In a short essay, compare one issue from the curriculim slides with the current Saudi Companies Law.
Short Essay: from 200 to 750 words.
Companies Law
7
Companies Law
Part 1: General Provisions
Preliminary Chapter
Article 1: Definitions
1. In this Law, the following words and phrases shall have the meanings assigned thereto, unless the context
requires otherwise:
Kingdom: Kingdom of Saudi Arabia.
Law: Companies Law.
Regulations: Regulations issued for the implementation of the provisions of this Law.
Ministry: Ministry of Commerce.
Minister: Minister of Commerce.
CMA: Capital Market Authority.
Competent Authority: The Ministry, except for joint-stock companies listed in the capital market, where
the Competent Authority is the CMA.
Relatives:
a) Parents and grandparents and their ascendants.
b) Children and grandchildren and their descendants.
c) Spouses.
Day: A calendar day, whether a business day or not.
2. Without prejudice to the provisions of this Law, the Regulations shall include the definitions of other
words and phrases provided for in this Law.
Article 2: Definition of a Company
A company is a legal entity incorporated in accordance with the provisions of this Law pursuant to articles
of incorporation or articles of association under which two or more persons undertake to participate in a forprofit enterprise by contributing property or work, or both, to share any profit realized or loss incurred from
such enterprise. As an exception, a company may, under this Law, be incorporated by a single person, and a
non-profit company may be incorporated pursuant to the provisions of Part 7 of this Law.
Article 3: Nationality of a Company
A company incorporated in accordance with the provisions of this Law shall have the Saudi nationality, and
its headquarters shall be in the Kingdom.
Chapter 1: Incorporation of a Company
Article 4: Forms of Companies
A company incorporated in accordance with the provisions of this Law shall take one of the following forms:
a) General partnership.
b) Limited partnership.
2
7
c) Joint-stock company.
d) Simplified joint-stock company.
e) Limited liability company.
Article 5: Name of a Company
1. A company shall have a tradename in Arabic or in any other language. The name may reflect the
company’s purpose or may be a distinctive name or the name of one or more of the company’s current or
former partners or shareholders, or a combination of the above. The name shall not be inconsistent with
the Law of Tradenames and other laws and regulations applicable in the Kingdom.
2. If a company’s tradename includes the name of a former partner or shareholder, the consent of such partner
or shareholder must be obtained. If said partner or shareholder dies without providing his approval, the
consent of his heirs must be obtained.
3. The form of a company must be included in its tradename.
4. A company’s tradename may be amended in accordance with the conditions prescribed for amending
articles of incorporation or articles of association. The amendment shall not affect the company’s rights
or obligations nor the validity of legal measures taken by the company or against it prior to such
amendment.
Article 6: Application for Incorporation
1. A person who participates in the incorporation of a company and contributes to its capital with cash or inkind contributions shall be deemed an incorporator.
2. Incorporators shall file the company’s application for incorporation and registration with the Commercial
Register, along with the articles of incorporation or articles of association and any required information
and documents.
3. The Commercial Register shall decide on applications that include the required information and
documents in accordance with the provisions of this Law.
4. If an application is rejected, the rejection must be reasoned; incorporators may appeal the decision before
the Ministry within 60 days from the date of notification of the rejection decision.
5. If the appeal is rejected or if no decision is rendered within 30 days from the filing date, incorporators
may appeal before the competent judicial authority.
Article 7: Incorporation Documents
1. A company incorporated under this Law shall have articles of incorporation while a joint-stock company,
simplified joint-stock company, and limited liability company owned by a single person shall have articles
of association.
2. A company’s articles of incorporation or articles of association shall include the terms, conditions, and
information required under this Law, according to the form of the company.
3. A company’s articles of incorporation or articles of association shall be in the Arabic language and may
be accompanied by a translation into another language.
4. The Ministry shall prepare articles of incorporation and articles of association templates for all company
forms.
Article 8: Registration of Incorporation Documents
1. A company’s articles of incorporation or articles of association, and any amendments thereto, shall be
made in writing; otherwise, they shall be deemed null and void. The incorporation of a company or the
amendment of its articles of incorporation or articles of association shall be made upon satisfying the
necessary requirements as provided for in this Law and its Regulations.
2. A company’s incorporators, partners, managers, or board members, as the case may be, must register the
company’s articles of incorporation or articles of association and any amendments thereto with the
3
7
Commercial Register. The Commercial Register shall publish any necessary information or documents in
accordance with this Law and its Regulations. If any of the aforementioned persons fail to register the
documents with the Commercial Register, they shall be jointly and severally liable for any damage
sustained by the company, partners, shareholders, or third parties as a result of non-registration.
3. The information and documents stipulated in paragraph (2) of this Article shall be made available to
others. The information and documents retrieved from the Commercial Register shall be deemed evidence
against the company and third parties.
4. A company’s articles of incorporation or articles of association or any amendments thereto may not be
used as evidence against third parties prior to registration with the Commercial Register. Any information
not registered shall not be valid against third parties.
Article 9: Acquisition of Legal Personality
1. A company shall acquire a legal personality upon registration with the Commercial Register. However, a
company during the incorporation period shall have a legal personality to the extent necessary for its
incorporation, provided that said company completes the incorporation process.
2. Registration of a company with the Commercial Register shall entail the transfer of all contracts and
transactions concluded on behalf of the company by the incorporators to the company, which shall bear
all incorporation expenses incurred by the incorporators.
3. If a company fails to satisfy the incorporation procedures as prescribed in this Law, the persons who act
or conclude transactions in the name of the company or on its behalf shall be jointly and personally liable
vis-à-vis third parties for their acts and dispositions during the incorporation period.
Article 10: Purposes of a Company
A company shall conduct all operations necessary to realize its purposes upon registration with the
Commercial Register and obtaining the necessary licenses, if any, from the relevant authorities.
Article 11: Partnership Agreement and Family Charter
1. Incorporators, partners, or shareholders may, whether during or after the company’s incorporation period,
carry out the following:
a) Conclude one or more agreements regulating their relationship with each other or with the company,
including the manner in which their heirs join the company, whether personally or through a company
incorporated for such purpose.
b) Conclude a family charter that includes the regulation of family ownership in the company; governance
and management; work policy; employment policy of family members, distribution of dividends, and
disposition of interests or shares; procedures for the settlement of disputes or disagreements; and other
matters.
2. A partnership agreement or family charter shall be binding and may be part of a company’s articles of
incorporation or articles of association, provided it does not violate this Law nor the company’s articles of
incorporation or articles of association.
Article 12: Information Required in Company Documents
Contracts and clearances, as well as other documents issued by the company shall include the following
information:
a) Company’s name, form, headquarters address, e-mail (if any), and commercial registration number.
b) Company’s capital and the amount of paid-up capital. This shall not apply to general partnerships and
limited partnerships.
c) The phrase “under liquidation”, added to the company’s name during the liquidation period.
4
7
Article 13: Contributions of Partners or Shareholders
1. The contribution of a partner or shareholder may be in cash or in-kind, or both.
2. With the exception of joint-stock companies and simplified joint-stock companies, the contribution of a
partner may be in the form of work in return for a percentage of the profits determined in the company’s
articles of incorporation. A partner’s reputation or influence shall not be considered a contribution.
3. A company’s capital shall be composed only of cash and in-kind contributions.
4. Incorporators, partners, and shareholders may provide interests or shares in the company’s capital to a
person in return for work or services that benefit the company and help realize its purposes, without
prejudice to the provisions of this Law.
Article 14: Provision of Contribution
1. If the contribution of a partner or shareholder is a right of ownership or usufruct or any other in-kind right,
he shall, in accordance with the terms of the sales contract, be liable for his contribution in case of loss,
defect, or shortage in the contribution, and in case the warranty of title and against infringement is
breached. If the contribution is solely in the form of a personal usufruct right to a property, the terms of
the lease contract shall apply, unless agreed otherwise.
2. If a partner’s contribution is in the form of work, he must perform such work for the benefit of the company
and not his own; any earnings arising therefrom shall belong to the company. However, he shall not be
under any obligation to surrender to the company any intellectual property rights he may have obtained as
a result of his work, unless agreed otherwise.
Article 15: Failure to Provide Contributions
1. A partner shall owe the company the contribution he pledges.
2. If a partner fails to provide his contribution in the company’s capital within the specified period, the
company may demand that he honors his pledge, or it may suspend the enforcement of rights related to
his contribution, such as the right to receive dividends or the right to vote in the general assembly or on
partner decisions. In all cases, the company shall have the right to seek compensation for any damage
arising therefrom.
Chapter 2: Company Finances
Article 16: Fiscal Year
A company’s fiscal year shall be 12 months to be specified in its articles of incorporation or articles of
association. As an exception, the first fiscal year may cover a period not less than six months and not more
than 18 months beginning from the date of the company’s registration with the Commercial Register.
Article 17: Accounting Records and Financial Statements
1. A company shall maintain accounting records and supporting documents relating to its activities,
contracts, and financial statements at the company’s headquarters or at any other location designated by
the company’s manager or board of directors.
2. A company’s financial statements shall be prepared by the end of each fiscal year in accordance with
accounting standards approved in the Kingdom, and said statements shall be deposited as provided for in
the Regulations within six months from the date on which the fiscal year ends, in accordance with the
provisions of this Law.
3. If a company requires information from a company it controls or owns interests or shares therein in order
to prepare its preliminary or annual financial statements, said company shall provide the information
necessary for preparing such statements in accordance with accounting standards approved in the
Kingdom.
4. The CMA may set the rules governing the provision of the information referred to in paragraph (3) of this
Article by joint-stock companies listed in the capital market.
5
7
Article 18: Appointment, Removal, and Resignation of Company Auditor
1. A company shall have one auditor, or more, licensed to practice in the Kingdom. His appointment, fees,
term, and scope of work shall be determined by the partners, general assembly, or shareholders, as the
case may be, and he may be re-appointed. The Regulations shall determine the maximum term for an
individual auditor or an auditing firm and the partner therein supervising the audit.
2. The partners, general assembly, or shareholders, as the case may be, may remove the auditor, without
prejudice to his right to compensation for any damage he incurs, if justified. The manager or the chairman
of the board of directors shall notify the Competent Authority of the removal decision and the grounds
therefor within a period not exceeding five days from the decision date.
3. The auditor may resign pursuant to a written notice submitted to the company. His assignment shall
terminate from the date of submitting the resignation notice or at a later date as specified therein, without
prejudice to the company’s right to compensation for any damage it incurs, if justified. The resigning
auditor shall, upon submission of the notice, provide the company and the Competent Authority with the
reasons for his resignation. The company’s manager or board of directors shall call the partners or
shareholders to meet or the general assembly to be held, as the case may be, to review said reasons and
appoint another auditor.
Article 19: Inapplicability of Auditor Appointment Requirement
1. The provision stipulated in Article 18 of this Law relating to the appointment of an auditor shall not apply
to micro and small companies, except in the following cases:
a) If the articles of incorporation or articles of association stipulate the appointment of an auditor.
b) If it is listed in the capital market.
c) If it issues debt instruments, traded financing sukuk, preferred stock, or redeemable stock.
d) If relevant laws require the appointment of an auditor.
e) If it is a foreign company.
f) If it owns another company or is a subsidiary of another company, unless the description of a micro or
small company applies to all such companies.
For purposes of application of this paragraph, the Regulations shall set the criteria upon which a company is
deemed a micro company or small company.
2. For the application of paragraph (1) of this Article, a company shall be deemed a micro company or small
company during the first fiscal year of its registration with the Commercial Register, or for two
consecutive fiscal years.
3. One or more partners or shareholders of a company to which paragraph (1) of this Article applies who
represent at least 10% of its interests or voting shares may request in writing the appointment of an auditor
in accordance with the rules specified in the Regulations.
4. The provision of Article 18 of this Law, which provides for the appointment of an auditor, shall not apply
to a general partnership, except in the following cases:
a) If all of the partners in the company are companies in a form other than a general partnership.
b) If all of the partners in the company are companies in the form of a general partnership and the partners
in such companies are companies in a form other than a general partnership.
c) If the company’s articles of incorporation provide for the appointment of an auditor.
Article 20: Auditor Obligations
1. The company’s auditor shall be independent, in accordance with professional standards approved in the
6
7
Kingdom.
2. The auditor may not, while serving as an auditor of a company, participate in its incorporation or
management or serve as a member of its board of directors, nor may he purchase or sell interests or shares
thereof. He may not be a partner, employee, or relative of any of the company’s incorporators, managers,
or board members.
3. The company’s auditor may not carry out any technical, administrative, or advisory work in the company
or for its benefit, except as provided for by the Regulations.
4. The auditor may, at any time, access the company’s files, accounting records, and other supporting
documents, and he may request any information and clarifications he deems necessary to verify the
company’s assets and liabilities as well as any other matters falling within his scope of work. The
company’s manager or its board of directors shall enable the auditor to carry out his assignment. If the
auditor encounters any difficulty in carrying out his assignment, he shall submit a report to this effect to
the manager or board of directors. If the manager or board of directors fails to facilitate the auditor’s work,
the auditor shall submit a request thereto to call for a meeting of the partners, shareholders, or general
assembly, as the case may be, to review the matter. If the manager or board of directors fails to call for a
meeting within 30 days from the date of the auditor’s request, the auditor himself may call for a meeting.
5. The auditor shall submit to the partners or shareholders or to the general assembly at its annual assembly
meeting a report on the company’s financial statements to be prepared in accordance with auditing
standards approved in the Kingdom. The auditor’s report shall indicate the extent to which the company’s
management enabled him to obtain the information and clarifications he requested. The report shall
include any violations of this Law or the company’s articles of incorporation or articles of association that
are within the scope of his work as well as his opinion on the integrity of the company’s financial
statements. The auditor shall present his report or a summary thereof at the annual general assembly
meeting or present the report by circulation, as the case may be, in accordance with the provisions of this
Law.
6. The auditor may not disclose to the partners or shareholders, except in the general assembly, or to third
parties any confidential information he becomes privy to in the course of carrying out his assignment. If
he fails to do so, he may be held liable for compensation and removed.
7. The auditor shall be held liable for the information included in his report and for any damage incurred by
the company, partners, shareholders, or other parties arising from any mistake he makes in the course of
carrying out his assignment. In case of multiple auditors, they shall be jointly and severally liable, except
for those established not to have been involved in the commission of the mistake subject of the liability.
Article 21: Monitoring Company Accounts
Partners and shareholders may monitor company accounts in accordance with this Law and the company’s
articles of incorporation or articles of association.
Article 22: Distribution of Dividends
1. Annual or interim dividends may be distributed from distributable dividends to partners or shareholders
in joint-stock companies, simplified joint-stock companies, and limited liability companies.
2. If dividends are distributed to partners or shareholders in violation of paragraph (1) of this Article, the
company’s creditors may demand repayment of their debts from the company, and the company may
demand each partner or shareholder, including a bona fide partner or shareholder, to return any dividends
he received.
3. A partner or shareholder shall not be obligated to return dividends he received pursuant to paragraph (1)
of this Article, even if the company incurs losses in subsequent periods.
4. The Regulations shall determine the rules necessary for the implementation of this Article.
Article 23: Sharing Profits and Losses
1. All partners shall share profits and losses in proportion to their interests in the capital. If an agreement is
made to deny any partner of profit or exempt him from losses, such agreement shall be deemed null and
7
7
void. However, the company’s articles of incorporation may provide for a profit and loss sharing ratio.
2. A partner whose contribution is solely in the form of work may be exempted from sharing losses, provided
that he is not paid a wage in exchange for such work.
Article 24: Partner’s Interests in Profits and Losses
If a partner’s contribution is limited to his work and the company’s articles of incorporation do not provide
for his inclusion in the profit and loss sharing ratio, the partner’s interest in the profits and losses shall be
equal to that of the partner who contributes the least to the company’s capital. If a partner makes, in addition
to work, cash or in-kind contributions, he shall have an interest in the profits or losses for his work
contribution and an interest for his cash or in-kind contribution.
Article 25: Transfer of Interest Ownership and Trading of Shares
1. Ownership of interests in general partnerships, limited partnerships, and limited liability companies shall
be transferred upon registration with the Commercial Register. Transfer of ownership of interests shall
not be valid against the company or third parties except from the date of registration.
2. Shares of unlisted joint-stock companies and simplified joint-stock companies shall be traded upon
registration with the shareholders’ register stipulated in Article 112 of this Law. Transfer of ownership of
shares shall not be deemed valid against the company or third parties except from the date of registration.
3. Shares of joint-stock companies listed in the capital market shall be traded in accordance with the Capital
Market Law and its implementing regulations.
Chapter 3: Management of a Company
Article 26: Duty of Care and Duty of Loyalty
A company’s manager or board member shall exercise duty of care and duty of loyalty, particularly in:
a) carrying out his duties within the scope of his powers;
b) acting in the interest of the company and promoting its success;
c) making decisions or voting independently thereon;
d) exercising reasonable and expected due diligence, skill, and care;
e) avoiding conflict of interest;
f) disclosing any direct or indirect interest he has in the transactions conducted and the contracts concluded
for the company’s account; and
g) not accepting any benefit granted thereto by third parties in relation to his role in the company.
The Regulations shall determine the provisions related to this Article.
Article 27: Conflict of Interest, Competition, and Exploitation of Assets
1. A company’s manager or board member may not have any direct or indirect interest in the transactions
conducted and contracts concluded for the company’s account without the authorization of the partners,
general assembly, or shareholders or their designees.
2. A company’s manager or board member may not engage in any business that may compete with the
company or with any of its activities without the authorization of the partners, general assembly, or
shareholders or their designees.
3. A company’s manager or board member may not exploit the company’s assets or information or any
investment opportunity offered to the company or to him in his capacity as a manager or board member
for his benefit whether directly or indirectly.
4. The Regulations shall specify the rules necessary for the implementation of paragraphs (1), (2), and (3) of
this Article.
5. Paragraph (1) of this Article shall not apply to the following:
a) Transactions conducted and contracts concluded pursuant to public tenders.
b) Transactions and contracts that aim to meet personal needs if they are carried out under the same terms
8
7
and conditions the company applies to all persons and contractors it deals with and are within the
company’s regular activities.
c) Any other transactions or contracts specified by the Regulations which are not inconsistent with the
company’s interest.
6. If the company’s manager or a board member violates paragraph (1) of this Article, the company may
petition the competent judicial authority to invalidate the contract and order him to return any profit or
benefits realized from such violation.
7. If the company’s manager or a board member violates paragraph (2) of this Article, the company may
petition the competent judicial authority for appropriate compensation
Article 28: Liability of Company Management
1. The company’s manager and board members shall be jointly and severally liable for any damage incurred
by the company, partners, shareholders, or third parties resulting from the violation of this Law or the
company’s articles of incorporation or articles of association or from a wrongful act, negligence, or
omission in the performance of their duties. Any condition contrary to this provision shall be deemed null
and void.
2. Liability of company managers or board members shall be either personal or joint. Joint liability shall be
incurred by all managers or board members if the decision subject of the liability is unanimously voted
thereon; if, however, the decision is passed by majority vote, objecting managers or board members shall
not be held liable if their objection is explicitly recorded in the meeting minutes. Absence from the meeting
at which the decision is issued shall not exempt the absentee from liability, unless it is established that he
was not aware of the decision or was unable to object to it after becoming aware of it.
3. The company may provide liability insurance coverage for its manager or a board member during the term
of service or membership against any claim made against him in his capacity as a manager or board
member.
Article 29: Legal Action Initiated by Companies, Partners, or Shareholders
1. A company may initiate a derivative action against a manager or board members for any damage incurred
by the company resulting from the violation of this Law or the company’s articles of incorporation or
articles of association or from a wrongful act, negligence, or omission in the performance of their duties.
The decision to initiate the action and to designate a representative on behalf of the company to pursue
such action shall be made by the partners, general assembly, or shareholders. If the company is under
liquidation, the liquidator shall initiate the action. If any liquidation proceedings are initiated against the
company under the Bankruptcy Law, the action shall be initiated by its legal representative.
2. A single partner or shareholder, or more, representing 5% of the company’s capital, unless the company’s
articles of incorporation or articles of association stipulate a lower percentage, may initiate a derivative
action on behalf of the company if such action is not initiated by the company, provided the action serves
the interests of the company and is based on valid grounds, and the plaintiff is acting in good faith and is
a partner or shareholder in the company at the time of initiating the action.
3. To initiate the action referred to in paragraph (2) of this Article, the company’s manager or board
members, as the case may be, shall be notified of the intent to initiate the action at least 14 days prior to
the initiation date.
4. A partner or shareholder may initiate a private right of action against the manager or board members if
the wrongful act attributed thereto results in a damage personally affecting him.
Article 30: Hearing of a Lawsuit
1. The approval of the partners, general assembly, or shareholders, as the case may be, to relieve the manager
or board members from liability shall not preclude the initiation of the legal actions referred to in Article
29 of this Law.
9
7
2. Except for cases of forgery and fraud, a derivative action shall not be heard upon the lapse of five years
from the end of the fiscal year in which the act resulting in damage was committed, or upon the lapse of
three years from the end of the manager’s term of service or board member’s term of membership,
whichever is later.
Article 31: Business Judgment Rule
The company’s manager or a board member shall be deemed to have fulfilled his duty in a decision he made
or voted on in good faith if he:
a) has no personal interest in the subject matter of the decision;
b) understands and is familiar with the subject matter of the decision to an extent he deems reasonable
according to the circumstances of the decision; and
c) believes firmly and rationally that the decision serves the company’s interests.
The burden of proving otherwise shall rest with the plaintiff. For the purposes of this Article, a decision shall
refer to an action or omission relating to the company’s business.
Article 32: Expenses of Initiating Derivative Action
The competent judicial authority may, at the request of a partner or shareholder, order the company to pay
the expenses he incurred in the initiation of a derivative action, regardless of its outcome, if he initiates the
action in good faith and such action is in the interest of the company.
Article 33: Enforcement against Partners or Shareholders Profits
A personal creditor of a partner or shareholder may petition the competent judicial authority to satisfy the
debt using the interests of the indebted partner or shareholder in the net profit distributed. Upon termination
of the company, the creditor’s claim shall be satisfied using the debtor’s interests in the remainder of the
company’s assets after settling the company’s debts.
Article 34: Enforcement against Interests and Shares
Subject to the Movable Property Security Law and other relevant laws, the personal creditor of a partner or
shareholder may, in addition to the rights provided for in Article 33 of this Law, petition the competent
judicial authority to:
a) sell a sum of the partner’s interests enough to satisfy his debt. The other partners may recover such
interests in accordance with the provisions of this Law; and
b) sell a sum of the shareholder’s shares enough to satisfy his debt. The shareholders in an unlisted jointstock company and a simplified joint-stock company shall, if provided for in the company’s articles of
association, have a preemptive right to purchase the shares within 15 days from the date they are offered
for sale.
Part 2: General Partnerships
Chapter 1: General Provisions
Article 35: Definition of a General Partnership
A general partnership is a company incorporated by two or more natural or legal persons who are jointly and
personally liable for the company’s debts and liabilities. A partner in such company shall acquire the capacity
of a merchant.
Chapter 2: Incorporation of a General Partnership
Article 36: Articles of Incorporation Information
The following information shall be included in the articles of incorporation of a general partnership:
10
7
a) Partners’ names and particulars.
b) Company’s name.
c) Company’s headquarters.
d) Company’s purpose.
e) Company’s capital and its distribution among partners, together with sufficient details on the contribution
pledged by each partner and its due date.
f) Company’s term, if any.
g) Company’s management.
h) Issuance of partner decisions and the quorum required for their issuance.
i) Distribution of profits and losses among partners.
j) Dates on which the company’s fiscal year commences and ends.
k) Termination of the company.
l) Any other terms, conditions, or information the partners agree to include in the company’s articles of
incorporation that are not inconsistent with the provisions of this Law.
Chapter 3: General Partnership Management
Article 37: Management Powers
1. A general partnership shall be managed by its partners, and a partner of legal personality shall designate
his representative in the management. The partners may, in the company’s articles of incorporation or in
a separate contract, agree to appoint one or more managers from among themselves or others.
2. In case of multiple managers, whether from among partners or others, each manager may solely undertake
any act of management if the managers’ powers are not specified and there is no stipulation denying any
of them the sole management of the company. The other managers may object to any act of management
prior to becoming valid against third parties; in such case, the majority vote of managers shall prevail. In
case of a tie, the matter shall be referred to the partners to decide thereon in accordance with Article 38 of
this Law.
3. The manager, or managers in case of multiple managers, shall manage the company in accordance with
its purpose, and shall represent it before the judiciary, arbitration tribunals, and other parties, unless the
company’s articles of incorporation explicitly restrict his powers. In all cases, the company shall be bound
by any act carried out by the manager on behalf of the company and within its purposes, unless the other
party involved in such activity acts in bad faith.
Article 38: Decisions of Partners
Partner decisions shall be passed by the majority vote of partners, except for decisions relating to amendments
to a company’s articles of incorporation, which shall be passed by the unanimous vote of partners, unless the
company’s articles of incorporation stipulate otherwise.
Article 39: Prohibited Activities for Managers
A manager shall not engage in any activities beyond the company’s purposes, except pursuant to a decision
by the partners or an explicit stipulation in the company’s articles of incorporation. Such prohibition shall
specifically apply to the following activities:
a) Setting up or shutting down company branches.
b) Making donations, except for usual small donations.
c) Binding the company to act as a guarantor to another party.
d) Conciliating the company’s rights.
e) Selling or pledging the company’s real property, unless the sale falls within the company’s purposes.
f) Selling or pledging the company’s place of business (store).
g) Obtaining loans on behalf of the company.
11
7
Article 40: Competing with the Company
A partner may not, without the approval of the other partners, engage for his own account or for the account
of others in any activity similar to that of the company, nor may he be a partner, manager, or board member
in a competing company or a controlling owner of interests or shares in another company engaged in the
same activity. If the partner fails to comply with such provision, the company may petition the competent
judicial authority to deem the activities carried out for his own account as having been carried out for the
company’s account, and the company may also seek compensation from him.
Article 41: Powers of Non-Managing Partners
A non-managing partner may not interfere in the company’s management. However, said partner, or his
designee, may, twice during the fiscal year, have access to the company’s operations, examine its records and
documents, obtain a summary of the company’s financial status from such records and documents, and may
offer his opinion to the company’s manager. Any agreement to the contrary shall be deemed null and void.
Article 42: Removal of Manager
1. If the manager is appointed as a managing partner in the company’s articles of incorporation, he may not
be removed except pursuant to a unanimous decision issued by the other partners, and if he is appointed
as such in a separate contract, he may be removed pursuant to a decision issued by the majority vote of
partners, unless the company’s articles of incorporation stipulate otherwise.
2. If the manager is not a partner, whether appointed in the company’s articles of incorporation or in a
separate contract, he may be removed pursuant to a decision issued by the majority vote of partners.
3. A manager appointed in the company’s articles of incorporation or in a separate contract, whether a partner
or otherwise, may be removed from his position pursuant to a final judgment rendered by the competent
judicial authority.
4. The removal of the manager shall not result in the dissolution of the company, unless stipulated in the
company’s articles of incorporation.
Article 43: Resignation of Manager
1. A company’s manager, whether a partner or otherwise, shall have the right to resign, provided that he
notifies the partners in writing at least 60 days prior to the effective date of his resignation, unless
stipulated otherwise in the company’s articles of incorporation or in the appointment contract; otherwise,
he shall be liable for any damage arising from his resignation.
2. The resignation of the manager shall not result in the dissolution of the company, unless stipulated in the
company’s articles of incorporation.
Chapter 4: Interests and Partners in General Partnerships
Article 44: Interests of Partners and Assignment Thereof
1. The interests of partners may not be in the form of tradable sukuk.
2. A partner may not wholly or partly assign his interests unless such assignment is carried out pursuant to
the conditions provided for in the company’s articles of incorporation or upon obtaining the approval of
the other partners. Any assignment agreement concluded to the contrary shall be deemed null and void.
Said assignment shall be registered with the Commercial Register and published therein.
3. A partner may assign to other parties the financial rights associated with his interests in the company, and
the effect of such assignment shall be limited to the parties thereto.
Article 45: Partner’s Joining, Withdrawal, Removal, or Assignment
1. If a new partner joins the company with a new contribution, he shall be personally and jointly liable with
the other partners for the company’s past and future debts. He may, however, be relieved from past debts
12
7
if the other partners unanimously agree thereto. Such agreement shall be valid against creditors from the
date it is registered with the Commercial Register and published therein.
2. If a partner withdraws from the company or is removed therefrom, he shall not be liable for the debts
incurred by the company following the registration of his withdrawal or removal with the Commercial
Register and its publication therein. He shall, however, remain liable for any debts incurred prior thereto,
unless the other partners and the company’s creditors agree to relieve him from such debts.
3. If a partner assigns his interests, the assignee shall be liable to the company’s creditors for any debts
incurred prior to becoming a partner or thereafter. The assignor shall not be liable for the company’s debts
toward its creditors unless they object to his relief from liability within 30 days after being notified by the
company of such assignment. In case of objection, the assignor shall be jointly and severally liable for the
debts incurred prior to his assignment.
Article 46: Withdrawal and Removal Procedures
1. Unless the company’s articles of incorporation stipulate otherwise, a partner may unilaterally withdraw
from the company, provided that he notifies the other partners at least 60 days prior to the date set for
withdrawal.
2. The company’s articles of incorporation may provide for procedures for removal of partners. If the articles
of incorporation do not provide for such procedures, the majority of partners may petition the competent
judicial authority to remove a partner, or more, from the company if there are valid grounds therefor. In
such case, the company shall continue to exist between the remaining partners.
3. A withdrawing partner, or the remaining partners in case a partner is removed from the company, shall
register the withdrawal or removal with the Commercial Register and publish it therein. Said withdrawal
or removal shall not be valid against third parties except upon its registration and publication.
4. The competent judicial authority may, upon a petition by a partner, or more, issue a decision to dissolve
the company if its continuation between the partners is not feasible.
Article 47: Partner’s Interests in Profits and Losses
1. Profits and losses and the interests of each partner therein shall be determined at the end of the company’s
fiscal year pursuant to financial statements prepared in accordance with accounting standards approved in
the Kingdom. Upon determination of partners’ interests in the profits, each partner shall be deemed a
creditor of the company to the extent of his interests, unless the company’s articles of incorporation provide
otherwise.
2. Any decrease in the company’s capital arising from losses shall be made up from the profits of subsequent
years. In any other case, a partner shall not be obliged to make up for any decrease in his interests in the
capital due to losses without his consent.
Article 48: Enforcement against a Partner’s Property
1. A partner may not be required to use his property to satisfy a company’s debt unless the debt is established
pursuant to a final judgment or enforcement document and the company fails to satisfy the debt after a
debt satisfaction notice is provided thereto.
2. A partner shall, upon satisfaction of the company’s debt, have the right of recourse against the other
partners for the amounts he pays on behalf of the partners in proportion to their respective interests.
Article 49: Valuation of a Partner’s Interests
1. Absent a specific agreement relating to the value of interests or a specific valuation method therefor in the
company’s articles of incorporation, a partner’s interests shall be valuated pursuant to a report prepared
by one or more accredited valuers upon his withdrawal or removal from the company, the initiation of any
liquidation proceedings against him under the Bankruptcy Law, or upon his death and the decision of his
heirs not to join the company. Said report shall indicate the fair value of each partner’s interests in the
company’s assets at the time of the event. The partner or his heirs shall not have an interest in any future
13
7
rights, unless such rights arise from transactions made prior to such event.
2. A partner’s interests in case of assignment shall be valuated according to the value agreed upon with the
assignee, unless the company’s articles of incorporation provide otherwise.
Chapter 5: Termination of a General Partnership
Article 50: Cases of Termination
1. A general partnership shall not terminate upon a partner’s death, interdiction, removal, or withdrawal, or
upon the initiation of any liquidation proceedings under the Bankruptcy Law against such partner, unless
the company’s articles of incorporation stipulate otherwise. In such cases, the company shall continue to
exist between the other partners and said partner or his heirs shall have only his interests in the company’s
assets. Said interests shall be determined pursuant to Article 49 of this Law.
2. The company’s articles of incorporation may stipulate that, in case of the death of a partner, the company
may continue to exist with heirs interested in joining the company as partners, even if they are minors or
prohibited by law from engaging in commercial activities. If the company continues to exist, the partner’s
heirs who are minors or prohibited by law from engaging in commercial activities shall not be liable for
the company’s debts except to the extent of their respective inherited interests in the company’s capital.
In such case, the company shall, within a period not exceeding one year from the date of the partner’s
death, be converted into a limited partnership, whereby such heirs who are minors or prohibited by law
from engaging in commercial activities become limited partners; otherwise, the company shall be deemed
terminated by force of law upon the lapse of said period, unless the heirs reach the age of majority or cease
to be prohibited from engaging in commercial activities during said period, and wish to become general
partners.
3. If only one partner remains in the company upon the death, interdiction, withdrawal, or removal of the
other partners or upon the initiation of any liquidation proceedings against them under the Bankruptcy
Law, said partner shall be given a period of 90 days to rectify the company’s status whether by the joining
of another partner or the conversion of the company into another form of company provided for in this
Law. Otherwise, the company shall be deemed terminated by force of law upon the lapse of such period.
Part 3: Limited Partnership
Chapter 1: General Provisions
Article 51: Definition of a Limited Partnership
1. A limited partnership is a company that comprises two groups of partners, one group shall include at least
one partner of a natural or legal personality who shall be jointly and personally liable for the company’s
debts and liabilities, and the other group shall include at least one limited partner of a natural or legal
personality who shall not be liable for the company’s debts and liabilities except to the extent of his
interests in the company’s capital. A limited partner shall not acquire the capacity of a merchant.
2. General partners in a limited partnership shall be subject to the provisions applicable to partners in a
general partnership.
3. Absent a specific provision in this Part, a limited partnership shall be subject to the provisions of a general
partnership.
Chapter 2: Incorporation of a Limited Partnership
Article 52: Articles of Incorporation Information
The following information shall be included in the articles of incorporation of a limited partnership:
a) Partners’ names and particulars.
b) Company’s name.
c) Company’s headquarters.
14
7
d) Company’s purpose.
e) Company’s capital and its distribution among partners, together with sufficient details on the contribution
pledged by each partner and its due date.
f) Company’s term, if any.
g) Company’s management.
h) Issuance of partner decisions and the quorum required for their issuance.
i) Distribution of profits and losses among partners.
j) Dates on which the company’s fiscal year commences and ends.
k) Termination of the company.
l) Any other terms, conditions, or information the partners agree to include in the company’s articles of
incorporation that are not inconsistent with the provisions of this Law.
Chapter 3: Partners in a Limited Partnership
Article 53: Powers of Limited Partners
1. A limited partner, or his designee, may, twice during the fiscal year, have access to the company’s
operations, examine its records and documents, obtain a summary of the company’s financial status from
such records and documents.
2. A limited partner may not interfere in the management of the company’s external activities, even with a
power of attorney; otherwise, he shall be jointly and personally liable for the debts and liabilities the
company incurs due to his interference. A limited partner may, however, participate in the management
of the company’s internal activities in accordance with its articles of incorporation. The partner shall not
be deemed liable for such participation, unless it leads third parties to believe that he is a general partner;
in such case, he shall be deemed jointly and personally liable to such parties for the company’s debts and
liabilities.
Article 54: General Assembly of a Limited Partnership
In a company’s articles of incorporation, general and limited partners may agree to have a general assembly
and shall determine its powers and meeting procedures.
Article 55: Decisions of Partners
1. Unless stipulated otherwise in the company’s articles of incorporation, partner decisions shall be passed
as follows:
a) Decisions amending the articles of incorporation shall be passed by the unanimous vote of general
partners and the approval of limited partners owning majority interests in the capital.
b) Other decisions shall be passed by the majority vote of general partners.
2. A limited partner may not request the dissolution of the limited partnership nor may he vote on issues
relating to the appointment or removal of its manager.
Article 56: Assignment of Interests
1. A limited partner may assign all or part of his interests to other partners in the company.
2. A limited partner may assign all or part of his interests to non-partners upon the approval of general
partners and the limited partners owning majority interests in the capital, unless the company’s articles of
incorporation stipulate otherwise.
3. A general partner may assign all or part of his interests to a limited partner or non-partner in accordance
with paragraph (2) of this Article.
4. If a limited partner fails to provide his interests in the company’s capital on the due date prior to the
assignment of said interests, the assignee shall be liable for providing the same.
5. General or limited partners may join a company upon the approval of all general partners; the approval of
15
7
limited partners shall not be required, unless the company’s articles of incorporation stipulate otherwise.
Chapter 4: Termination of a Limited Partnership
Article 57: Cases of Termination
A limited partnership shall not terminate upon a limited partner’s death, interdiction, withdrawal, insolvency,
or upon the initiation of any liquidation proceedings under the Bankruptcy Law against such partner, unless
the company’s articles of incorporation stipulate otherwise.
