The Guiding Charter for Saudi Family Businesses, issued recently by the Ministry of Commerce and Investment, is one of the recent regulations designed to ensure the continuity of these companies, protect rights, and resolve disputes among partners, with the aim of strengthening the values of the business family, achieving the companies’ objectives, and growing their businesses within an institutional framework that supports their expansion and increases their chances of success.
Regulation of Family Ownership in the Company
The Guiding Charter is a family document with a commercial purpose, primarily intended to regulate family ownership within the company; it constitutes one of the company’s records, reflecting the value the company holds for the family, The charter governs relationships among family members, incorporates the founders’ wills and wishes, regulates the transfer of ownership among family members in family-owned companies and the criteria for employing family members in the company, and establishes guidelines for resolving disputes that may arise.
The charter aims to maximize the company’s value and grow its business; educate family members about their rights and obligations; strike a balance between the interests of family members and those of the company; and strengthen the bonds among family members to ensure the company’s development and success; to make the company a platform for the family’s ongoing contribution to the national economy and society, to encourage the independence of the company’s institutions and its executive team from the family, and to promote transparency and clarity in relationships among family members.
Key Features: Dividend Distribution Policy
The most important features of the charter include: regulating the roles of family members within the family business’s executive body, outlining the family business’s dividend distribution policy; and establishing mechanisms for shareholders to dispose of their shares and exit the family business, in order to avoid any disputes or discord among family members and to reassure the business family that ownership of their company will be preserved.
The process of drafting the charter aims to establish a written corporate governance framework and foster a shared, systematic understanding among family members regarding how to manage their business ownership now and in the future, It may also establish a regulatory framework that encourages non-family investors to join the company, provided that the charter is drafted to create an effective institutional framework that safeguards the rights of minority shareholders in the company.
Identifying Issues Leading to Corporate Weakness
Through the issuance of this charter, the Ministry of Commerce and Investment sought to identify issues that could lead to corporate weakness and the loss of a company’s capabilities and its tangible and intangible assets, It reviewed a number of international experiences and specialized studies to draw lessons from them, with the aim of developing a model that meets the needs of the Saudi family business community and opens avenues for implementing governance mechanisms within these businesses. The guiding charter presents selected provisions regarding the content of family charters.
