Management of Simplified Joint Stock Companies Under the Saudi Companies Law

A simplified joint stock company (SJSC) is managed by a president, manager or board of directors under the direct supervision and oversight of the shareholders. There are no ordinary or extraordinary general assemblies to supervise and take decisions; instead, decisions are taken directly by the shareholders in accordance with the bylaws. In this article Shehab Alsaleh Lawyers & Legal Advisors explains how simplified joint stock companies are managed in Saudi Arabia.

1. Management by the President, Manager or Board of Directors

Article 142(1) of the Companies Law provides that:

The method of managing a simplified joint stock company shall be specified in its bylaws. It may be managed by a president, one or more managers, a board of directors or otherwise. The bylaws shall specify how those managing it are appointed and removed, the limits of their powers and how they operate. If the bylaws contain no such provisions, the shareholders shall exercise them.

The president, manager or board therefore has broad powers to manage the company in pursuit of its objects, except for acts reserved to the shareholders by a specific provision of the bylaws. The president or manager may delegate one or more specific tasks to others, and the board may, within its powers, delegate one or more specific tasks to one or more of its members or to third parties.

Article 26 of the Companies Law sets out the duties of care and loyalty binding on the president, manager or board of an SJSC, in particular to:

  1. Act in the company’s interest and promote its success.
  2. Exercise their functions within the powers conferred on them.
  3. Make decisions and vote independently.
  4. Exercise the care, diligence and attention expected in the company’s interests.
  5. Avoid conflicts of interest.
  6. Disclose direct and indirect interests in transactions and contracts made for the company’s account.
  7. Not accept any benefit from third parties in connection with their role in the company.

Article 27 addresses conflicts of interest, competition and the use of company assets:

  1. A manager or board member may not have any direct or indirect interest in transactions and contracts made for the company’s account without authorization from the partners, the general assembly, the shareholders or their delegate. Exceptions include:
    • Transactions and contracts concluded through a public tender.
    • Transactions and contracts to meet personal needs, made on the same terms the company applies to the public and within its ordinary business.
    • Any other transactions or contracts specified by the Regulations that do not conflict with the company’s interests.
  2. A manager or board member may not take part in any business that competes with the company or any of its lines of activity without authorization from the partners, the general assembly, the shareholders or their delegate.
  3. A manager or board member may not exploit the company’s assets, information or investment opportunities offered to them in that capacity, or offered to the company, for their direct or indirect benefit.

What Happens If a Manager Breaches These Rules?

The company may apply to the competent court to annul the contract, require the manager to account for any profit or benefit obtained, and claim appropriate compensation.

Where there is no specific provision on the liability of an SJSC’s management, the provisions on the liability of a joint stock company’s board apply to the president, manager or board of the SJSC, as the case may be.

Loans in a Simplified Joint Stock Company

Article 72(1) prohibits the company from granting a loan of any kind to any board member, or providing any guarantee or security for a loan taken by any of them from third parties. This also applies to loans, guarantees or security for any of their relatives. Any contract in breach is void, and the company may claim compensation from the violator before the competent court.

Article 72(2) permits loans in specific cases:

  1. Banks and other finance companies may, within their objects and on the terms they apply to the public, lend to a board member, open a credit facility for them or guarantee their loans with third parties.
  2. Loans and guarantees granted under employee incentive programs approved in accordance with the bylaws or by resolution of the general assembly.

2. The Shareholders

Article 138 provides that the shareholders take the place of the ordinary and extraordinary general assembly of a joint stock company within the scope of the provisions applicable to the SJSC, and may specify in the bylaws who exercises those powers.

Article 145 provides that:

  1. The bylaws specify the matters to be submitted to the shareholders for decision, in the form and on the conditions set out in them. However, decisions within the competence of the ordinary or extraordinary general assembly of a joint stock company must be taken by the shareholders where they concern increasing or reducing capital, conversion, merger, division or dissolution of the company, appointing the auditor, discussing the financial statements, distributing profits or amending the bylaws.
  2. The bylaws specify the quorum required for valid shareholders’ meetings and resolutions.
  3. The bylaws may set different quorums for particular matters.
  4. The bylaws specify the matters that require unanimous shareholder approval.

Convening Shareholders’ Meetings

Shareholders’ meetings are convened by the president, manager or board, or as provided in the bylaws. A meeting may also be called at the request of the auditor (if any) or of one or more shareholders holding at least (10%) of the voting shares.

The invitation must be sent to all shareholders at least (five) days before the meeting, stating its place, date and time and attaching the agenda with the items to be voted on. It may also specify the place, date and time of a second meeting if the quorum for the first is not met. Unless the bylaws provide otherwise, shareholders are notified by registered letters to their addresses in the shareholders’ register or by modern technological means.

Shareholders representing all voting shares may hold a meeting without observing the formalities and periods prescribed for the invitation.

Deliberations and resolutions of shareholders’ meetings, and resolutions passed by circulation, are recorded in minutes kept in a special register signed by the president, manager or board, as the case may be, and modern technology may be used to record them. The president, manager or board must register with the Commercial Register the shareholders’ resolutions specified in the Regulations within (15) days of their issuance.

How Can Shehab Alsaleh Law Firm Help You Establish and Manage Your Company?

Establishing and managing an SJSC requires a specialized corporate lawyer offering an integrated solution that secures the continuity of the business. Shehab Alsaleh Lawyers & Legal Advisors offers the following services:

  1. We explain all company forms, identify the most suitable one for your activity and how it will be managed, and clarify regulatory restrictions on activities, such as those requiring licenses or approvals from the Capital Market Authority or the Ministry of Investment.
  2. We draft the incorporation documents and then authenticate them electronically through the Ministry of Commerce platform or an electronic notary.
  3. We submit the official applications to government authorities and deal with the various government platforms to obtain the required licenses.
  4. We represent the company in correspondence with the Ministry of Commerce where there are observations on the documents or data, correct any regulatory or formal errors, and obtain the final electronic Commercial Registration.
  5. We provide post-incorporation services such as zakat and tax registration, preparing internal bylaws and governance regulations, organizing and recording the first shareholders’ meeting, preparing initial contracts (such as the general manager’s contract or opening a bank account in the company’s name), and ensuring annual regulatory compliance (filing financial statements, assembly minutes and ZATCA compliance).

Contact us through our contact page or visit our services to learn more about establishing and managing companies in Saudi Arabia. For official information, see: