another subsidiary of the holding company (chain control)

5. Key Differences Between Holding and Subsidiary Companies

Criterion Holding company Subsidiary
Control Owns or controls the subsidiary Subject to the holding company’s control
Main activity Managing investments, setting general policies, oversight Direct operating activity (production, sales, services)
Source of income Dividends and investment returns Operating revenue
Liability for debts Limited to its capital contribution Independently liable for its own debts (with rare exceptions)

6. Why Regulating the Holding–Subsidiary Relationship Matters

The Law aims to:

  • Prevent cross-ownership and manipulation of financial statements
  • Protect minority partners’ rights
  • Require the holding company to prepare consolidated financial statements
  • Enhance disclosure of related-party transactions
  • Ensure effective governance of the group as a whole

Shehab Alsaleh Law Firm’s Services in Structuring Holding and Subsidiary Companies

As economic groups in the Kingdom grow in size, compliance with the statutory provisions becomes essential for sound corporate structuring and sustainable growth. Shehab Alsaleh Law Firm provides specialized services in:

  • Structuring holding and subsidiary companies
  • Drafting shareholders’ agreements and group governance
  • Preparing the required consolidated statements and disclosures
  • Establishing and amending companies in line with the latest amendments

For specialized advice on establishing or restructuring your group of companies, contact us through our contact page.