Saudi Arabia: The Impact Of The New KSA Companies Law On Existing Companies

The new KSA Companies Law (the New Law) will come into force tomorrow on 2 May 2016 (the Effective Date). The manager/directors of any company that is incorporated in the KSA should start to consider what changes may need to be made to the company's articles of association or bylaws (collectively, the Constitutional Documents). Since our communication last week on the New Law, we have been busy advising our clients on its implications for their businesses and corporate structures. We would be delighted to also assist you in this respect. Please contact Alain Sfeir or Nouf Aljoaid using the details below if you wish to have a discussion about this.

Further to our previous update regarding the highlights of the New Law, this article sets out some of the required next steps managers/directors need to take to ensure their companies' Constitutional Documents are in line with the New Law.


Article 224 of the New Law allows existing companies a 12 months grace period (the Grace Period) after the Effective Date in which the companies must adjust their positions. This means that existing companies need to amend any conflicting provisions in their current Constitutional Documents by the beginning of May 2017. The Grace Period does not include new companies that are established after the Effective Date. Additionally, violations and sanctions set out in the New Law will be enforceable on the Effective Date.

It is important to note that the Grace Period does not mean that existing companies should not comply with the New Law for a year. The New Law states that the Ministry of Commerce and Industry (MoCI) and the Capital Market Authority (CMA) board can exceptionally determine certain provisions of the New Law that will be effective on existing companies upon the Effective Date.


The MoCI and the CMA jointly issued a statement recently clarifying the implementation mechanism for the New Law in respect of JSCs and holding companies. The announcement specified some examples of provisions in the New Law that will fall under the Grace Period for existing companies and others that must be implemented upon the Effective Date.

Provisions that existing JSCs must abide by upon the Effective Date

  • Article 90: Shareholders' ordinary general assemblies (OGA) or extraordinary general assemblies (EGA) are held by notice from the JSC's board of directors in the manner prescribed in the JSC's bylaws. The Board must call for a general assembly meeting pursuant to a request by (i) the JSC's auditor; (ii) the audit committee; or (iii) a number of shareholders representing at least 5% of the share capital. However, the JSC's auditor may call for the meeting if the board of directors did not call for the same within 30 days from the auditor's request. The OGA can be held by virtue of a resolution issued by the MoCI/CMA in certain cases such as the occurrence of discrepancies between the New Law and the JSC's bylaws or there are flaws in the JSC's management. Additionally, a number of shareholders representing at least 2% of the JSC's capital can submit a request to the MoCI/CMA to call for the OGA if such case, or others mentioned in article 90.2, occur. In this case, the MoCI/CMA must call for the meeting within 30 days from the date of the shareholders' request, provided that the call must include the agenda of the meeting and the items to be approved by the shareholders.
  • Article 95: The JSC's bylaws must state the manner of voting at general assembly meetings whereby the accumulative voting method must be used in electing the board of directors to ensure that each share has only one vote. In addition, the board of directors cannot participate in voting for general assembly resolutions related to discharging such directors' liabilities from the management of the JSC or those related to a direct or indirect benefit to them.

Provisions that fall under the Grace Period

  • Article 68.1: The JSC must be managed by a board of directors whose number of members is specified in the JSC's bylaws provided that the board consists of at least 3 and not more than 11 directors.
  • Article 76: The JSC's bylaws must specify the manner of remunerating the members of the board of directors. Such remuneration may represent a specific amount, an attendance allowance, in-kind benefits or a certain percentage of the JSC's profits and two or more of these types of remunerations may be combined. If the remuneration is a share of the profits such share must not exceed 10% of the JSC's net profits after deducting the agreed reserves and distributing dividends to the shareholders of at least 5% of the paid up capital, provided that such remuneration is proportionate to the number of meetings the director attends. In all cases, the total remuneration a director receives must not exceed SAR 500,000 per year, be it in cash or in-kind. Additionally, the board of directors' report to the JSC's OGA must include a full statement of the remunerations received by the board of directors during the financial year, the number of board of directors' meetings and the number of those attended by each director as of the date of the last general assembly meeting. Furthermore, based on the board of directors' recommendation the general assembly may terminate the membership of a director who fails to attend 3 consecutive board meetings without a reasonable excuse.
  • Article 81.1: The board of directors must appoint from amongst its members a chairman and a vice chairman; and it may also appoint a managing director. A single director cannot hold the positions of a chairman and any executive position in the JSC simultaneously. In addition, the JSC's bylaws should specify the duties and authorities of the chairman and the managing director as well as the special benefits each receives over the board of director's prescribed remuneration.
  • Articles 101 to 104: These provisions address the formation of the JSC's audit committee and its mandate.
  • Article 150: If the losses of the JSC reach 50% of its paid up capital, the board of directors must send a notice within 15 days of being informed of the losses to hold an EGA meeting within 45 days of knowing of the losses to determine whether the JSC's capital should be increased or decreased or if the JSC should be dissolved. The JSC will be deemed dissolved by force of law if (i) the EGA is not convened within the prescribed period; (ii) the EGA is convened but fails to determine the matter; or (iii) the EGA decided that the capital should be increased and no subscription for increase of capital is made within 90 days from the date of issuing the resolution of increase.

