SAUDI ARABIA Trends and Developments Contributed by: Zain Satardien, Chadi Hourani and Hayel Hourani, Hourani & Partners
Expanded company types The CL now formally recognises and regulates six types of corporate entities. Please refer to the Saudi Arabia Law and Practice chapter in this guide for fur - ther information. Shareholder agreements (SHAs) The CL explicitly recognises SHAs, allowing share - holders to codify governance terms over their relation - ship and share transfer restrictions within the articles of association (AoA) or by-laws. These agreements can override provisions in the AoA, provided they do not contravene Saudi Arabian law, resolving historical inconsistencies in court enforcement of SHAs. Flexibility in share classes and rights Joint stock companies (JSCs) now allow for differ - ent share classes, allowing for JSCs to issue various types of shares, such as ordinary shares, preference shares, and redeemable shares, with flexibility to cre - ate additional share classes as specified in the AoA. Corporate governance under the CL One of the most significant changes introduced by the CL has been the codification of the fiduciary duties of company managers and their accountability for any breach of those duties. A whole standalone chapter in the CL is dedicated to this, aimed at encouraging healthy corporate governance practices more closely aligned to international standards. Board of directors’ responsibility under the CL The CL outlines detailed responsibilities and require - ments for the board of directors in companies. The CL mandates that JSCs have a board of directors con - sisting of at least three members, and that the board have a balanced mix of executive, non-executive, and independent directors. The CL and its Implementing Regulations codify the fiduciary responsibilities of managers and board members, ensuring they act in the company’s best interest. Board members and managers must exercise their powers in alignment with the company’s articles of incorporation or association, relevant laws, and regu - lations. They are required to act objectively, with impar - tiality and diligence, ensuring the company’s growth, continuity, and maximisation of value for sharehold -
ers. Managers and directors must avoid conflicts of interest, disclose potential conflicts transparently, and refrain from exploiting their position for personal gain. Strengthened shareholder rights under the CL Shareholders or the general assembly must approve significant transactions involving conflicts of interest or competitive business activities. Shareholders are entitled to access the company’s records and docu - ments to monitor its performance. Shareholders also have the right to participate in and vote during general assembly meetings, influencing major decisions such as the appointment of direc - tors, approval of financial statements, and profit dis - tribution. Additionally, shareholders are entitled to a proportionate share of the company’s net profits as dividends. Shareholders have the right to hold directors account - able and file lawsuits against them in cases of mis - management or breach of fiduciary duties. In cases of capital increases, shareholders have the right to subscribe to new shares issued in exchange for cash unless waived by the extraordinary general assembly. Enhanced accountability for directors and managers The CL establishes clearer standards of care for directors and managers, ensuring that they act in the company’s best interests. Liability mechanisms pro - vide shareholders with avenues to seek damages for mismanagement, enhancing corporate accountability. Saudi Arabia has also implemented a national benefi - cial ownership (BO) register that requires disclosure of natural persons who ultimately own or control 25% or more of an entity, or who otherwise exercise effective control. The Ministry of Commerce oversees compli - ance and may impose administrative penalties for delayed or inaccurate filings. This measure enhances transparency, aligns with global AML/CTF standards, and strengthens corporate governance expectations under the Companies Law. Saudi Arabia’s new Civil Transactions Law Effective as of December 2023, Saudi Arabia’s new Civil Transactions Law (CTL) contains over 700 codi - fied articles, aiming to clarify and crystallise Saudi
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