Legal Articles

State-Owned Companies in Saudi Arabia: Legal Nature and Regulatory Characteristics

state-owned companies, Saudi Arabia, legal nature, legal personality, government procurement regulations, regulatory characteristics, zakat, financial oversight

State-owned companies are key instruments used by Saudi Arabia to achieve its economic and developmental goals, particularly under Vision 2030. With the expanding role of these companies, important legal questions arise regarding their regulatory nature and position between the public and private sectors.

1. Legal Personality of State-Owned Companies

Although the Companies Law issued by Royal Decree No. (M/132) dated 1443/12/01H and the Civil Transactions Law grant companies legal personality, it does not specify whether this personality is public or private. This has led to varying legal interpretations.

The Saudi administrative judiciary, through the Supreme Administrative Court ruling in case No. (Q/8251, 1440H), has established that state-owned companies are considered private legal persons, even if they engage in activities related to public utilities.

2. Compliance with Government Procurement Regulations

Despite their private legal personality, companies with more than 51% state ownership are required—according to Cabinet Resolution No. (649) dated 1440/11/13H—to apply the Government Procurement Regulations, ensuring transparency, integrity, and promoting local content as well as small and medium enterprises.

3. Regulatory Characteristics of State-Owned Companies

State-owned companies possess specific features that align them with entities of a public nature, including:

• Financial Oversight: Subject to oversight by the General Auditing Bureau, including companies where the state participates in the capital or guarantees a minimum profit, according to specific regulations.
• Zakat Compliance: Although considered private companies, their zakat obligations are subject to several legal conditions (Minister of Finance Decision No. 57732, dated 1443/11/03H), such as being commercial, not fully funded by the state, and not purely service-oriented to support government entities without generating profits.

Conclusion

State-owned companies in Saudi Arabia reflect a balance between operational independence and regulatory oversight while being integrated into the modern economic framework of the Kingdom. Legal compliance enhances trust, supports transparency, and contributes to achieving the goals of Vision 2030.