Partners and joint ventures in Saudi Arabia: structures, diligence and pitfalls

International companies partner in Saudi Arabia for four main reasons: to qualify for tenders, to strengthen local-content and Saudization positions, to register with state-owned buyers, and to reach customers faster than they could alone.

Common structures

• Limited liability company: the most common joint-venture vehicle. By default, amending the articles needs partners holding at least 75% of the capital, so a minority partner’s protections must be written in
• Closed joint stock company: easier share transfers
• Simplified joint stock company: introduced in 2023, with no minimum capital and flexible governance
• Consortium bid: partners bid jointly for a tender and are jointly and severally liable to the buyer, with a named lead member. Members allocate that exposure between themselves through a clear scope split, cross-indemnities and parent-company guarantees

What the 2023 Companies Law changed

Partner and shareholder agreements are now binding and can be built into the articles of association. Drag-along and tag-along rights are recognised, arbitration clauses are allowed for disputes among partners and managers, and directors have express duties of care and loyalty.

Two practical points follow. The articles filed with the Ministry of Commerce are in Arabic, so the Arabic text must say what the English term sheet agreed. And anything you rely on, from reserved matters to exit rights, belongs in the articles as well as the shareholders’ agreement.

Designing for deadlock

Agree the ladder before you need it: escalation to senior executives, then mediation or expert determination, then arbitration. Buy-sell, put and call options are widely used, but how Saudi courts treat them is less settled, particularly in an LLC, so test each one with counsel and prefer the joint stock forms where they matter. Information rights deserve the same care: monthly management accounts and access to the books, not just audited annual statements.

Where deals go wrong

• Vague governance: unclear reserved matters, deadlock mechanisms and control
• Put and call options whose enforceability depends on the entity type
• No non-compete, which does not apply by default
• Intellectual property left unallocated
• Information rights limited to audited accounts
• Nominee or “front” arrangements, illegal under the Anti-Concealment Law, with penalties of up to five years’ imprisonment and SAR 5 million

Due diligence before introductions

Partner diligence should cover ownership, beneficial owners and related parties; sanctions, politically exposed persons and anti-bribery exposure, including the UK Bribery Act and the US FCPA where they reach you; classification and track record; financial standing, litigation, reputation and conflicts; and the partner’s own local-content and Saudization position. It is far cheaper before a term sheet than after.

Merger control and disputes

A joint venture may need to be notified to the General Authority for Competition. Under the 2025 guidelines the tests are cumulative: combined worldwide turnover above SAR 200m, the target’s worldwide turnover above SAR 40m, and the parties’ combined turnover in Saudi Arabia above SAR 40m. The regime is suspensory: the deal cannot close before clearance, and review takes up to 90 days from a complete filing, extendable by 45, so build it into the timetable. For disputes, arbitration is common, and Saudi courts rejected nearly 90% of applications to annul arbitral awards between 2023 and 2025.