A case from the Group's work; some details have been altered to protect strict confidentiality. The figures in the worked model below are illustrative and disguised, not the client's.
The situation
A holding company owned by three family branches, with a single operating company beneath it as the main source of income. The founding generation was still in the decision seat, and the second generation was inside the business in unwritten roles. There was no declared dispute, but three signs were present: distributions were decided by annual discussion rather than by rule, nobody knew what would happen to the stake of a branch that wished to exit, and family ownership and the operating company were mixed in the accounts and the decisions. This picture is not an exception in the Kingdom: family companies represent 95% of all companies, as Al Riyadh reported the Minister of Investment saying in October 2025.
What was actually asked
IAD Business Services Group was first asked to “write an agreement”. After the first meeting it became clear that the issue was not drafting a text but that the decisions the agreement was supposed to settle had not yet been taken. The mandate was redefined: sessions in which decisions are settled first, then the text is written. The law itself describes what a charter should settle: Article 11 of the Companies Law, issued by Royal Decree M/132, allows partners to conclude a family charter “covering the organisation of family ownership in the company, its governance and management, work policy, the policy on employing family members, profit distribution, disposal of shares, and the mechanism for settling disputes”, and provides that the charter “is binding” and may form part of the articles of association. The list the law enumerates is exactly the list of decisions the family had not taken.
How we worked
- Decision rights: an explicit matrix separating ownership decisions from management decisions, defining who decides what, up to which financial limit, and by which majority.
- Entry and exit: the terms of share transfer, right of first refusal and the valuation mechanism, settled before there was a seller, which alone removed the largest source of tension.
- Family employment: criteria for joining and evaluation, applied to everyone without exception.
- Distribution policy: a known formula, and what suspends it.
- Leadership succession: a declared timeline and eligibility criteria, rather than leaving the matter to a moment that imposes itself.
| Decision | Who holds it | Majority | Not decided without |
|---|---|---|---|
| Profit distribution | Owners' assembly | Majority of shares | Approved financial statements |
| Sale of a stake or entry of a partner | Owners' assembly | Qualified majority | Independent valuation and right of first refusal |
| Appointing the chief executive | Board of directors | Majority of members | Written eligibility criteria |
| Capital expenditure above a set limit | Board of directors | Majority of members | A feasibility study |
| Daily operations below the limit | Executive management | No vote needed | The approved budget |
Eighteen months in four phases
- Months 1 to 3: individual sessions with each branch to learn what it actually wants rather than what it says in the joint meeting.
- Months 4 to 10: joint sessions in which the five decisions are settled in plain language without lawyers, each recorded in a minute signed by all.
- Months 11 to 15: the minutes translated into a binding family charter and amended articles under Article 11, by a licensed law firm.
- Months 16 to 18: the tools that keep the agreement alive: a meeting calendar, a minute template, and an authority matrix within reach of those who execute.
Most of the eighteen months were sessions with the board and the branches, not legal drafting. The text came in the final third, and that is the order IAD Business Services Group follows in every family governance file: decisions, then text, then tools. An agreement that starts from legal drafting produces a document that is legally correct and that nobody works by.
A worked model: a distribution policy that ends the annual debate (illustrative, disguised)
A distribution policy that works is one calculated from a financial statement, not from the mood of a meeting. In an illustrative model for an operating company with net profit of SAR 20 million a year, the rule is built in three steps: a statutory and investment reserve of 20% of net profit, then distribution of 50% of the remainder to the three branches in proportion to ownership, then full suspension of distribution if debt to operating profit exceeds 2.5 times or liquidity falls below three months of expenses.
| Item | Normal year | Hard year |
|---|---|---|
| Net profit | SAR 20 million | SAR 8 million |
| Reserve at 20% | SAR 4 million | SAR 1.6 million |
| Distributable pool | SAR 16 million | SAR 6.4 million |
| Distribution at 50% | SAR 8 million, to each branch by its share | SAR 3.2 million |
| Debt and liquidity test | Met; paid | Not met; deferred without a meeting |
The value of the rule is not in the numbers but in the fact that it spares a meeting. In the hard year nobody meets to decide not to distribute, because the rule decided that in advance with everyone's signature, and that is what protects the family relationship in the year it needs protecting most. The same rule protects the company from the Article 182 moment, which obliges the manager to call the assembly within sixty days if losses reach half of capital, because the accumulated reserve keeps the company away from that threshold.
What nearly derailed the work
The most dangerous moment of the mandate came in its second month, when one branch proposed a shortcut: “give us a ready agreement template and we will adjust it”. The template would have produced a correct text within two weeks, and would have frozen the five decisions in a form nobody had actually taken, so the argument would return at the first distribution and the first exit request. IAD Business Services Group declined the shortcut and explained why in one sentence: the template knows what families usually write; it does not know what this family wants.
The second moment was one branch asking to start with the exit clause before anything else, because it was actually considering exit. Starting with exit would have turned the sessions into a sale negotiation, so the reverse order was agreed: decision rights and distribution policy first, because a branch that knows how much it receives each year and when its voice is heard may not want to leave at all. That is what happened: the branch stayed, and the exit clause was written at the end with a cool head rather than an urgent need.
Family employment: the rule tested first
The policy on employing family members is the item Article 11 lists that is tested before any other in practice. The rule the family adopted was simple and hard at once: no member of the second generation joins the company without three years of work outside it, is evaluated by the same criteria as anyone else, and is dismissed by the same procedure. Its difficulty is not in writing it but in the first case of application, which came months after signing; the rule was applied, and its application was the moment everyone believed the agreement was real, and that the signature they gave months earlier was a commitment rather than a courtesy to a session that had ended.
Why a holding company rather than the operating company
Separating family ownership from the operating company was a structural decision, not a formal one. The holding company gathers the three branches' stakes and manages their relationship with operations through a board, so the family discussion happens in the holding company's room and the operating decision in the company's, and the two do not mix. This is the path Article 11 points to when it allows the entry of heirs to be organised “through a company they establish for that purpose”: the heir enters the holding company as an owner and enters the operating company only as an employee under the family employment criteria. The same separation protected the operating company from personal family decisions, such as marriage, inheritance and exit, turning into operating decisions paid for by daily operations.
The result
A stable governance framework, and ownership kept within the family. Most important in practice, decisions that used to be reopened at every meeting are now taken once and referred to. And the exit decision, which had been the largest source of silent tension, became a written path with independent valuation, a right of first refusal and a payment schedule, so nobody needs to threaten it or fear it any more.
What can be learned
The order is the lesson in every family governance file: decisions, then text, then tools. Saudi law gave the family charter binding force in Article 11, but it did not give the family the decisions the charter needs, and those are taken in a meeting room, not a law office. A family company that settles these decisions before a dispute writes them with a cool head; one that settles them during a dispute writes them under pressure.
The agreement does not make the decisions. The decisions make the agreement.
Sources
- Companies Law, Royal Decree M/132 (1443H), Articles 11 and 182.
- Minister of Investment: family companies represent 95% of all companies, Al Riyadh, 29 October 2025.