Part 4: Joint-Stock Company
Chapter 1: General Provisions
Article 58: Definition of a Joint-Stock Company
A joint-stock company is a company incorporated by one, or more, natural or legal persons and its capital is
divided into tradable shares. The company shall be solely liable for the debts and liabilities arising from its
activities. The liability of shareholders shall be limited to paying the value of the subscribed shares.
Article 59: Capital of a Joint-Stock Company
The issued capital of a joint-stock company shall not be less than five hundred thousand riyals and its paidup capital upon incorporation shall not be less than a quarter of said capital.
Article 60: Issued and Authorized Capital
1. A joint-stock company shall have issued capital representing subscribed shares and the company’s articles
of association may provide for authorized capital.
2. The company’s issued capital may, pursuant to a decision by the company’s board of directors, be
increased within the limits of its authorized capital, provided that the issued capital is paid in full.
Chapter 2: Incorporation of a Joint-Stock Company
Article 61: Articles of Association Information
1. The following information shall be included in the articles of association of a joint-stock company:
a) Company’s name.
b) Company’s headquarters.
c) Company’s purpose.
d) Company’s authorized capital, if any, and its issued and paid-up capital.
e) Number of shares; their types and classes, if any; their nominal value; and the rights associated with
each type or class.
f) Company’s term, if any.
g) Company’s management and number of board members.
h) Dates on which the company’s fiscal year commences and ends.
i) Any other terms, conditions, or information the incorporators or shareholders agree to include in the
company’s articles of association that are not inconsistent with the provisions of this Law.
2. The following shall be enclosed with the company’s articles of association upon submission of its
incorporation application:
16
7
a) Incorporators’ names, addresses, and nationalities.
b) Statement of projected works and expenses for incorporating the company.
c) An acknowledgment by the incorporators that the company’s issued shares are fully subscribed, and a
statement of the value of paid-up shares.
d) A certificate of the amount of paid-up capital issued by a bank licensed to operate in the Kingdom.
e) Incorporators’ decision appointing members of the first board of directors, stating their names,
nationalities, addresses, and dates of birth, and the decision appointing the first auditor in cases where
an auditor is required under this Law, if not appointed in the company’s articles of association.
f) An acknowledgment by the incorporators to satisfy all the requirements provided for in this Law which
relate to the incorporation of the company.
g) A report prepared by an accredited valuer, or more, indicating the fair value of in-kind contributions,
if any, and an acknowledgment by incorporators of their approval of the consideration for such
contributions.
Article 62: Share Subscription
If incorporators do not limit the subscription of all of the company’s shares to themselves during the
incorporation period, unsubscribed shares must be offered for subscription in accordance with the Capital
Market Law.
Article 63: Subscription during the Incorporation Period
The Ministry and the CMA may determine the rules, procedures, documents, and approvals necessary for the
incorporation of a joint-stock company the shares of which are offered for public subscription during the
incorporation period or listed in the capital market.
Article 64: Depositing the Value of Shares
1. The paid-up value of subscribed shares shall be deposited with a bank licensed to operate in the Kingdom
in an account in the name of the company under incorporation. Disposition of such account shall be
entrusted only to the board of directors following the company’s registration with the Commercial
Register.
2. If the company is not registered with the Commercial Register, subscribers may recover the amounts they
paid from the banks through which they subscribed. In such case, the banks shall promptly refund such
amounts to the subscribers, and incorporators shall be jointly and severally liable against subscribers for
such obligation and for any due compensation. Incorporators shall bear all of the expenses incurred in the
incorporation of the company and shall be jointly and severally liable to third parties for their acts and
dispositions during the incorporation period.
Article 65: Company Registration with the Commercial Register
A company shall be deemed duly incorporated upon its registration with the Commercial Register. Any
lawsuit filed thereafter to invalidate the company for violation of the provisions of this Law or the provisions
of the company’s articles of association shall not be heard.
Article 66: Valuation of In-Kind Contributions
1. If in-kind contributions are provided upon the incorporation of a company or upon the increase of its
capital, said contributions shall be valuated by an accredited valuer, or more, who shall prepare a report
indicating the fair value of the contributions. Such report shall be presented to the incorporators or the
extraordinary general assembly, as the case may be, for deliberation. Providers of in-kind contributions
17
7
may not vote on the decision related to said report. If the incorporators or general assembly decide to
reduce the value of in-kind contributions stated in the report, such reduction must be approved by the
providers of said contributions.
2. The period between the issuance of the accredited valuer’s report on the fair value of in-kind contributions
and the issuance of shares in exchange for said contributions shall not exceed the period specified in the
Regulations.
Chapter 3: Joint-stock Company Management
Section 1: Board of Directors
Article 67: Nomination for Board Membership
1. A joint-stock company shall be managed by a board of directors comprising at least three members.
2. A shareholder may nominate himself or one or more shareholders for membership on the board of directors
of a joint-stock company.
Article 68: Election of Board Members
1. The ordinary general assembly shall elect the company’s board members. In all cases, board members
must be natural persons.
2. The Regulations shall specify the voting method for electing board members in a joint-stock company.
3. The company’s articles of association may specify the method of forming the board of directors, subject
to the rules set out in the Regulations.
4. The company’s articles of association shall determine the term of the board of directors, provided it does
not exceed four years. Board members may be re-elected, unless the company’s articles of association
provide otherwise.
5. The company’s articles of association shall determine membership expiration or termination upon the
board’s request. The ordinary general assembly may, however, remove some or all board members even
if the company’s articles of association stipulate otherwise. In such case, the ordinary general assembly
shall elect a new board of directors or a replacement for removed members, as the case may be, in
accordance with the provisions of this Law. The Competent Authority may specify the rules governing
the removal of board members by the ordinary general assembly.
Article 69: Expiration of the Term of Board of Directors or Resignation of its Members
1. The board of directors shall call the ordinary general assembly to convene in ample time prior to the
expiration of the board’s term to elect a board of directors for a new term. If the election cannot be held
and the term of the current board expires, its members shall continue to carry out their duties until a board
of directors is elected for a new term, provided that they do not continue to carry out their duties beyond
the period specified in the Regulations.
2. If the chairman and members of the board of directors resign, they shall call for an ordinary general
assembly meeting to elect a new board. The resignation shall not take effect until a new board is elected,
provided that the resigning board does not continue to carry out its duties beyond the period specified in
the Regulations.
3. A board member may resign pursuant to a written notice submitted to the chairman of the board of
directors. If the chairman of the board resigns, the notice shall be submitted to the board members and the
board’s secretary. In both cases, the resignation shall take effect from the date specified in the notice.
4. Unless the company’s articles of association stipulate otherwise, if the position of a board member of a
joint-stock company becomes vacant due to his death or resignation, and if the minimum number of
members required for the validity of board meetings as stipulated in this Law or the company’s articles of
association is not affected by such vacancy, the board may appoint a qualified person with relevant
expertise to provisionally fill the vacancy. The appointment shall be reported to the Commercial Register,
and to the CMA if the company is listed in the capital market, within 15 days from the date of such
18
7
appointment, and it shall be submitted to the ordinary general assembly in its first meeting. The appointed
member shall complete the term of his predecessor.
5. If the number of board members falls below the minimum number required for the validity of board
meetings as stipulated in this Law or the company’s articles of association, the remaining members shall
call for an ordinary general assembly meeting within 60 days to elect the required number of members.
6. If the board of directors is not elected for a new term or if the required number of board members is not
satisfied, in accordance with paragraphs (1), (2), and (5) of this Article, any person with interest may
petition the competent judicial authority to appoint qualified persons with expertise, in any number it
deems appropriate, to supervise the management of the company and call on the general assembly to
convene within 90 days to elect a new board of directors or appoint board members to satisfy the required
number, as the case may be, or may petition the competent judicial authority to dissolve the company.
Article 70: Termination of Membership of Absentees
The general assembly may, upon the recommendation of the board of directors, terminate the membership of
any member who fails to attend three consecutive meetings or five non-consecutive meetings during the
course of his membership without an excuse acceptable to the board.
Article 71: Disclosure of Interest in Transactions and Contracts
1. Subject to the provision of Article 27 of this Law, a board member shall immediately disclose to the board
of directors any direct or indirect interest he may have in company transactions or contracts. Such
disclosure shall be recorded in the minutes of the board meeting. Said member may not vote on a decision
by the board of directors and the general assemblies relating to such transactions and contracts. The board
shall notify the general assembly, when it convenes, of the transactions and contracts in which such board
member has direct or indirect interest; the notice shall be accompanied with a special report prepared by
the company auditor in accordance with auditing standards approved in the Kingdom.
2. If a board member fails to disclose his interest as provided for in paragraph (1) of this Article, the company
or any person with interest may petition the competent judicial authority to invalidate the contract or
obligate the member to return any profit or benefit realized therefrom.
3. Liability for damages arising from the transactions and contracts referred to in paragraph (1) of this Article
shall be borne by the board member having interest in such transactions or contracts; liability shall also
be borne by other board members for their omission or negligence in the performance of their duties in
violation of said paragraph, or if it is established that the transactions and contracts are unfair or involve
a conflict of interest and shareholders sustain damage therefrom.
4. Board members who object to the decision shall not be liable if their objection is explicitly recorded in
the meeting minutes. Absence from the meeting at which the decision is issued shall not exempt the
absentee from liability, unless it is established that he was not aware of the decision or was unable to
object to it after becoming aware thereof.
Article 72: Granting Loans
1. A joint-stock company may not grant any type of loan to its board members nor may it act as a guarantor
or provide guarantees for any loans they conclude with a third party. This shall apply to any loan or
guarantee provided to any of their relatives. Any contract concluded in violation of this provision shall be
deemed null and void. The company may petition the competent judicial authority for compensation from
the violator for any damage sustained thereby.
2. Paragraph (1) of this Article shall not apply to the following:
a) Banks and other financing companies, which may, within their purposes and subject to the terms and
conditions applicable to their transactions with clients, grant loans or extend credit to their board
members, or provide guarantees for loans they conclude with third parties.
b) Loans and guarantees granted by the company in accordance with its employee incentive programs
which are approved in accordance with the company’s articles of association or pursuant to a decision
19
7
by the general assembly.
3. The Competent Authority may determine the rules and cases in which the company is prohibited from
granting a loan or guarantee to its shareholders.
Article 73: Monitoring the Board of Directors
A shareholder may monitor the board of directors in accordance with the provisions of this Law. However,
he may not interfere with the work of the board of directors nor the work of the company’s executive
management, unless he is a member of its board of directors or is part of its executive management, or such
interference is made through the general assembly in accordance with its powers.
Article 74: Conclusion of Loans and Disposition of Company Assets
The board of directors may conclude loans, regardless of their term; sell or pledge the company’s assets or
place of business; or relieve the company’s debtors from their liabilities, unless its powers to carry out the
same are restricted by the company’s articles of association or a general assembly decision.
Article 75: Sale of Company Assets
The board of directors must obtain the approval of the general assembly for the sale of company assets the
value of which exceeds 50% of the value of its total assets, whether the sale is made through one transaction,
or more. In such case, the transaction which leads to the sale of more than 50% of the value of assets shall
require the general assembly’s approval. Said percentage shall be calculated from the date the first transaction
is concluded within the previous 12 months. The Competent Authority may exclude certain acts and
dispositions from the provisions of this Article.
Article 76: Remuneration of Board Members
1. The company’s articles of association shall determine remuneration of board members. Such remuneration
may be a fixed amount, an allowance for attending meetings, in-kind benefits, a percentage of the net
profit, or a combination of two or more of the above. The company’s articles of association may also set
the maximum amount of remuneration, and the ordinary general assembly shall determine such amount,
provided that it is fair, incentivizing, and commensurate with the performance of the member and the
company. The Regulations shall specify the rules necessary for the implementation of this paragraph.
2. The report submitted by the board of directors to the ordinary general assembly at its annual meeting shall
include a detailed account of all the amounts board members received or were entitled to receive during
the fiscal year in the form of remuneration, meeting allowances, expense allowances, and other benefits.
The report shall also include an account of the amounts received by board members in their capacity as
employees or executives, or in exchange for technical, administrative, or consulting services as well as an
account of the number of board meetings and the number of meetings attended by each member.
Article 77: Powers of Board of Directors
1. Without prejudice to the powers of the general assembly, the board of directors shall have all the powers
necessary to manage the company and achieve its purposes, except for the acts or dispositions falling
within the powers of the general assembly which are excluded pursuant to a special provision in this Law
or the company’s articles of association. The board of directors may also, within its powers, delegate one
or more of its members or others to carry out certain acts.
2. The company shall be bound by all of the acts and dispositions performed in its name by the board of
directors, even if said acts and dispositions are beyond the powers of the board, unless such acts and
dispositions involve a party who acts in bad faith or a party who knows that such acts are beyond the
powers of the board.
20
7
Article 78: Assignment of Powers within the Board of Directors
1. Subject to the company’s articles of association, the board of directors of a joint-stock company shall, at
its first meeting, appoint a chairman from among its members, and it may appoint a managing director or
chief executive officer from among its members. The company’s articles of association shall specify their
powers and duties. If the articles of association do not provide for the assignment of powers, such powers
shall be assigned by the board of directors.
2. The board of directors of a joint-stock company listed in the capital market shall, at its first meeting,
appoint a vice-chairman from among its members. An unlisted joint-stock company may appoint a vicechairman.
3. The board of directors of a joint-stock company shall appoint a chief executive officer from among its
members or others. It shall determine his powers and remuneration if the company’s articles of association
do not provide therefor.
4. The board of directors of a joint-stock company shall appoint a board secretary from among its members
or others. The board of directors shall determine his duties and remuneration if the company’s articles of
association do not provide therefor.
5. The board of directors may remove the chairman, vice-chairman, managing director, chief executive
officer, and board secretary, or any of them, from their positions. However, this shall not result in the
termination of their board membership.
Article 79: Company Representation
1. Without prejudice to the powers of the board of directors set forth in this Law and the company’s articles
of association, the chairman of the board of directors of a joint-stock company shall represent it before the
judiciary, arbitration tribunals, and other parties. The company’s articles of association may stipulate that
the managing director or chief executive officer has the power to represent the company; either of them
may delegate others to represent the company.
2. The chairman of the board of directors of a joint-stock company may, pursuant to a written decision,
delegate certain powers to other board members or to others to carry out certain acts, unless the company’s
articles of association stipulate otherwise.
3. If the board of directors has a vice-chairman, he shall assume the chairman’s duties in his absence.
Article 80: Meetings of Board of Directors
1. The board of directors of a joint-stock company shall convene at least four times a year upon a call by its
chairman, as stipulated in the company’s articles of association. The Competent Authority may amend the
minimum number of meetings provided for in this paragraph. The chairman shall call for a board meeting
to discuss one or more matters if requested in writing by a board member.
2. Board meetings shall only be valid if attended by at least half of the members, whether in person or by
proxy, unless the company’s articles of association stipulate a higher percentage.
3. Board decisions shall be passed by the majority vote of attending members, whether in person or by proxy,
and the chairman of the meeting shall, in case of a tie, have the casting vote, unless the company’s articles
of association stipulate otherwise.
4. The board of directors shall determine the location of its meetings, and may hold its meetings through
means of technology.
Article 81: Attending Meetings by Proxy and Effectiveness of Board Decisions
1. A member of the board of directors of a joint-stock company may not attend meetings nor vote on board
decisions by proxy. As an exception, he may designate another board member to act as his proxy if
stipulated in the company’s articles of association, provided that the designated member does not act as
proxy for more than one member.
2. A board decision shall become effective on the date of its issuance, unless the decision provides for a
specific date or condition for its effectiveness.
21
7
Article 82: Issuing Decisions on Urgent Matters
The board of directors of a joint-stock company may issue decisions on urgent matters by circulation to all
members, unless a member submits a written request for a board meeting to deliberate such matters. The
decisions shall be passed by the majority vote of members, unless the company’s articles of association
stipulate a higher percentage or number. Such decisions shall be presented to the board of directors at its
subsequent meeting to be recorded in the minutes of said meeting.
Article 83: Minutes of Board Meetings
1. Deliberations and decisions of the board of directors of a joint-stock company shall be recorded in minutes
prepared by the board secretary and signed by the meeting chairman, attending board members, and board
secretary.
2. The minutes shall be recorded in a special register signed by the chairman of the board and board secretary.
3. Means of technology may be used to obtain signatures, record deliberations and decisions, and prepare
meeting minutes.
Section 2: Shareholder Assemblies
Article 84: Shareholder General Assembly Meetings
1. Shareholder general assembly meetings shall be chaired by the chairman of the board of directors, the
vice-chairman in case of the chairman’s absence, or any member designated by the board of directors in
the absence of both the chairman and vice-chairman. If none of the above is possible, the shareholders
shall vote to designate a board member or any other person to chair the general assembly meeting.
2. A shareholder shall have the right to attend general assembly meetings even if the company’s articles of
association stipulate otherwise. A shareholder may delegate a person other than a board member to attend
such meetings on his behalf.
3. Means of technology may be used to hold general assembly meetings and enable shareholders to engage
in deliberations and vote on decisions.
Article 85: Powers of the Extraordinary General Assembly
The extraordinary general assembly shall have the following powers:
1. Amending the company’s articles of association, except for matters relating to the following:
a) Depriving a shareholder of his fundamental rights as a shareholder or making any amendments to such
rights, taking into consideration the nature of the rights related to the type or class of shares owned by
the shareholder, particularly the following:
i. Receiving dividends whether in the form of cash or bonus shares to other than the employees of the
company or its subsidiaries.
ii. Receiving a share of the company’s net assets upon liquidation.
iii. Attending general or special shareholder assembly meetings, participating in deliberations, and
voting on decisions.
iv. Disposition of his shares, except in cases specified in this Law.
v. Requesting access to the company’s records and documents, monitoring board activities, initiating
derivative actions against board members, and challenging the validity of decisions issued by
general or special assemblies.
b) Amendments which increase the financial burden of shareholders, unless unanimously approved by
shareholders.
2. Deciding on the continuation or dissolution of the company.
3. Approving the company’s purchase of its shares.
22
7
Article 86: Decisions of the Ordinary General Assembly Issued by the Extraordinary General
Assembly
The extraordinary general assembly may, in addition to the powers prescribed thereto in this Law, issue
decisions on matters falling within the powers of the ordinary general assembly, subject to the same terms
and conditions applicable to the ordinary general assembly.
