Joint Ventures 2025 Comparisons

The Middle East has remained relatively stable over the past 12 months, with high levels of robust transactional activity, including joint ventures.

Recent joint ventures (JVs) focus on Vision 2030 sectors, particularly clean energy.

Many JVs focus on strategic industries and targets for Saudi Arabia, including food security, infrastructure, energy projects, information and communications technology – with a particular emphasis on data centres and digital technology.

The Kingdom of Saudi Arabia (KSA) strives to transition towards becoming a knowledge-based economy and a global AI leader, with initiatives including “One Million Saudis in AI” to empower a million Saudi nationals in artificial intelligence.

The typical JV entities seen in KSA are the limited liability company (LLC) and the closed joint-stock company (CJSC).

In addition, the new Saudi Companies Law, which came into force in January 2023 (the “Companies Law”), introduced the simplified joint stock company (SJSC) which is becoming an increasingly popular option for JVs. The SJSC takes features from both the LLC and the CJSC but generally affords shareholders more flexibility from a shareholding and management structure perspective. 

Unincorporated JVs are not common in Saudi Arabia because of the requirement to undertake business in KSA through a Saudi-registered legal entity that is properly licensed to carry out such business activities. In addition, under the Foreign Investment Law, any foreign investor wishing to do business in Saudi Arabia must have a MISA (Ministry of Investment) registration certificate before conducting commercial activities in the Kingdom.

Features of an LLC

The LLC is the most common legal form of company in Saudi Arabia, characterised as low-maintenance with a flexible management structure and limited liability for its shareholder(s). An LLC may engage in a full range of activities and projects in both the public and private sectors. One or more shareholders can form an LLC, and the shareholders may be a corporate vehicle or an individual. The shareholder(s) are liable for the debts and liabilities of the LLC only to the extent of their share capital (which must be fully paid up), unless a shareholder incorrectly values its in-kind share contribution, in which case they will be personally liable for the debts of the LLC.

An LLC has limited statutory governance requirements and can be managed by individual managers or by a board of managers (acting jointly or severally). Typically, the powers of the managers and the board are contained in the articles of association, but may also be supplemented by internal governance policies or delegation of authority matrices. Third parties are entitled to act on the basis that the managers and the board have the powers set out in the articles of association.

Transfers of shares between the shareholders of an LLC may be subject to such conditions and restrictions as specified in its articles of association, with each shareholder being entitled by statute to a pre-emptive right provided under the Companies Law. Share transfers need to be executed through the SBC and require an amendment to the articles of association which must be executed by all existing shareholders together with exiting and incoming shareholders.

LLCs may issue negotiable debt instruments (sukuk) with shareholder consent.

One of the key perceived limitations of an LLC is the requirement to have 100% approval for any matter(s) requiring a change to the articles of association, even where the law stipulates that a lower threshold applies. This is because, in practice, all existing shareholders, together with any exiting and incoming shareholders (if applicable), are required to execute any amendment to the articles of association before an office from the Saudi Business Center (SBC) or the Ministry of Commerce or a notary public. While this requirement may be seen as a disadvantage for majority shareholders, it affords minority shareholders significant protection.

Advantages

LLCs have flexible management structures and can be governed by a single manager, individual managers, or a board, with an optional general manager. Board meetings are unregulated, and may be held per shareholder determination in the articles. Only a limited number of matters require shareholder approval under the Companies Law, with other decisions delegated to the board and/or managers as deemed appropriate.

Shareholder meeting governance and quorum are determined in the articles of association (subject to any minimum Companies Law requirements).

The manner in which articles of association must be amended affords minority shareholders significant protections against dilution.

Disadvantages

LLCs cannot have different classes of shares. Share capital must be deposited in Saudi banks after incorporation. Share transfers require amendments to the articles, typically with the approval of all shareholder(s). Whilst advantageous for minorities, the lack of LLC governance requirements can cause shareholder disputes over interpretation of the manner in which the LLC is to be governed (in the absence of clear contractual provisions and/or clarity in the articles).

Features of a CJSC

CJSC incorporation is more complex and typically used by larger companies requiring capital market access (Tadawul or NOMU).

CJSCs have become increasingly popular, particularly for majority shareholders, due to the limited minority protections afforded.

A CJSC may be formed with any number of shareholders. Shareholders are liable for the liabilities only to the extent of their share capital, unless a shareholder incorrectly values an in-kind contribution, resulting in personal liability. The share capital of a CJSC must be at least SAR500,000, with 25% paid up upon incorporation, though the shares are typically fully paid up at inception. The remaining share capital must be paid up within five years (the shareholder(s) may agree the timing within this period).

A CJSC must have a board of at least three directors with a chairman. Directors are appointed by shareholders at an ordinary general assembly in accordance with the bylaws.

Directors are appointed for a specified term not exceeding four years. Directors may be reappointed unless the bylaws state otherwise.

The board must meet at least four times per year.

The ordinary general assembly may set aside net profit reserves for purposes specified in bylaws, per extraordinary general assembly resolution.

A CJSC may issue different classes of shares, noting that the rights for these shares are very limited, the details of which shall be set out in the company’s bylaws. The types of shares available pursuant to the Companies Law are common, preferred and redeemable shares. Holders of preferred and redeemable shares cannot vote on those shares, so they typically hold common shares to vote.

CJSCs may issue convertible debt instruments and sukuk.

Advantages

There is much more flexibility in the transfer of shares in a CJSC compared to an LLC. The CJSC is responsible for maintaining the shareholders’ register, meaning that the bylaws of a CJSC need not be amended for the transfer of shares (as with an LLC), and third party approvals are not required (although there may need to be other changes to the bylaws as a result of the transfer of shares – eg, changes to the management structure). From a majority shareholder’s perspective, the minority protection of reserving certain matters to be subject to the unanimous consent of the shareholders is not permissible in all circumstances for CJSCs (on the basis that there is a maximum quorum stipulated in the Companies Law for shareholder meetings – 50% for an ordinary general assembly and 66.6% for an extraordinary general assembly).

A CJSC may issue different classes of shares, including ordinary shares, preference shares, and redeemable preference shares, a feature not available to LLCs (noting that there are significant limitations around these different types of shares).

CJSCs have better capital access through share and bond issuance.

As noted, if an entity is proposing to list on Tadawul or NOMU, it must be a CJSC immediately prior to listing; therefore, if listing is an objective, the appropriate and required entity type is a CJSC.

Disadvantages

CJSCs have prescriptive governance with minimum board meetings, quorum, and voting thresholds. There is more regulatory oversight than LLCs. As noted above, the Companies Law prescribes the maximum quorum thresholds for shareholder meetings which cannot be exceeded, and any provisions to the contrary in a shareholders’ agreement or even in the bylaws will not be enforceable. This regularly presents a challenge for JVs where minority shareholders wish to ensure that their presence is required in order for there to be quorum at shareholder meetings. Whilst the maximum quorum is set under the law, there is flexibility to prescribe that certain reserved matters (as set out in the bylaws) are subject to specified approval thresholds (which can exceed the threshold stipulated in the Companies Law).

SJSC Features

The SJSC provides a middle ground between LLCs and CJSCs, with similar governance but lower capital requirements and flexible quorum requirements. Shareholders are liable for liabilities only to the extent of their share capital, unless in-kind contributions are incorrectly valued.

SJSCs have no minimum capital, and may be managed by managers or a board in accordance with the bylaws. Bylaws determine the quorum for assemblies and approval of resolutions.

Advantages

SJSCs offer governance flexibility. In addition, an SJSC may issue different classes of shares including ordinary shares, preference shares, and redeemable preference shares, a feature not available to LLCs. The class details are not restricted under the Companies Law, but this remains largely untested. SJSCs may have easier access to capital through the issuance of shares and sukuk.

Disadvantages

SJSCs lack specified governance requirements, creating potential shareholder disagreement. As new entities, they lack established precedents.

Choosing an appropriate joint venture vehicle (the “JVco”) in Saudi Arabia is primarily driven by strategic, legal and financial considerations, noting, of course, that these considerations will vary depending on whether a shareholder is a Saudi national or a foreign national, and whether the shareholder will be a majority or a minority shareholder. Desired management structure and board authority may determine entity type. While the dual system of corporate income tax for foreign investors and Zakat for Saudi nationals is relevant to the operations of the JVco, it is not a determining factor when considering the entity type, as the same treatment applies irrespective of the vehicle. That said, there are tax incentives available in special economic zones and priority sectors, subject to specific negotiation and agreement.

These factors should be balanced to ensure operational efficiency and legal compliance.

Key regulators include the following.

• Ministry of Investment (MISA) – this is central authority for foreign investment, licensing, and sectoral approvals.
• Ministry of Commerce (MoC) – this manages company registration, compliance, and enforcement of the Companies Law.

Joint ventures in Saudi Arabia are principally governed by the following statutory provisions.

• Companies Law (Royal Decree No M/3) and its Implementing Regulations – this law is the foundational legal framework that regulates the formation, operation, and dissolution of various company types, including those used for JVs. It also governs corporate actions such as mergers and acquisitions.
• Investment Law (Royal Decree No M/19) and its Implementing Regulations – this law governs foreign investments in KSA. It ensures equal treatment for foreign investors, provides key protections, and grants access to incentives. It outlines the compliance requirements for foreign entities, including registration, investor rights, and any sector-specific conditions.

Saudi Arabia has a comprehensive legal and regulatory framework to combat money laundering and terrorism financing. Key regulations that apply include the following.

• Anti-Money Laundering Law (Royal Decree No M/20 dated 05/02/1439H) – this is the principal law that defines money laundering offences, and sets out preventive measures and penalties for violations. The law is not limited to financial institutions but also applies to designated non-financial businesses and professions.
• Implementing Regulations to the AML Law (issued October 2017) – these provide detailed and prescriptive procedures for institutions to ensure compliance with the AML Law, including requirements such as customer due diligence, internal controls, record keeping, staff training, and the obligation to cooperate with regulatory authorities.
• Law on Combating Terrorism Crimes and Financing (Royal Decree No M/21 dated 12/02/1439H) – this law works in tandem with the AML Law to specifically address the financing of terrorism, establishing a legal basis for prosecuting offences related to terrorism financing.
• Implementing Regulations to the Law on Combating Terrorism Crimes and Financing – these clarify the scope of financial and commercial activities that are subject to monitoring for terrorism financing risks. They define reporting obligations for institutions and outline the procedures for the seizure and confiscation of assets linked to terrorism financing.

Restrictions on Cooperation with Joint Venture Partners

As a UN member, Saudi Arabia aligns with international sanctions regimes, particularly UN Security Council sanctions.

JV parties must conduct due diligence to ensure that participants are not subject to applicable sanctions, as breaches carry criminal liability, fines, and reputational damage.

National Security and Foreign Direct Investment Regulations

While Vision 2030 liberalised foreign investment, MISA reviews applications involving strategic infrastructure, defence, or sensitive technologies on national security grounds.

Article 9 of the Investment Law grants MISA the right to suspend foreign investments for national security reasons based on objective grounds consistent with international obligations.

The Investment Law distinguishes activities where foreign investment is excluded or conditioned. These “Excluded Activities” are further categorised as follows.

• “Prohibited Activities” – these are not open to foreign investment without prior approval from the Permanent Ministerial Committee for Examination of Foreign Investments (“FDI Committee”).
• “Restricted Activities” – foreign investors may engage in these activities only after meeting certain pre-defined conditions.

Restrictions on Foreign Participation and Specific Industries

The Saudi Foreign Investment Law operates on the principle of allowing foreign investors to participate in all economic sectors unless an activity is on the “Negative List”. While many sectors are now fully open to 100% foreign ownership, some still require a minimum level of Saudi participation, or have specific capital requirements.

In Saudi Arabia, JVs are subject to the provisions of the Competition Law and its Implementing Regulations, which are enforced by the General Authority for Competition (GAC). Under these rules, the formation of a JV will trigger a mandatory merger control filing if it meets various cumulative criteria, as follows.

• Full-function JV – the JV must function as an autonomous economic undertaking on a lasting basis.
• Joint control – the JV must be jointly controlled by at least two shareholders. The Economic Concentration Review Guidelines published by the GAC defines “control” as the ability of an entity to exert decisive influence over another entity, either individually or jointly, in relation to its strategic or operational decisions, including approving the budget, determining major investments, or appointing senior management.
• Then, if these criteria are met:
• the combined annual global turnover of the JV partners (at group level) must exceed SAR200 million;
• at least two of the JV partners must each have total turnover of over SAR40 million (at group level); and
• the combined annual turnover in the KSA of the JV partners must exceed SAR40 million.

If these conditions are met, a merger control filing must be submitted to the GAC and the GAC must have issued a clearance decision prior to the formation of the joint venture. If any of the thresholds are not met, filing is not mandatory; however, the parties may choose to submit a short-form filing to obtain a “no notification required” certificate for legal certainty.

Listed companies participating in JVs in Saudi Arabia are subject to specific regulatory and disclosure obligations, particularly under the oversight of the Capital Market Authority (CMA) and in accordance with the Companies Law. They must comply with CMA regulations, which include disclosure of material events, such as entering into a joint venture agreement (JVA). If the JV is involved in a related party transaction, this must be disclosed and approved by shareholders. Listed companies must also maintain robust governance structures in JVs, including board representation and internal controls.

Saudi Arabia has recently implemented comprehensive requirements for the disclosure of Ultimate Beneficial Owners (UBOs). The Minister of Commerce issued Decision No 235 on 12/02/2025G, which sets out new notification requirements for UBOs of companies, which took effect on 03/04/2025G and applies to all companies with the exception of those listed on Tadawul.

The UBO decision aims to enhance transparency and create a UBO registry database.

A natural person is considered a UBO if they meet any of the following conditions:

• they have direct or indirect ownership of 25% or more of the share capital;
• they have direct or indirect control of 25% or more of the voting rights;
• they have the authority to appoint/remove management, board majority, or president;
• they have the ability to influence company operations or decisions; or
• they are a legal representative of a legal entity that meets any of the criteria listed above.

Otherwise, the manager, board member, or president is deemed to be the UBO.

• New companies – these must disclose UBO information when applying for incorporation.
• Existing companies – these disclose UBOs to the Ministry of Commerce (MoC) within one year from the date of the company’s registration in the Commercial Register.
• Internal register – companies are required to prepare and maintain a special internal register containing UBO information and supporting documents.
• Updates – companies must submit a request to the MoC to update their disclosures within 15 days of any change or amendment.
• Annual confirmation – an annual confirmation of the continued accuracy of disclosures must also be submitted to the MoC.

Required UBO information includes the name, IDs and contact details for the UBOs. The MoC maintains a confidential UBO Register accessible only to government authorities.

Certain companies are exempt from UBO disclosure requirements, specifically those whose entire share capital is owned by the state or one of its legal entities; companies undergoing liquidation procedures under the Bankruptcy Law; and companies specifically exempted by the Minister of Commerce.

Non-compliance with disclosure and confirmation requirements triggers penalties.

Saudi Arabia has introduced key legal reforms enhancing the business environment.

The four the most significant legal developments are as follows.

• New Investment Law – this replaces the previous Foreign Investment Law and creates a unified framework for both local and foreign investors. It introduces the principle of equal treatment; replaces the licensing requirement with a simplified registration process; and provides enhanced protections for investors. The Law also establishes mechanisms to suspend foreign investment for national security reasons.
• New Law of Commercial Registration – this Law and the accompanying Companies Law streamline the procedures for registering, updating, and cancelling commercial records. It introduces a fully digital registration system; sets clear timelines for amendments; and improves transparency by linking commercial registration data with other government platforms, thereby reducing administrative burdens for all types of companies, including JVs.
• Law of Trade Names – this regulates the reservation, registration, and protection of trade names. It allows trade names to be composed of either Arabic or English words and treats them as commercial assets that can be transferred or sold. The Law introduces stricter controls to prevent name duplication and infringement, and establishes a formal process for appeals and dispute resolution.
• Ultimate Beneficial Ownership (UBO) Rules – these rules require most companies to disclose their UBOs to the Ministry of Commerce. Companies must register UBOs during incorporation, maintain updated records, and report any changes. These rules aim to enhance corporate transparency, combat financial crimes, and align with international standards.

Prior to the JVA, parties may enter into:

• a non-disclosure agreement (NDA) covering the intention of the parties to enter into the JV and to negotiate the JVA, and potentially granting an exclusivity period to do this; and
• heads of terms outlining key JV terms and principles.

While optional, an NDA is recommended to protect confidential information.

The approval of the GAC should be sought after the definitive JVA has been entered into between the parties but prior to finalising the incorporation of the JVco (see 5.3 Conditions Precedent, Material Adverse Change and Force Majeure for further information relating to the application to be made to the GAC).

In Saudi Arabia, JVAs typically include a series of conditions precedent which can be broken down into the following categories: (i) regulatory conditions; and (ii) commercial conditions.

The typical regulatory conditions that must be satisfied before the JVco can be established include:

• obtaining a MISA registration certificate where there will be foreign ownership in the capital of the JVco;
• reserving the name of the JVco;
• applying for and obtaining a waiver from the GAC in connection with the establishment of the JVco;
• obtaining any necessary sector-specific permits or approvals, such as licensing from the Saudi Central Bank (SAMA), the Saudi Food and Drug Authority (SFDA), the Ministry of Health (MOH), etc;
• SBC/MoC approval of articles or bylaws; and
• execution of articles or authentication of bylaws (post-GAC approval).

In the case of a CJSC or a SJSC, a bank account for the entity under incorporation must be established and one or more of the shareholders must deposit at least 25% of the share capital into it. Once the commercial registration certificate (CR) for the JVco has been issued, the bank account will be converted into a fully operational account.

For LLCs, 100% of the capital must be deposited prior to CR issuance.

Commercial conditions can vary, depending on:

• the negotiation of certain commercial agreements that may support the JV; and
• the contribution of certain assets to the JV/JVco.

After establishment of the JVco, a Municipality License (Balady) must also be obtained by the entity, demonstrating the adequacy of its physical office, as well as a Civil Defense approval to certify compliance with building safety standards.

The JVco must also be registered with the General Organization for Social Insurance (GOSI) for the social insurance of its Saudi and non-Saudi employees, and with the Zakat, Tax and Customs Authority (ZATCA), as VAT registration is mandatory once annual turnover reaches a certain threshold. Additionally, compliance with labour laws and Saudisation requirements is essential, especially for a JVco with foreign investors. These conditions collectively ensure that the JV is legally sound, financially viable and operates in compliance with local laws in KSA.

Material Adverse Change (MAC) and force majeure provisions are increasingly common features of JVAs in Saudi Arabia, particularly in light of evolving global circumstances.

A MAC clause typically allows a party to withdraw from or renegotiate the JVA in the event of a substantial deterioration in the business, financial conditions, or regulatory status of the other party or the opportunity the JV is looking to achieve (this may include, for example, the failure to satisfy certain conditions). Such clauses must be drafted with the utmost clarity to avoid any uncertainty, as contractual ambiguity (gharar) is prohibited under Sharia law.

Force majeure provisions, while not specifically codified in Saudi statutory law, are recognised through the Sharia principles of Ja’eha (calamity) and Uthur (valid excuse), which permit the suspension or termination of contractual obligations where unforeseen events render performance impossible or excessively onerous.

Saudi courts have affirmed these principles, reducing or suspending obligations where appropriate.

In particular, where a JVA will be governed by Saudi law, it is important that parties to a JVA ensure the careful and precise drafting of MAC and force majeure clauses, as alignment with Sharia principles is essential.

JVs are typically formed as LLCs or JSCs.

LLC establishment includes the following.

• Foreign investment registration with MISA – this is a mandatory first step, and MISA will issue an investment registration certificate granting permission to invest and operate a business.
• Articles of association – the founding document must be drafted and submitted to the SBC for approval.
• Signing – approved articles are signed by all shareholders.
• Commercial registration – CR is obtained from the SBC, establishing the JV as a legal entity.

Foreign Entities and Capital

Saudi Arabia permits up to 100% foreign ownership, though strategic sectors may require Saudi participation.

Generally, no minimum capital requirements apply, although certain activities may impose minimums.

Typically, a JVA will be entered into prior to the incorporation of the JVco and will deal with:

• the period between signing and completion (defined in the JVA and generally linked to the incorporation of the JVco); and
• the period after completion.

JVA terms typically include the following.

• Incorporation of the JVco and all related conditions.
• Termination of the JVA prior to completion.
• Roles and responsibilities of each shareholder, including any specific contribution they are expected to make.
• Governance and management of the JVco – this will be tailored to the selected JVco, noting that, in reaching agreement on the governance and management of the JVco, the shareholders need to be advised on, and have regard to, the applicable legal and regulatory requirements/constraints of the different entity types – eg, the board of a CJSC must consist of at least three members.
• Shareholders must determine the power and scope of the management structure – eg, investigating whether all matters other than those expressly referred to them sit with the board or whether the board has a more limited function. In addition, decisions to be taken by management – eg, do matters reserved to the board require more than simple majority approval, and, if so, which approval thresholds apply? – will need to be considered and tailored with regard to board composition and shareholding structure. This will also be relevant when considering deadlock provisions.
• Funding of the JVco – both initial funding of the JVco and future funding. For example, what is the funding waterfall; are the shareholders obliged to fund; will a shareholder be diluted if they do not fund; is the concept of emergency funding relevant? Should security be given by shareholders in connection with any debt taken out by the JVco?
• Preparation and approval of a business plan and annual budget.
• Share transfers to include any lock-up period, permitted transfers, drag-along or tag-along rights, put and call options (noting that there are certain enforceability challenges regarding these).
• Compliance obligations (to include anti-corruption and anti-money laundering obligations and ESG requirements).
• Confidentiality.
• Restrictive covenants – including non-compete and non-solicitation provisions (which may also be drafted as applying for a period after a shareholder exits from the JVco).
• Tax – especially where there will be a mix of corporate income tax and Zakat payable in respect of the JVco.
• Intellectual property – both the contribution of any IP by a shareholder and the development and ownership of IP as part of the JV.
• Termination of the JV – covering both termination and exit in a default scenario and termination where the shareholders agree to liquidate the JVco and wind up the JV’s operations.
• Governing law and jurisdiction – noting that the approach will vary from JV to JV.

Considering that a one-size-fits-all approach will not be appropriate, the following factors will be relevant in determining how decision-making will be undertaken by and relating to the JVco.

• The entity type of the JVco – eg, a CJSC must have a board of at least three directors whereas an LLC can be run by individual managers (although it is typical for a JV being conducted through an LLC to have a board).
• Number of shareholders.
• Shareholding split.
• The level of involvement the shareholders wish to have versus the role and responsibility of the board and the decision-making split between the shareholder and the managers/board.
• Whether or not, if there is a board chairman, they will have a casting vote.
• Whether the board composition should reflect the ownership structure of the JVco or the way in which the JVco will be managed and operated; whether a shareholder should have an entrenched right to appoint a certain number of directors or managers, or whether that right should be linked to and proportionate to their shareholding from time to time.
• Approval of everyday matters (simple majority) versus strategic and commercially important matters (higher approval thresholds), which may include different thresholds depending on the significance of the matter and the shareholder composition of the JVco.
• The delegation of any authority to senior management team members, whether through transfer of authority or otherwise.
• Whether it is appropriate to create board committees and, if so, should their composition reflect the board structure in place from time to time.

Thought should be given to how any subsidiary of the JVco should be managed – eg, should this be left to the discretion of the board at the time, or should the management arrangements application to the JVco be replicated for any subsidiary.

Typically in KSA, JVcos are funded through cash (based on the funding timings set out above) and the shares must be paid up (CJSCs and SJSCs are permitted to deposit a minimum of 25% on incorporation, with the balance to follow).

Debt funding supplements cash funding, but is less common.

Common future funding approaches include the following.

• JVcos to be funded from cash flow.
• If needed, financing obtained from financial institutions with shareholder approval.
• If the company is unable to secure third-party funding, or the terms of the third party funding are determined not to be in the best interests of the JVco, then the board/management can request that the shareholders fund the business. In this scenario, the shareholders may agree that they are obliged to fund, and a failure to do so would be a breach of the JVA. They might alternatively agree that they have a right but not an obligation to fund, and that any shareholder(s) opting not fund can be diluted. The parties may consider whether it is appropriate to include a funding catch-up right to the extent that there is a short delay in shareholder funding. In addition, the parties may consider including emergency funding terms in certain scenarios. Typically, in an emergency funding scenario, there is an obligation on all shareholders to fund, pro rata to their shareholding in the JVco.

Deadlocks typically arise when parties cannot agree on reserved matters. Escalation to senior management usually precedes resolution mechanisms. Where a deadlock cannot be resolved, resolution may include:

• maintaining pre-deadlock status quo; or
• using put/call options with fair value adjustments.

Whilst the status quo option appears simple and straightforward, the reality is that, if a deadlock has arisen and the senior management teams have been unable to resolve the matter, the relationship between the shareholders has likely broken down and one or more of the shareholders likely will not want to continue the JV. The failure to include an exit mechanism in this scenario could keep the shareholders stuck in an unhappy relationship.

Typically, an escalation or resolution mechanism and the resulting impact where a deadlock cannot be resolved is the same whether the deadlock arises at board or shareholder level.

It is common to see put and call options included as an exit mechanism where there is a deadlock but their enforceability varies between entity types, and these options must be further considered on a case-by-case basis.

Typically, the JVA, together with the constitutional documents, will be the only agreements governing the JV. However, in certain scenarios, other documentation is required to support the formation of the JV and/or the ongoing operation of the JV including:

• IP licence agreement;
• asset or share transfer agreement;
• lease agreement;
• secondment agreement; and
• services agreement.

Shareholders’ key rights include dividend entitlements.

A shareholder is entitled to receive a dividend pro rata to its shareholding. While the Companies Law does permit profit and loss distribution to vary from that shareholder’s shareholding in the JVco (although this must be justifiable), the Companies Law goes on to state that any agreement to deprive a shareholder of all entitlement to receive a dividend will not be enforceable.

Without contractual terms in the JVA, the shareholders would not automatically be entitled to receive information/documentation relating to the JVco, except for the audited financial statements. It should be noted that, notwithstanding a shareholder’s right to appoint managers or directors, those individuals will owe a duty to the JVco to maintain information as confidential and to act in the best interests of the JVco.

Accordingly, if shareholders wish to have access rights to information relating to the JVco, express provisions should be included in the JVA (noting that a shareholder with more than a 5% stake in a CJSC may request the inspection of the JVco if the board or auditor’s actions become suspicious).

Again, without contractual terms in the JVA, shareholders are not prohibited from competing with the JV whether in Saudi Arabia or otherwise. If and to the extent that the shareholders wish to ensure that other shareholders will not compete with the JVco, express provisions in this regard must be included in the JVA.

As indicated above, for each of an LLC, CJSC and a SJSC, a shareholder’s liability will be capped at its shareholding in the JVco (except in certain limited circumstances – eg, fraud). Of course, shareholders may agree to give contractual guarantees to financial institutions or other third parties, in which case the shareholders shall be liable to the extent of such guarantees.

As noted, a minority shareholder in a JV is generally viewed as having greater protection if the JVco is an LLC due, in large part, to the requirement for all shareholders to approve any amendment to the articles of association (noting, specifically, in relation to the exercise of a drag-along or tag-along right, subject to the terms of this right, the approval of all shareholders should not be required).

It is possible to include drag-along and tag-along rights in the articles of association or bylaws of all entities. If these provisions are properly developed, they will protect the minority shareholder on the sale of the majority shareholder(s)’ shares in the JVco.

Pre-emption rights protect shareholders and CJSC/SJSCs require bylaw provisions.

Additional minority protections include:

• reserved matters at shareholder level for capital alterations;
• board appointment rights for minorities; and
• entrenching information rights for shareholders in the JVA.

Under the Companies Law, a shareholder with more than 5% in a CJSC may submit a request to the competent judicial authority to inspect the JVco if the actions of the board or auditor become suspicious.

Parties have freedom in KSA to select the applicable governing law for their JVA and the jurisdiction and forum for any dispute that may arise.

Many parties (in particular non-Saudi parties) prefer to opt for a non-Saudi governing law (eg, English law) and arbitration (either in Saudi through the Saudi Center for Arbitration (SCCA) or outside of KSA). It is not typical for parties to opt for courts outside of Saudi Arabia as the dispute forum. Where the parties select Saudi law, there is no obligation to have the Saudi courts or SCCA as the dispute forum, and the parties may select an alternative such as the London Court of International Arbitration. However, it may be challenging to identify arbitrators and experts in foreign arbitration institutions who are well versed in Saudi law and can adjudicate or opine on issues under Saudi law.

If and to the extent that the JVA does not have clear provisions setting out the agreed forum and jurisdiction for disputes, there could, as in other jurisdictions, be a potential dispute as to the forum which might result in additional uncertainty and legal costs. It is also important to note that a court in KSA would not apply a foreign substantive law when resolving a dispute; instead, it would apply KSA law regardless of any contrary choice of law by the parties.

The parties to a JVA are generally free to choose the dispute resolution mechanism that best suits their needs from arbitration, mediation, or litigation.

The KSA is a signatory of the Riyadh Arab Agreement for Judicial Cooperation and the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

The KSA is not a party to any treaties for the reciprocal enforcement of foreign court judgments with countries outside the Gulf Cooperation Council (GCC). As a result, enforcing in the KSA foreign court judgments originating from countries outside the GCC is generally difficult and uncertain, often requiring a fresh review of the case by Saudi courts under Saudi law.

Foreign arbitral awards are generally enforced under the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. However, enforcement may be refused in Saudi Arabia if the award is found to violate Saudi public policy or Sharia principles (eg, if it involves interest (riba) or contracts that are contrary to Islamic law).

Board structure is shaped by shareholding, strategic interests, and governance preferences.

The board is typically composed of representatives nominated by each shareholder, with the number of seats often reflecting the equity stake or negotiated influence of each shareholder. For example, in a 50:50 joint venture, each shareholder may appoint an equal number of directors, and governance documents may include mechanisms to manage deadlocks, such as the rotation of the chairman or casting votes. In complex or strategic joint ventures, boards may include independent directors to provide neutrality and balance.

Subcommittees (eg, audit, risk) are common, particularly in CJSCs, to enhance governance and operational efficiency.

The board structure and appointees should be tailored to the JV’s purpose, sector, and risk profile, and will be formalised in the articles of association or bylaws of the JV as well as being provided for in the JVA. These documents must comply with Saudi Companies Law and are often supplemented by detailed governance protocols to ensure clarity in decision-making and accountability.

The Companies Law includes explicit procedures and requirements governing the appointment and removal of directors or managers. For instance, directors and managers must be natural persons and cannot be legal entities.

