Disputes in Saudi family-owned businesses: Where risk really arises

Saudi Arabia’s private sector runs on family capital. More than 95% of [SB1] [JD2] private enterprises in the Kingdom are family-owned,  generating more than 60% of non-oil GDP and underpinning everything from construction and logistics to retail, hospitality, manufacturing and infrastructure. In many sectors, large projects are delivered either by Public Investment Fund platforms or by long-established family groups, often working alongside one another.

At this scale, internal disputes are no longer private matters. When disagreements arise within large family groups, they affect employees, counterparties, lenders and enterprise value. What stands out in practice is not frequency of these disputes, but how consistently the same dispute dynamics emerge once relationships begin to strain.

Minority shareholders in family businesses are rarely excluded by formal means. More often, they are shut out by control. Dividends are deferred or blocked. Information flows narrow.. Legal rights may exist on paper, often carefully negotiated, but the operating business continues to run under the direction of those who control management, cashflow and day-to-day decision-making.

These disputes are rarely lost on merit, but because one side lacks the liquidity, time or leverage to sustain the dispute. Minority shareholders may be right in principle, but unable to sustain pressure long enough to see a claim through. Over time, the issue stops being about entitlement and becomes about liquidity.

In that context, litigation finance is not about aggression or escalation. It is about addressing the cashflow and timing pressures that arise when disputes take years to resolve, and enabling parties to pursue legitimate claims without being forced into early or discounted outcomes.

Holding companies abroad, operating gravity in Saudi Arabia

Many Saudi gamily groups share a familiar structural logic. Ownership interests sit offshore, in holding companies incorporated in Cayman, BVI, DIFC or ADGM. The choice is deliberate. These jurisdictions offer common-law shareholder protections, predictable dispute resolution and flexible  governance. Minority rights are typically negotiated at this level through shareholder agreements, reserved matters, information rights, exit mechanisms and arbitration clauses.

Below those holding companies sit the operating businesses in Saudi Arabia. This is where licenses are held, employees are hired, contract are signed, cash is generated and regulatory exposure sits. Control over those assets is exercised locally, often by a small group of family members or trusted executives.

The separation is efficient. It is also where disputes take shape.

When relationships deteriorate, minority shareholders discover that their strongest rights sit at holding-company level, while practical leverage sits elsewhere. Dividends can be delayed without formal breach. Information can be rationed. Operational decisions continue to be taken without minority involvement. The legal structure remains intact, but the economic position shifts steadily.

That gap between legal entitlement and operating control is the starting point for many Saudi family disputes.

Where planning breaks down in practice

By the time a dispute reaches a funder, the issue is rarely a lack of planning. Many family groups have sophisticated structures, professionally-advised governance frameworks and detailed shareholder agreements. Reserved matters are thoughtfully drafted. Exit provisions are negotiated carefully.

The problem is not absence of planning, it is where the planning stops.

From the outside, a consistent pattern emerges. Minority protections exist at holding-company level, but do little to constrain how the operating business is run. Reserved matters exist, but do not capture decisions that affect cash, risk or value in practice. Information rights exist, but do not extend far enough into the operating business to provide meaningful visibility. Exit mechanisms rely on cooperation or liquidity that disappears once relationships break down.

The structure was designed for stability and trust. They work, until they don’t. When disputes arise, the absence of operating-level constraints turns them into contests of endurance rather than questions of entitlement.

Information asymmetry as a Saudi corporate law issue

In Saudi family-owned operating companies, information asymmetry is rarely accidental. It is structural.

Control of information follows control of management. Financial reporting is compliant but selective. Management accounts circulate internally but are not shared. Related-party arrangements are documented but unexplained. Board minutes record outcomes rather than deliberation. None of this is necessarily unlawful, but it creates an environment in which minority shareholders are perpetually behind events.

Saudi law matters because corporate governance and disclosure are statutory obligations, not purely contractual ones. Under the Saudi Companies Law, directors are required to act in the interests of the company, to exercise their powers within the limits of authority granted by the articles of association, and to disclose conflicts of interest in transactions involving the company. Related-party transactions are permitted, but only subject to disclosure and proper approval.