While existing JSCs are granted a Grace Period to justify their position, it is important to note that they cannot take any new action contrary to the New Law after the Effective Date. For example, the MoCI/CMA announcement clarified that an existing JSC must adhere to article 68.1 mentioned above if it wishes to appoint a new board member. Article 101 to 104 must also be complied with in relation to the formation or reformation of the audit committee.


In addition to the announcement made by the MoCI and the CMA in respect of JSCs, the announcement also addressed the formation and regulation of holding companies. The announcement mentioned that the following provisions in the New Law fall under the Grace Period.

  • Article 182: The holding company can either be a JSC or a LLC aiming at controlling other JSCs or LLCs that will be called subsidiaries. This control occurs by owning more than 50% of the capital of such subsidiaries or controlling the formation of their board of directors.
  • Article 183: The objectives of a holding company include (i) managing the subsidiary or participating in the management of other companies in which it has shares and providing such companies with the required support; (ii) investing its funds in shares and other securities; (iii) owning properties and movables to conduct its business; (iv) submitting bids, bonds and finance to the subsidiaries; (v) owning industrial property rights, patents, trademarks, industrial marks, rights of concession and other moral rights; using and leasing the same to the subsidiary or third parties; and (vi) any other valid activity commensurate with the nature of the company.
  • Article 184: Subsidiaries cannot own shares or stocks in the holding company. Any act leading to the transfer of shares or stocks from the holding company to the subsidiary will be considered null and void.
  • Article 185: At the end of every financial year, the holding company must prepare consolidated financial statements including its financials and those of its subsidiaries.
  • Article 186: The holding company will be subject to the same rules and regulations of the type of company it falls under i.e. JSC or LLC.


Within the Grace Period LLCs are expected to begin filing their applications to amend their articles of association (Articles) to comply with the provisions of the New Law. The MoCI has issued template Articles for LLCs to use as a guideline in drafting their own Articles. We highlight below a few of the changes in the template Articles for LLCs.

  • General assembly: The general assembly meeting must be convened within 4 months (used to be 6) following the end of the LLC's financial year.
  • Accounts and reporting: The LLC's managers are required to prepare the accounts and reports within 3 months (used to be 4) from the end of the financial year and share them with the MoCI within one month (used to be 2) of preparation.
  • Transfer of shares: If a shareholder wishes to transfer its shares to a third party, either with or without consideration, the shareholder must first notify the other shareholders of the transfer conditions through the LLC's manager. In this case, any interested shareholder can buy these shares at fair value within 30 days of being notified. However, the shareholders can agree on an alternative valuation method and duration in the LLC's Articles.
  • Statutory reserve: The LLC can decide to stop setting aside 10% of its net profit when the reserve reaches 30% of the capital (used to be 50%).
  • Losses: Where the losses of the LLC reach 50% of its capital the LLC's managers must record such incident with the Companies Commercial Registry and must serve a notice on the shareholders to a meeting in no later than 90 days from the date of knowing of such loss to consider whether the LLC should continue or be dissolved. The LLC will be dissolved by force of law if (i) the LLC's managers fail to send a notice to the shareholders; or (ii) the shareholders fail to pass a resolution on whether the LLC should continue or be dissolved.


The managers / directors must check that their Constitutional Documents do not contradict any of the provisions of the New Law. As with many new, important pieces of legislation, it may take some time for the whole impact of the New Law and its interpretation to be understood by the market and to be fully reflected in practice. However, managers/directors are well advised to think about the changes which may need to be made, not only to the existing Constitutional Documents, but also with respect to how they conduct their corporate affairs. As mentioned at the start of this piece, we have been busy advising our clients on its implications for their businesses and corporate structures. We would be delighted to also assist you in this respect.

This article contains general statements in relation to the New Law and should not be construed in any way as legal advice. Formal legal advice should be sought on a case by case basis when interpreting the provisions of the New Law.

The authors would like to thank Sofanah Hakeem for her contribution to this article.

The impact of the new KSA Companies Law on existing companies

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Nouf Aljoaid
Similar Articles
Relevancy Powered by MondaqAI
Blake, Cassels & Graydon LLP
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Blake, Cassels & Graydon LLP
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions