The venture will be called Pagan and will initially position itself as a commercials production company. It will also offer music videos.
Pagan, based at an office in Westbourne Studios, will be owned by Saward.
However, he said: "I'm not averse to the idea of anyone else having a stake in it; the important thing is to find the right people to be in business with."
Arnell, who has won three D&AD Pencils and three Brit Awards, will remain with Godman until his current commitments are completed at the end of the year.
Saward has also signed the directing duo Max & Dania to the roster for commercials representation.
Arnell and Saward have worked together for more than ten years. Saward first teamed up with Arnell and his partner Anthea Benton at Lewin & Watson before they left to set up Federation with Propaganda. They moved to RSA in 1996, but later left to set up Godman with Jo Godman and Philippa Thomas.
Spots that Arnell and Saward have worked on include Levi's "spaceman", Stella Artois' "the good Samaritan" and "red shoes" and George Michael's "fast love".