Opacity itself can therefore become legally relevant. Where decisions are taken without proper board authority, conflicts are undisclosed, or approvals are obtained informally rather than through mechanisms set out in the articles, the issue moves beyond commercial dissatisfaction. It becomes a question of statutory compliance.

For minority shareholders, this is often the first point at which leverage begins to emerge. Not because value is extracted, but because decisions that were previously shielded by hierarchy are pulled into a framework where they must be justified.

What Saudi Companies Law actually allows, in real terms

The Saudi Companies Law, issued by Royal Decree No. M/132, does not give minority shareholders a general right to manage the business or to dictate outcomes. Its role is procedural. It allows corporate acts to be tested against law and constitution.

Most commonly, minority shareholders rely on the statutory right to challenge board or shareholder resolutions taken in violation of the Companies Law or the company’s articles of association.

In practice, this mechanism is used to scrutinize:

• appointments or removals of directors where statutory procedures or quorum requirements were not met;
• resolutions approving related-party transactions without proper disclosure of interest or approval by non-conflicted decision-makers;
• delegations of authority that exceed what the articles permit;
• approvals of management service arrangements, intra-group charges, guarantees or asset transfers that fall outside authorized powers.

The question is not whether the transaction was commercially sensible. It is whether the decision was taken lawfully.

Once challenged, the focus shifts from outcome to process. Courts examine how decisions were taken, who voted, whether conflicts were disclosed, whether the proper corporate body approved the decision and whether the articles were followed. Informality, family hierarchy and custom do not cure defects in authority or process.

This is why the remedy has practical force even without immediate economic relief. It forces the operating company to function within a documented, reviewable framework.

How scrutiny changes behavior

Once operating-company decisions are subject to judicial scrutiny, the environment changes.

Board authority must be documented. Related-party transactions must be defensible. Delegations of authority are tested against articles. Approvals must withstand explanation. Documents are produced. Positions harden. Third-party counterparties and banks become aware that the business is operating under legal process.

Control remains, but discretion narrows. Informality becomes expensive.

For large family groups accustomed to operating on trust and hierarchy, this shift alone can materially affect behavior, even before any final determination of rights.

Why arbitration alone is not enough

This raises an obvious question. Why not resolve everything through arbitration at holding-company level? The answer is practical, not doctrinal. Arbitration discovery depends on party control. In many family disputes, the documents that matter sit with the operating company, not the holding company. Management controls what exists, what is produced, and when. Discovery disputes become procedural trench warfare. Time passes. Pressure builds. The arbitration process determines rights, but it does not always surface operating reality.

Saudi court-led processes operate differently. They bring operating decisions, approvals and records into a formal evidentiary framework. Operating-company conduct is tested against authority, process and compliance, not just contractual entitlement. Arbitration is not displaced, but complemented, by forcing visibility at the level where control actually sits.

That visibility is where forensic analysis becomes critical.

Once operating records are brought into view, forensic teams reconstruct cashflows, analyse management accounts and examine related-party transactions over time. The objective is not simply to catalogue documents, but to explain how value moves through the structure, where discretion is exercised and how operational decisions affect economic outcomes.

In combination, Saudi process and forensic analysis do what arbitration alone often cannot. They turn opaque operating control into an assessable economic narrative, one that tribunals, courts and decision-makers can evaluate on substance rather than inference.

Endurance, balance and funding

None of this removes the importance of time and control. Operating power still matters. What changes is that disputes acquire shape and consequence.

Funding becomes relevant here, not as a weapon, but as a stabilizer. Removing financial asymmetry allows minority shareholders to pursue legitimate claims without being forced into premature settlement by cost or delay. It allows disputes to be assessed on their merits rather than on who can wait longer.

From a funder’s perspective, the cases that matter are rarely about aggression. They are about restoring balance in situations where structure, control and economic reality have drifted apart.

The focus is not escalation. It is realism, understanding how disputes actually unfold, where leverage sits in practice and how optionality can be preserved before positions harden. As structures become more complex, anticipating these pressure points is increasingly central to preserving both value and continuity.