Article 87: Powers of the Ordinary General Assembly
Except for matters falling within the powers of the extraordinary general assembly, the ordinary general
assembly shall have the powers necessary over all other company matters, particularly the following:
a) Electing and removing board members.
b) Appointing a company auditor, or more, in accordance with this Law; determining his fees; and
reappointing and removing him.
c) Reviewing and discussing the board’s report.
d) Reviewing and discussing the company’s financial statements.
e) Reviewing the auditor’s report, if any, and making a decision thereon.
f) Deciding on board proposals relating to the manner of distributing dividends.
g) Creating the company’s reserves and determining their uses.
Article 88: Ordinary General Assembly Meetings
1. The ordinary general assembly shall hold its annual meeting at least once during the six-month period
following the end of the company’s fiscal year. Other ordinary general assembly meetings may be held as
necessary.
2. The agenda of the annual meeting of the ordinary general assembly shall include the following items:
a) Reviewing and discussing the board of directors’ report for the ending fiscal year.
b) Reviewing the financial statements of the ending fiscal year.
c) Reviewing the auditor’s report for the ending fiscal year, if any, and making a decision thereon.
d) Deciding on board proposals relating to the distribution of dividends, if any.
3. The condition for holding the annual meeting of the ordinary general assembly shall be deemed satisfied
if an extraordinary general assembly convenes during the six-month period following the end of the
company’s fiscal year if its agenda includes the items stated in paragraph (2) of this Article.
Article 89: Amending the Rights of Shareholder Classes
If a decision issued by the ordinary general assembly involves amending the rights of a certain class of
shareholders, said decision shall not take effect unless approved by the shareholders of such class having
voting rights at a special assembly meeting convened in accordance with the provisions applicable to the
extraordinary general assembly and the issuance of its decisions.
Article 90: General and Special Assemblies
1. General and special assemblies shall convene upon a call by the board of directors, in accordance with the
conditions stipulated in the company’s articles of association. The board of directors shall call for an
ordinary general assembly meeting within 30 days if requested by the auditor or by a shareholder, or more,
representing at least 10% of the company’s voting shares. If the board fails to call for a general assembly
meeting within 30 days from the date of the auditor’s request, the auditor may call for such meeting.
2. The request referred to in paragraph (1) of this Article shall indicate the items on which shareholders are
required to vote.
3. The Competent Authority may call for an ordinary general assembly meeting in the following cases:
23
7
a) If the period specified for the ordinary general assembly meeting, as provided for in Article 88(1),
lapses without holding a meeting.
b) If it is established that the provisions of this Law or the company’s articles of association are violated
or that there is a fault in the company’s management, including cases in which the number of board
members falls below the minimum number required for the validity of board meetings.
c) If the board of directors fails to call for an ordinary general assembly meeting within the period
specified in paragraph (1) of this Article from the date of the auditor’s request or the request of a
shareholder, or more, representing at least 10% of the company’s voting shares.
The Competent Authority may take the measures necessary for holding the ordinary general assembly and it
may chair the assembly meeting if the meeting cannot be chaired in accordance with Article 84(1) of this
Law.
Article 91: Call for Assembly Meetings
1. The call for an assembly meeting shall be made at least 21 days prior to the date set for the meeting in
accordance with the rules specified in the Regulations, provided that:
a) shareholders are notified of the meeting by registered mail sent to the addresses registered in the
shareholders’ register, or by an announcement using means of technology; and
b) a copy of the invitation and the meeting agenda are sent to the Commercial Register, and to the CMA
if the company is listed in the capital market at the time of the announcement.
2. The invitation for the assembly meeting shall include at least the following:
a) A statement defining those with the right to attend the meeting and their right to designate persons
other than board members to act as their proxy; a statement of a shareholder’s right to discuss items on
the meeting agenda and direct questions as well as the manner of exercising the right to vote.
b) Meeting venue, date, and time.
c) Type of assembly, whether general or special.
d) Meeting agenda, including the items on which shareholders are required to vote.
3. Shareholders of an unlisted joint-stock company representing all of the company’s voting shares may hold
a general assembly meeting without adhering to the conditions and periods prescribed for calling for
meetings to review matters the decisions on which fall within the powers of the general assembly.
Article 92: Quorum of Ordinary General Assembly Meetings
1. An ordinary general assembly meeting shall be deemed valid only if attended by shareholders who
represent at least a quarter of the company’s voting shares, unless the company’s articles of association
stipulate a higher percentage, provided that such percentage does not exceed half of the voting shares.
2. If the quorum required for an ordinary general assembly meeting is not satisfied as stipulated in paragraph
(1) of this Article, a call shall be made for a second meeting to be held under the same conditions stipulated
in Article 91 of this Law within 30 days following the date set for the first meeting. The second meeting
may be held one hour after the end of the period set for the first meeting, provided this is permitted by the
company’s articles of association and the invitation for the first meeting provides for the possibility of
holding a second meeting. In all cases, the second meeting shall be deemed valid regardless of the number
of voting shares represented therein.
3. Decisions of an ordinary general assembly meeting shall be passed by the majority vote of voting rights
represented therein.
24
7
Article 93: Quorum of Extraordinary General Assembly Meetings
1. An extraordinary general assembly meeting shall be deemed valid only if attended by shareholders who
represent at least half of the company’s voting shares, unless the company’s articles of association stipulate
a higher percentage, provided that such percentage does not exceed two thirds of the voting shares.
2. If the quorum required for an extraordinary general assembly meeting is not satisfied as stipulated in
paragraph (1) of this Article, a call shall be made for a second meeting to be held under the same conditions
stipulated in Article 91 of this Law. The second meeting may be held one hour after the end of the period
set for the first meeting, provided that the invitation for the first meeting provides for the possibility of
holding a second meeting. In all cases, the second meeting shall be deemed valid if attended by
shareholders who represent at least a quarter of the company’s voting shares.
3. If the quorum required for the second meeting is not satisfied, a call shall be made for a third meeting to
be held under the same conditions stipulated in Article 91 of this Law. The third meeting shall be deemed
valid regardless of the number of voting shares represented therein.
4. Decisions of an extraordinary general assembly meeting shall be passed by the vote of two-thirds of the
voting shares represented therein. Decisions relating to the increase or decrease of capital, extension of
the company’s term, dissolution of the company prior to the expiry of the term specified in its articles of
association, merger of the company with another company, or division of the company into two companies
or more shall be deemed valid only if made by the vote of three-quarters of the voting shares represented
in the meeting.
5. Decisions of the extraordinary general assembly which are required to be registered with the Commercial
Register as prescribed by the Regulations shall be registered therewith by the board of directors within 15
days from their issuance date.
Article 94: Effectiveness of General Assembly Decisions
Decisions of a joint-stock company’s general assembly shall become effective from the date of their issuance,
unless this Law, the company’s articles of association, or said decisions stipulate a specific date or condition
for their effectiveness.
Article 95: Voting in Shareholder Assemblies
1. The company’s articles of association shall determine the voting method in shareholder assemblies.
2. Members of the board of directors may not vote on assembly decisions relating to transactions and
contracts in which they have direct or indirect interest or which involve a conflict of interest.
Article 96: Agenda of General Assembly
1. The board of directors shall, when preparing the agenda of the general assembly, take into consideration
the matters that shareholders wish to include. A shareholder, or more, representing at least 10% of the
company’s voting shares may add an item, or more, to the agenda during its preparation; the Competent
Authority may amend said percentage.
2. The board of directors shall list each matter included in the general assembly’s agenda as an independent
item. The board shall not combine fundamentally distinct matters under one item, nor shall it include under
one item the transactions and contracts in which any board member has a direct or indirect interest for the
purpose of voting on the whole item.
3. Any shareholder may discuss the items included on the agenda of the general assembly and direct related
questions to board members and the auditor. Any provision to the contrary in the company’s articles of
association shall be deemed null and void. The board of directors or the auditor shall answer the questions
of shareholders to the extent that does not undermine the company’s interests. If a shareholder is not
satisfied with the response to his question, he may request the general assembly to decide thereon and its
decision shall be final.
25
7
Article 97: Assembly Meeting Minutes
Minutes of assembly meetings shall indicate the number of shareholders in attendance, whether in person or
by proxy; the number of shares held by each attendee, whether personally or by proxy; the number of votes
designated thereto; the decisions made; the number of consenting and dissenting votes; and a summary of
meeting discussions. The minutes shall be recorded after every meeting in a special register and signed by
the assembly’s chairman and secretary and by the vote counters. The Competent Authority may set rules for
the minutes of assembly meetings and the duties of assembly secretaries and vote counters.
Article 98: Single-Person Joint-Stock Company
If a joint-stock company is incorporated by a single person, or if all of its shares are transferred to a single
person, said person shall have the powers and authorities of shareholder assemblies stipulated in this Part and
his decisions shall be issued in writing without the need to call for a meeting of the general assembly. Such
decisions shall be recorded in the special register referred to in Article 97 of this Law.
Article 99: Objection to Shareholder Assembly Decisions
1. Without prejudice to the rights of bona fide third parties, any shareholder may petition the competent
judicial authority to invalidate a decision issued by the shareholder assembly in violation of the provisions
of this Law or the company’s articles of association if the shareholder objects to said decision during the
meeting or if he does not attend the meeting for a valid reason. A lawsuit filed for invalidation shall not
be heard after the lapse of 90 days from the date the decision is issued.
