Family businesses | How are they managed successfully?

Family businesses | How are they managed successfully?

Family businesses are one of the most widespread forms of businesses in Saudi Arabia, and their success often begins with a family spirit and grows through joint efforts.

However, it may face real challenges in the absence of clear organization. The mixing of family relationships with day-to-day management may lead to conflicts of authority, delayed decisions, and even the emergence of disputes that threaten the continuity of the company. 

Hence the importance of managing family businesses in an organized manner based on distributing roles, setting clear rules for decision-making and ensuring stability and growth across generations.

Family businesses are companies that consist of a group of shareholders from the same family, with the individual contributing a percentage of the company’s capital.

The company is fully family owned and all individuals participate in its management and supervision of the company’s business. 

Family companies can take any type of company stipulated in Article 11 of the new companies system, the most famous of which are the joint-stock company, the simplified joint-stock company, the holding company, and others.

Family businesses | How are they managed successfully?

How do family businesses work?

Family businesses in Saudi Arabia are managed through the regular general assembly within the company, which, according to Article 7 of the Family Businesses Charter, is responsible for carrying out the following activities:

• Appointing and dismissing a company director and board members.
• Licensing that a member of the Board of Directors have a direct or indirect interest in the work and contracts conducted on behalf of the company in accordance with the provisions of the Companies Law.
• Authorizing a member of the Board of Directors to participate in work that would compete with the company in a manner that does not violate the provisions of the system.
• Monitoring the extent of Board members’ compliance with the provisions of the new Companies Law and its executive regulations.
• Considering the violations of the Board of Directors and the damages resulting from them, determining the liability arising therefrom, and taking appropriate action.
• Forming a review committee.
• Approval of the company’s financial statements.
• Approval of the Board of Directors’ report.
• Choose the appropriate proposal from the Board of Directors’ proposals regarding the distribution of net profits.
• Appointing the company’s auditors, determining their remuneration, and approving their reports.
• Considering violations and errors committed by the company’s auditors and taking the necessary action against them.
• Make the decision you deem appropriate about the company’s reserves.
• Approval before issuing a decision to sell more than 50% of the company’s assets.

“Managing family businesses and organizing their businesses requires specialized legal expertise to ensure business success and avoid disputes.

What is a family business charter?

What is a family business charter?

The Ministry of Commerce issued the Guidance Charter for Saudi Family Companies PDF, which is concerned with regulating commercial relations between family members within the company and includes the wills of the founders, regulates the transfer of ownership in family companies, the method of managing them, their work policy, the standards for employing family members, the mechanism for distributing profits and shares, and determines the controls for considering violations and settling disputes.

Objectives of the Family Business Charter in Saudi Arabia 

• Educating family members about their rights and obligations in the company.
• Maximize the company’s value and grow its business.
• Balancing the interests of the company and the interests of family members.
• Contributing to serving the national economy and society.
• Maintaining the company’s reputation and commercial standing as a legacy for the family and subsequent generations.
• Encouraging family members to work and diversify sources of income to reduce their dependence on the company as their sole source of income.
• Commitment to transparency and clarity in family member relationships within the company.
• Separate personal disputes that arise between family members from the company.

What makes a family business successful?

Family businesses in Saudi Arabia are distinguished from other companies in that they are managed by family members, and the company is considered an integral part of them. The primary goal of establishing a family company is to carry out commercial or craft work that family members master and these experiences are passed on through new generations.

Family businesses | How are they managed successfully?

Don’t leave the future of your family business to chance! A lawyer specializing in commercial cases from the office of Lawyer Abdul Majeed Al Rashid provides a variety of legal services, including:

• Drafting commercial contracts professionally.
• Preparing and reviewing the family business charter and organizing the powers and obligations of the parties to it.
• Resolve commercial and financial disputes quickly and effectively.
• Legal consultations for establishing companies and complying with the Saudi system.
• Legal planning for business continuity and protection of shareholders’ rights.

“The continuity and growth of your family business begins with a sound legal and business plan. Contact the lawyer’s office