Insights into Saudi Arabia’s Evolving Laws & Regulations

Provisions for Joint Stock Companies Under the New Companies Law

Apr 19, 2023

GPA - Foreign Investments

Explore our New Companies Law Series Below:

Provisions for Joint Stock Companies Under New Companies Law


The newly enacted Companies Law of 1443 H. (Law) in Saudi Arabia became effective on 16 January, 2023. The companies are required to change their constitutional documents (Articles of Association or Articles of Incorporation) in order to amend, change and remove the articles that are in conflict with the provisions in the Law and more importantly to do away with the restrictions that were mandated in the old law or avail of flexibility accorded by the Law.

The part which has undergone an extensive and comprehensive revisions is  the ‘Joint Stock Companies’  Section which is quite understandable as JSCs needs to be more regulated in view of larger participation by investors and shareholders whose interests are to be protected besides the fact that JSCs may opt to list on stock exchanges.

Empowering the Shareholders:

While maintaining a few thresholds for protecting the interests of all stakeholders, the Law empowers the shareholders to determine such thresholds through Articles of Association or general assemblies.  For instance, the Law allows the general assembly to determine dividends in the percentage it deems appropriate unlike the earlier provision requiring its determination as per the percentage stipulated in the AoA.  Similarly, it leaves upon the company’s AoA to determine the manner in which the dividends shall be paid to the shareholders of preferential stocks or redeemable shares instead of mandating payment of a higher percentage of dividends to them compared to those holding common stock as was the requirement under the old law.

The Law does not stipulate presence of a minimum number of board members for a board meeting to be valid and leaves it to shareholders to stipulate such a provision in the AoA, provided however, that at least half of the board members will have be present in any board meeting unless the AoA stipulates a higher number.   It does not provide any ceiling on compensation for board members and leaves it to the discretion of the ordinary general assembly which is expected to determine the compensation in a fair and equitable manner.

Another significant addition is enabling shareholders representing at least 90% of the capital to stipulate in the AoA that the majority shareholders may force the minority to agree to sell their shares in the company to a buyer at the price and terms against which the majority would be selling their shares and the minority shareholders obliging the majority to guarantee the sale of shares of the their at the same terms.

The Law continues to allow the extraordinary general assembly to suspend the preemptive rights of shareholders to participate in the capital increase if it is deemed to be in the company’s interest.

While the Law provides broad powers to the Board of Directors for managing the company, it has placed restrictions on issues that the AoA requires to be determined by the ordinary general assembly.  The Law requires approval of the general assembly for sale of assets amounting to a sum exceeding 50% of the total assets of the company.

Although, the Law requires shareholders representing 25% of the share capital for an ordinary general assembly to be valid, it allows a higher percentage to be determined in the AoA, provided however, that it does not exceed 50%. In all cases, it provides for a mechanism where no quorum will be necessary for conducting ordinary general assembly third time.

Ease of restrictions and requirements:

With a view to provide flexibility to companies from different aspects, the Law has removed several restrictions that were hitherto placed on JSCs. There is no requirement of completion of two fiscal years before the shares of JSCs could be traded.  It does allow companies to place certain restrictions on trading of shares; yet, it stipulates that such restrictions should not result in an absolute prohibition.

In order to enable companies to plan its short term and long term financing, the Law does not restrict conversion of debt instruments into shares if the holder of debt instrument refuses for such conversion as long as the debt instruments were issued with the terms of conditions stipulating such conversion or they are agreed later.

Like other forms of companies, the Law exempts a JSC from the requirement of appointing a statutory auditor as long as it qualifies to be classified as a small or micro company. However, shareholders owning at least 10% of the capital may require the company to have an external auditor.  Besides, there are a few exceptions where the exemption will not be applicable for companies to avail. Similarly, although the Law has removed the requirement of statutory reserves; yet, the companies may stipulate maintaining such reserves in their AoAs.

Neither is there a requirement of a minimum number of shareholders to form a JSC nor the entity need to be a government entity or a corporate entity having SR.5 Million as its capital to be able to form a single person JSC.   While maintaining the minimum capital requirement of SR.500,000; the Law  allows companies to have provision for  ‘authorized capital’ which would enable them to increase the issued or paid capital as and when required to the extent of the authorized capital thereby resulting in simplification of the process for raising of capital as and when required.

Protection of Minority Shareholders Interest:

The law aims to protect minority interest in several ways. One of them is allowing shareholders to utilize the voting rights on cumulative basis for electing board members. This feature enables them to use all of their voting rights in support of one or more candidates instead of spreading their votes for the election of all board members.

It has also tightened the regulatory framework to protect the interests of shareholders and provisions include requiring in-kind shares to be evaluated by an accredited evaluator and such evaluation to be approved by the assembly of founding shareholders or the extraordinary general assembly.

Smooth Operation of Companies

While the Law provides for certain safeguards to protect the interests of minority shareholders, it has removed certain provisions that could cause obstructions in managing and operating a JSC due to claims and lawsuits by the minority shareholders. Unlike the old law, wherein any shareholder was entitled to raise a lawsuit against the board or a member of the board, the Law now requires shareholders holding at least 5% of the capital to raise a lawsuit only if the company has failed to raise it upon their request.  Similarly, the Law has raised the percentage for calling of ordinary general assembly by shareholders from 5% to 10% of the capital.

Continuing with the Kingdom’s focus on utilization of modern technology, the Law enables holding of general assemblies and casting of votes by shareholders therein by utilization of technological means.

Another aspect of flexibility could be seen from the fact that the Law has removed the provision of supervision or overseeing of proceedings of ordinary and extraordinary general assemblies by the Ministry of Commerce or Capital Market Authority (for listed companies) as well the requirement of providing the Ministry of Commerce with a copy of the annual financial reports. The Law requires the companies listed on stock exchange to share a copy of the agenda of the general assemblies with the Capital Market Authority.

Unlike the old law, the Law does not require the nominal or face value of the share price to be SR.10.00 during the initial issuance or during any capital increase or rights issue and leaves it to be decided and stipulated in the AoA of the company. It allows companies to issue shares at a premium provided it is stipulated in the AoA or approved by the extra-ordinary general assembly.


In short, while the Law has provided for the required safeguards to protect the interests of all stakeholders, it has enabled businesses and enterprises to structure their entities in the manner that suits their needs from different perspectives.  Especially, the Law has opened up for the companies’ different avenues for financing of projects and tapping the financial markets. The entrepreneurs and investors may determine their own specific requirements, priorities, plans, risk factors etc. and accordingly amend the provisions in the constitution documents.

The attached annexure provides a comparative analysis covering different sections pertaining to JSCs.

AlGhazzawi & Partners

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Provisions for Joint Stock Companies Under New Companies Law

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