In the context of an LLC, managers are appointed by the partners and may be removed by virtue of a partners’ resolution, and a manager who is also a partner cannot vote on their own removal. For CJSCs and SJSCs, directors are appointed and removed by the general assembly of shareholders, in accordance with procedures and voting thresholds reflected in the JV’s bylaws. All appointments and removals of directors or managers must be duly registered with the Commercial Register at the MOC to be legally effective (and directors will be listed on the JV’s CR).

On an ongoing basis, directors are required to disclose conflicts of interest, and failure to do so may result in their removal and liability for the individual.

In the event of misconduct or breach of duty by a manager or director, shareholders holding not less than 25% of the share capital are entitled to petition the competent court for removal of the director in question.

Directors/managers may also bear personal liability for damage incurred as a result of negligence or legal violations and companies may provide liability insurance to mitigate such risks.

Regarding the appointment of foreign individuals as directors, there are no blanket prohibitions against such appointments in corporate entities including JVs. Foreign nationals can serve on the boards of an LLC, a CJSC and a SJSC provided they meet the general eligibility criteria and the JV complies with all relevant licensing and regulatory requirements. In addition, practical limitations may arise depending on the sector, ownership structure, and regulatory body overseeing the company. For example, companies operating in strategic sectors (eg, defence, energy, etc) or those regulated by entities such as SAMA or the CMA may face additional restrictions, scrutiny or approval requirements. In practice, foreign directors are commonly appointed in JVs. These appointments must be properly documented in the ordinary way and registered with the Commercial Register of the MOC through the SBC. JVcos must ensure that foreign directors have the legal capacity to act in Saudi Arabia, which may include obtaining a residency permit (Iqama) if they are to be physically present and actively involved in management.

Weighted voting rights are not recognised under the Companies Law or Corporate Governance Regulations issued by the CMA. The prevailing legal framework emphasises equal treatment of shareholders and proportional representation based on shareholding. According to the CMA’s Corporate Governance Regulations, each shareholder has the right to nominate board members in proportion to their ownership. In practice, board control in joint ventures is achieved through: (i) board composition rights (ie, nominating a majority of directors); (ii) reserved matters requiring unanimous or supermajority approval; (iii) board chairman casting votes; or (iv) shareholder veto rights on certain key decisions.

In Saudi Arabia, directors and managers of companies, whether in standalone entities or JVs, are subject to fiduciary duties under the Saudi Companies Law. These duties have been developed to require directors and managers to act with care, loyalty and in the best interests of the company, even when they are appointed by a shareholder (it should be noted that an express set of directors’ duties were introduced in the Companies Law).

Directors and managers must exercise their powers independently and diligently, while avoiding any conflicts of interest and refraining from using their position for personal gain or to benefit third parties. Directors and managers are obligated to disclose any direct or indirect interest in transactions involving the company, and must abstain from voting on matters where such conflicts exist. They are also prohibited from engaging in competing business activities, and must not accept benefits that could compromise their impartiality. Failure to fulfil these duties can result in personal liability for damages caused by negligence, misconduct, or breach of fiduciary responsibilities.

Under Saudi law and common JV governance practices, a board may delegate certain functions to individual directors, subcommittees, members of the management team or third parties, provided such delegation is clearly defined and does not compromise the board’s overarching fiduciary responsibilities. Delegations to executives or individual directors or managers typically cover operational and administrative matters, while subcommittees (such as audit or risk committees) may be tasked with oversight functions under formal terms of reference.

Third-party advisors can be engaged for specialised tasks, but the board must retain the ultimate decision-making authority. Despite these delegations, directors and managers remain personally liable for any misconduct or negligence arising from delegated actions. It should be noted that there is a restriction on the ability to delegate key tasks, such as approving financial statements or major strategic decisions, and where there is a risk of either excessive delegation leading to loss of control.

The board in a JV is subject to statutory reporting obligations to its shareholders to ensure transparency and accountability. These include the preparation and presentation of audited financial statements within six months of the end of financial year, convening general assembly meetings to approve financial statements and discuss company performance, and disclosing any conflicts of interest or related-party transactions. Directors and managers must also report significant financial losses, particularly if they exceed 50% of the JVco’s capital, and propose remedial actions. Additionally, changes in board composition, director or manager remuneration and dividend distributions must be communicated to the shareholders for approval. Failure to comply with these obligations can result in personal liability for directors/managers including fines.

In Saudi Arabia, directors and managers of companies, whether in standalone entities or JVs, are subject to fiduciary duties under the Saudi Companies Law. These duties have been developed to require directors and managers to act with care, loyalty and in the best interests of the company, even when they are appointed by a shareholder (it should be noted that an express set of directors’ duties were introduced in the Companies Law).

Directors and managers must exercise their powers independently and diligently, while avoiding any conflicts of interest and refraining from using their position for personal gain or to benefit third parties. Directors and managers are obligated to disclose any direct or indirect interest in transactions involving the company, and must abstain from voting on matters where such conflicts exist. They are also prohibited from engaging in competing business activities, and must not accept benefits that could compromise their impartiality. Failure to fulfil these duties can result in personal liability for damages caused by negligence, misconduct, or breach of fiduciary responsibilities.

Under Saudi law and common JV governance practices, a board may delegate certain functions to individual directors, subcommittees, members of the management team or third parties, provided such delegation is clearly defined and does not compromise the board’s overarching fiduciary responsibilities. Delegations to executives or individual directors or managers typically cover operational and administrative matters, while subcommittees (such as audit or risk committees) may be tasked with oversight functions under formal terms of reference.

Third-party advisors can be engaged for specialised tasks, but the board must retain the ultimate decision-making authority. Despite these delegations, directors and managers remain personally liable for any misconduct or negligence arising from delegated actions. It should be noted that there is a restriction on the ability to delegate key tasks, such as approving financial statements or major strategic decisions, and where there is a risk of either excessive delegation leading to loss of control.

The board in a JV is subject to statutory reporting obligations to its shareholders to ensure transparency and accountability. These include the preparation and presentation of audited financial statements within six months of the end of financial year, convening general assembly meetings to approve financial statements and discuss company performance, and disclosing any conflicts of interest or related-party transactions. Directors and managers must also report significant financial losses, particularly if they exceed 50% of the JVco’s capital, and propose remedial actions. Additionally, changes in board composition, director or manager remuneration and dividend distributions must be communicated to the shareholders for approval. Failure to comply with these obligations can result in personal liability for directors/managers including fines.

JV partners need to focus on both “background IP” that each party brings to the joint venture, and “foreground” or developed IP that is created by the newly-established venture. It is increasingly important in innovation-led partnerships that the contractual documentation accurately and appropriately deals with the licensing, use and ownership of intellectual property rights within the context of local laws. The IP framework in Saudi Arabia is rapidly maturing following the establishment of the Saudi Arabia Intellectual Property (SAIP) authority in 2018. It now incorporates international standard legislation aligned with relevant IP treaties, with SAIP increasingly promoting the protection of IP as part of the Kingdom’s push to encourage innovation and entrepreneurship.

Saudi Arabia uses a first-to-file trademark system; early registration protection is essential.

There are multiple factors to consider in the context of IP structuring, with the optimal course largely depending on parties’ intentions. Questions should be considered at the outset in terms of any IP that is being brought into the JV, including which party(ies) is/are best placed to commercialise or protect the IP, together with associated financial and tax considerations.

While the issue of ESG is being raised on JVs (by international parties, and in particular by financial investors), it is not a key consideration for the majority of joint ventures in Saudi Arabia at present.

JVs come to an end for several key reasons, as follows.

• Many JVAs are set up to run for a fixed term or tied to a specific project, so they will end upon the expiration of the term. There will be corporate formalities to liquidate the JVco.
• The parties may mutually agree to dissolve the arrangement at any time, which may be subject to agreed-upon procedures laid down in the JVA.
• There may be a material breach or default by one party – such as failure to meet funding or operational obligations – which could trigger termination rights for the other. Mechanisms such as call or put options can be exercised allowing one party to buy the other out and effectively end the JV.
• The JVA may also come to an end if the JV entity is dissolved, making continuation of the arrangement impossible.

On termination of a JV, the shareholders must address the several key matters, as follows.

• Final accounting measures and a valuation should be prepared to determine the JV’s net assets and each party’s entitlement.
• Any intercompany balances, such as shareholder loans or funding obligations, will need to be settled.
• Remaining assets – whether cash or non-cash – should be distributed in accordance with the JVA, typically on a pro-rata basis.
• The parties will usually exchange mutual releases and indemnities to close out obligations and prevent future claims.
• Post-termination covenants, including confidentiality and restrictions on the use of JV-developed intellectual property, must be confirmed and may continue to apply after the JVA has terminated (whether or not the JVco is continuing).

When transferring assets between JV participants and the JVco, the main considerations are ensuring fair valuation and allocation of non-cash assets, addressing any tax implications, and obtaining necessary regulatory or contractual consents for certain assets. If and to the extent that an asset is being contributed as an in-kind contribution for shares, depending on the valuation of that asset and the entity type, a process must be followed, which may include the requirement to obtain a valuation report in connection with the asset being contributed.

Both assets originally contributed by a participant and those generated by the joint venture during its operation become assets of the JV entity. However, parties often regulate these categories differently in the JVA. Typically, assets contributed by a participant – especially unique or strategic assets, such as specific real estate or intellectual property – are earmarked for return to the contributing party upon dissolution of the JVA/the JVco. In contrast, assets created or acquired by the JVco itself are usually distributed among participants in proportion to their equity interests or as otherwise agreed. Clear provisions on valuation, transfer mechanics, and any restrictions on use are essential to avoid disputes and ensure an orderly wind-up.

There are statutory provisions under the Companies Law that impact the exit of joint venture members, particularly in relation to share transfers and buy-back arrangements. In an LLC, existing partners have a statutory right of first refusal, requiring any proposed share transfer to be offered to them before third parties. Buy-back clauses are permitted under specific conditions, such as capital reduction or treasury share arrangements, but must comply with regulatory requirements set forth in the Companies Law. Despite these legal constraints, JV partners do have some flexibility to define their own exit strategies in as the JVA and the articles of association or bylaws. The commonly used mechanisms include pre-emption rights, call and put options, drag-along and tag-along rights, noting that there may be practical and legal challenges and issues regarding the enforcement of these. In Saudi Arabia, the most typical JV exits involve negotiated buy-outs or exits through IPOs or asset sales, depending on the nature and scale of the JV.