Corporate Governance of a Saudi Subsidiary: Mistakes Foreign Parents Make

The governance errors in a foreign-owned Saudi company, from manager authority and powers of attorney to resolutions and ownership records, and how to fix them.

Under the Companies Law in force since January 2023, a Saudi company is run by managers or a board whose powers come from the articles of association, with partners or shareholders taking key decisions in meetings or written resolutions. Foreign parents tend to run the subsidiary through group policies and informal instructions, which works until a bank, court or authority asks who had authority to sign. Good governance here is mostly accurate records and clear authority.

Why these keep happening

Governance problems in foreign-owned Saudi companies share one root: the formal structure registered with the Ministry of Commerce drifts away from how the business is actually run. Managers leave but remain registered, powers of attorney expire, resolutions are not recorded and ownership changes in the group are not reflected locally.

1. Leaving departed managers on the registration

The manager recorded on the commercial registration can bind the company. If a manager leaves and the registration is not updated, the company both keeps a risk and lacks a valid signatory.

• Avoid it by: updating the articles or manager appointment with the Ministry of Commerce as soon as a manager changes.
• Proof it is closed: The registration shows current managers only.

What it costs you: Blocked banking and government transactions, or unauthorised commitments.

2. Relying on expired or narrow powers of attorney

Day-to-day actions, such as signing leases, government applications and bank documents, often rely on powers of attorney. If they expire or do not cover the action, counterparties refuse to proceed.

• Avoid it by: a register of powers of attorney with scope and expiry dates, renewed ahead of time.
• Proof it is closed: Current powers of attorney cover every recurring transaction.

What it costs you: Delays at critical moments, such as tender submission or lease renewal.

3. Not documenting partner decisions

Approvals of accounts, distributions, capital changes and auditor appointments must be taken as the Companies Law and articles require and recorded properly. Group emails are not resolutions.

• Avoid it by: annual meetings or written resolutions prepared by a company secretary with a standard calendar.
• Proof it is closed: Signed minutes and resolutions for each required decision.

What it costs you: Distributions or decisions that can be challenged, and banks refusing transfers without a resolution.

4. Ignoring conflicts and related-party approvals

Transactions between the company and its managers, partners or their related parties may need disclosure and approval under the Companies Law and articles.

• Avoid it by: a related-party approval process in the delegation of authority.
• Proof it is closed: Approvals recorded for each related-party contract.

What it costs you: Transactions voidable or managers personally liable.

5. Missing beneficial ownership updates

Changes in the group above the Saudi company, such as a sale of an intermediate holding company, can change beneficial ownership that must be declared to the Ministry of Commerce and may affect MISA registration.

• Avoid it by: a group rule that every upstream ownership change triggers a Saudi review.
• Proof it is closed: Beneficial ownership records match the current group structure.

What it costs you: Non-compliance findings and delays when banks refresh their know-your-customer checks.

6. No local delegation of authority

Without a written delegation of authority, local staff either escalate everything to the parent or sign things they should not. Neither works in a market where speed with authorities and clients matters.

• Avoid it by: a delegation of authority approved by the managers, aligned with Saudi signatory rules.
• Proof it is closed: Each signed contract can be matched to an authority limit.

What it costs you: Slow decisions or uncontrolled commitments.

A short check before you sign

• Do the commercial registration and articles show the current managers?
• Are all powers of attorney current and covering recurring actions?
• Are last year's accounts approved by a recorded partner resolution?
• Is the beneficial ownership information up to date?
• Is there a written delegation of authority?
• Are related-party transactions approved and recorded?

If it has already happened

If governance has drifted, start with a corporate health check: compare the Ministry of Commerce records, articles, powers of attorney and resolutions with reality, then fix them in order of risk, beginning with signatories and ownership records. Some past decisions may need ratification. A Saudi-licensed corporate lawyer should run the check and prepare the corrective resolutions.

Domira works with foreign investors on the property side of entering Saudi Arabia: finding land or premises, due diligence, design, construction and asset management. For licensing, tax and legal steps, work with a licensed adviser; we coordinate with yours so the property decision fits the structure you choose.