jurisdiction

Saudi Arabia does not operate a system whereby court decisions are published, and it is not a common law jurisdiction in which case law and transparent practices would otherwise serve as evidence of how the questions below have been applied or interpreted in practice. As a result, the views expressed below are based on our reading of the relevant statutory texts and our general understanding of regulatory practice, rather than on any body of published judicial or administrative precedent that could confirm how the authorities would treat these questions in any given case.

In regulated and sensitive sectors such as the military, there may be other laws, regulations, circulars, internal manuals, protocols or terms contained in the individual's employment contract which could otherwise regulate and/or restrict the position discussed above. Such materials are not necessarily publicly available, and we have not been able to include them in our analysis below, so we are unable to confirm whether any such additional restrictions apply in any given case.

1. Are members of the armed forces permitted to hold shareholdings in private companies, including startups, provided that they do not participate in management? 

The key regulations in force in the Kingdom of Saudi Arabia (KSA) are the Officers Service Law (OSL) and the Enlisted Personnel Service Law (EPSL).

The OSL applies, in terms of rank, to officers from Second Lieutenant up to First Lieutenant General. The EPSL applies, in terms of rank, to all military personnel below officer rank. In terms of scope, they each apply to personnel serving in:

  • The Ministry of Defense and Aviation;
  • The Ministry of Interior;
  • The National Guard; and
  • The General Intelligence Presidency.

The position is clear with respect to engaging in commercial, industrial, or professional activities, or working in companies in any capacity, whether as a founder, member of the board of directors, advisor, or employee; both the OSL and EPSL prohibit active personnel from engaging in such activities.

It further appears that the activity of starting up a company would also be prohibited under Article 60(G) of the EPSL and Article 16(h) of the OSL.

With respect to the specific point of holding shares in private companies, the position is more nuanced:

  • The OSL specifically addresses share ownership and permits ownership of shares in joint-stock companies only.
  • The EPSL is silent on this point. We have not identified any provision specifically prohibiting members of the armed forces from owning shares, therefore indicating that personnel below the officer rank can own shares in any form of company (this is of course subject to any other law or regulation not publicly available which prohibits this activity);

Our conclusion is therefore that:

  • no personnel under the EPSL or OSL are permitted to be active in management, employment, or founding of companies outside their military service;
  • personnel below the rank of officers are not seemingly prohibited from owning shares in any form of company; and
  • personnel at officer rank or above are permitted to own shares in joint-stock companies but are seemingly not permitted to own shares in any other form of company.

A separate question that may arise is whether the rights attached to share ownership, such as attending general assemblies and voting on resolutions, could be construed as constituting participation in company activities prohibited for military personnel. This is not specifically addressed in the law and therefore is open to interpretation.

We further note that there are several forms of joint stock company under the Saudi Companies Law (including public, private, and simplified) and neither the OSL or EPSL makes this distinction. In particular, simplified joint stock companies are private and can be established or maintained with a sole shareholder. A generous reading of the OSL could therefore permit officers to be a 100% shareholder of a simplified joint stock company, but without further information we could not confirm if this is within the spirit of the law and how it would be interpreted in practice.

2. Are they merely required to notify their employer or relevant authority of such business interests, or is prior approval required before acquiring a shareholding or establishing a company? 

Whilst establishing a company appears prohibited under Article 60(G) of the EPSL and Article 16(h) of the OSL during the military service, and therefore no notification or approval procedure is provided for. We have not identified any provision requiring prior approval or notification merely for the ownership of shares. Accordingly, share ownership does not appear to be subject to any prior approval or disclosure requirement, based on the regulations we have been able to review. It is important to note that not all laws and regulations are publicly accessible, particularly with respect to sensitive sectors such as the military. There may therefore be other regulations or protocols in place which require disclosure.

3. Are there any notable limitations, thresholds, or conflict-of-interest rules that would be relevant in this context?

The starting point is that share ownership is regulated in accordance with our advice above, derived from the OSL and EPSL, such ownership remains subject to conflict-of-interest rules and official duty obligations as provided for the in the Code of Conduct for the Ministry of Defence Personnel as well as any further manuals, employment contracts or resolutions/circulars. In this regard, Article 10 of the Code of Conduct prohibits any activity that gives rise to an actual or apparent conflict of interest and requires disclosure of situations that may result in such a conflict. For offciers in particular, it is also prohibited from engaging in commercial activities which impact the officer’s official duties or affects the performance of such duties (Article 16(h) OSL).

We note that the Companies Law also contains conflict of interest provisions (Articles 26 and 27). However, these provisions apply to company managers and board members, rather than passive shareholders.

Accordingly, the principal restrictions do not relate to the ownership of shares, but rather to potential conflicts of interest between a service member’s financial interest and official duties, particularly where the company deals with the Ministry of Defence or other military authorities, or where the nature of the service member’s duties enables them to influence, directly or indirectly, decisions or procedures related to the interests of that company.