2. To file the lawsuit referred to in paragraph (1) of this Article, the plaintiff must be a shareholder in the
company upon filing the lawsuit and throughout its proceedings.
Article 100: Issuing a Decision by Circulation
1. The articles of association of an unlisted joint-stock company may grant the chairman of the board of
directors the power to propose the issuance of a general assembly decision by circulation among
shareholders, unless shareholders request in writing that a meeting be held for deliberation. However, the
general assembly must convene in accordance with relevant provisions in cases related to the election and
removal of board members and the appointment and removal of an auditor, if any, as well as cases
requiring the review of the financial statements of the ending fiscal year.
2. The decision proposed to be issued in accordance with paragraph (1) of this Article shall be deemed valid
if the company sends to all shareholders said decision along with the relevant documents, the instructions
to be followed to approve the decision, and the date set for its issuance.
Article 101: Quorum for Issuance of a Decision by Circulation
1. The issuance of general assembly decisions of unlisted joint-stock companies by circulation shall be as
follows:
a) Decisions falling within the powers of the ordinary general assembly shall be passed if approved by
one shareholder, or more, representing the majority of voting rights, unless the company’s articles of
association provide for a higher percentage.
b) Decisions falling within the powers of the extraordinary general assembly shall be passed if approved
by one shareholder, or more, representing at least 75% of voting rights, unless the company’s articles
of association provide for a higher percentage.
2. General assembly decisions issued by circulation in accordance with paragraph (1) of this Article shall be
recorded in minutes and entered in the special register referred to in Article 97 of this Law.
26
7
Article 102: Request for Inspection of the Company
1. A shareholder, or more, representing at least 5% of the company’s capital may petition the competent
judicial authority to order the inspection of the company if the conduct of the members of the board of
directors or the auditor in relation to company affairs raises suspicion.
2. The competent judicial authority may, after hearing the statements of board members and the auditor,
order the inspection of the company at the expense of the petitioner and may, if necessary, order the
petitioner to provide a guarantee if requested by the company.
3. If the competent judicial authority determines the validity of the complaint, it may order any precautionary
measures it deems fit and may call the general assembly to make the necessary decisions. It may also
remove board members and the auditor, and appoint qualified persons with expertise in any number it
deems appropriate to supervise the management of the company and to call for a general assembly meeting
to elect a new board of directors. The competent judicial authority shall determine the powers and term of
said persons.
Chapter 4: Shares, Debt Instruments, and Financing Sukuk Issued by Joint-Stock Companies
Section 1: Shares
Article 103: Company Shares
1. The shares of a joint-stock company shall be nominal and indivisible against the company. If a share is
owned by several persons, they shall choose one person from among themselves to represent them in the
use of rights related thereto. Said persons shall be jointly and severally liable for obligations arising from
the ownership of such share.
2. The company’s articles of association shall specify the nominal value of its shares; shares of the same type
or class shall be of equal nominal value.
3. Subject to paragraph (2) of this Article, shares may be divided into shares of a lower nominal value or
merged in order to become shares of a higher nominal value. The Competent Authority may set the rules
necessary therefor.
4. An unlisted joint-stock company shall issue a paper or electronic certificate establishing the shareholder’s
ownership of the share.
Article 104: Effect of Share Subscription
Subscription in shares or ownership thereof shall imply that the shareholder accepts the company’s articles
of association and abides by the decisions issued by shareholder assemblies in accordance with the provisions
of this Law and the company’s articles of association, whether he is present or absent, and whether he
approves or objects to such decisions.
Article 105: Issuance of Company Shares
1. Company shares shall be issued against cash or in-kind contributions.
2. The paid amount of the value of shares issued against cash contributions shall not be less than one quarter
of the nominal value of said shares as specified in the company’s articles of association. The paper or
electronic share certificate of an unlisted joint-stock company shall indicate the paid amount of the value
of shares. In all cases, the remaining amount shall be paid within five years from the date on which the
shares are issued.
3. Shares representing in-kind contributions shall be issued upon payment of their full value; they may not
be delivered to their holders until ownership of such contributions is transferred to the company in full.
Article 106: Nominal Value of Shares
Shares may not be issued for less than their nominal value. However, they may be issued for more than their
nominal value if provided for in the company’s articles of association or if approved by the extraordinary
27
7
general assembly; in such case, the difference in value shall be added in a separate item as part of the
shareholders’ rights, and the Regulations shall specify its terms of use.
Article 107: Share-Associated Rights
A shareholder shall, in accordance with the terms and conditions provided for in this Law or the company’s
articles of association, have all of the rights associated with shares, including disposition of shares; attending
shareholder assemblies, participating in their deliberations, and voting on their decisions; receiving
dividends; electing board members; having access to the company’s records and documents without prejudice
to the confidentiality of information; monitoring board activities; initiating derivative actions against board
members; challenging the validity of shareholder assembly decisions; and receiving a share of the company’s
assets upon liquidation.
Article 108: Types and Classes of Shares
1. The types of shares that a company may issue shall be as follows: common, preferred, and redeemable.
The company’s articles of association may provide for different classes of share types and may grant
certain rights or privileges to certain classes or set restrictions thereon.
2. Shares of the same type or class shall have equal rights and obligations. Each type or class of shares shall
have the rights associated therewith as stipulated in the company’s articles of association.
3. The Regulations shall specify rules for the types and classes of shares that may be issued.
Article 109: Conversion of Shares
1. If the company has shares of different types or classes, it may convert one type or class into another type
or class if provided for in the company’s articles of association.
2. To convert a type or class of shares into another type or class, the approval of the extraordinary general
assembly must be obtained, except for cases in which the decision to issue shares stipulates that they are
automatically converted into another type or class upon satisfying certain conditions or upon the lapse of
a specified period.
3. The provisions provided for in Article 110 of this Law shall apply to cases in which the conversion of
shares requires the amendment or cancellation of the rights or obligations associated with a type or class
of shares.
4. Common and preferred shares and their classes may not be converted into redeemable shares or any classes
thereof except with the approval of all shareholders of the company.
5. The Regulations shall determine the implementing rules of this Article and the manner in which the
effects, rights, and obligations of shares are managed prior to conversion or thereafter.
Article 110: Amendment of Share-Associated Rights and Obligations
1. If company shares are of different types and classes or if the company’s articles of association allow for
the issuance of different types and classes of shares, the amendment or cancellation of any of the rights,
obligations, or restrictions associated with said shares; the conversion of any type or class of shares into
another type or class, if such conversion results in the amendment or cancellation of the rights or
obligations associated with the type or class of shares to be converted; or the issuance of shares of a
particular type or class that would prejudice the rights of another class of shareholders, shall require the
approval of a special assembly composed, in accordance with Article 89 of this Law, of shareholders who
are prejudiced by such amendment, cancellation, conversion, or issuance as well as the approval of the
extraordinary general assembly.
2. If company shares include preferred or redeemable shares, new shares with priority over any of their
classes may not be issued except with the approval of a special assembly composed, in accordance with
Article 89 of this Law, of shareholders who are prejudiced by such issuance.
28
7
Article 111: Restrictions on Trading of Shares
1. The CMA may set restrictions on the trading of shares of joint-stock companies that intend to be listed in
the capital market.
2. The company’s articles of association may provide for restrictions on the trading of shares, including the
right of shareholders to request redemption of shares, provided that such restrictions do not lead to a
permanent ban on the trading of shares.
Article 112: Shareholder Register
1. An unlisted joint-stock company shall prepare a special register which includes shareholders’ names,
nationalities, particulars, places of residence, and occupations as well as the number of shares owned by
each shareholder, their serial numbers, and the amount paid of their value. The company may outsource
the preparation of the register; said register shall be maintained in the Kingdom.
2. The company shall provide the Commercial Register with the information referred to in paragraph (1) of
this Article and any amendment thereto within 15 days from the date of the company’s registration with
the Commercial Register or from the date of the amendment, as the case may be.
Article 113: Drag-along and Tag-along Rights
Without prejudice to the Capital Market Law, the company’s articles of association may, upon the approval
of shareholders representing at least 90% of the company’s voting shares, provide for the following:
a) Majority shareholders shall have the right to obligate minority shareholders to accept an offer from a bona
fide buyer to purchase all of the company’s shares for the same price and under the same terms and
conditions applicable to the purchase of majority shares.
b) In cases where the majority sell their shares, minority shareholders shall have the right to obligate majority
shareholders to guarantee the sale of minority shares for the same price and under the same terms and
conditions applicable to the sale of majority shares.
Article 114: Purchase and Pledge of Shares
1. The company may purchase its own shares or accept them as a pledge if permitted under its articles of
association. Shares purchased by the company shall have no voting rights in shareholder assemblies.
2. Shares may be pledged and the pledgee may receive dividends and exercise share-related rights, unless
the pledge agreement stipulates otherwise. The pledgee may not attend shareholder assembly meetings
nor vote therein.
3. The Regulations shall specify the rules necessary for the implementation of the provisions of this Article.
Article 115: Non-Payment
1. A shareholder shall pay the remaining amount of the value of the share on the designated dates. In case of
non-payment, the board of directors may, after notifying the shareholder in the manner prescribed in the
company’s articles of association or by registered mail or through any means of technology, sell the share
at a public auction or in the capital market, as the case may be. The company’s articl…
Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.
You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.
Read moreEach paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.
Read moreThanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.
Read moreYour email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.
Read moreBy sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.
Read more