Saudi Arabia: Saudi Arabia Update – April 2018

Companies Law amended

The Council of Ministers approved 11 amendments to the Companies Law on 10 April 2018 (the Amendments) – a brief summary is below. Companies established in Saudi Arabia should consider reviewing existing shareholder arrangements, constitutional documents, and corporate governance procedures to ensure compliance with the Amendments. Officers and directors in Saudi companies should also be aware of new risks.

LLCs:

Paid-up capital

The Amendments provide that payment of the entire share capital is not required upon incorporation. This seems to reflect the joint stock company approach – whereby one-fourth of the share capital can be paid on incorporation with the remaining three-fourths paid within the next five years. In practice, this provision will likely only be applicable to wholly Saudi or GCC owned companies – since foreign investors are generally required to produce a bank certificate evidencing deposit of the entire capital as part of the incorporation process.

Unlike joint stock companies, the Amendments do not specify a timeframe for when the LLC's share capital must be fully paid-up.

Share transfer restrictions

The existing Companies Law provided a rudimentary statutory framework governing LLC shareholder pre-emption rights. The existing statute was unclear and vague with respect to the terms and conditions of the transfer and restrictions thereon.

However, the Amendments clarify the pre-emption rights apply to proposed transfers to third parties and may be based on the third party's proposed purchase price within 30 days or any other time period or valuation method agreed by the shareholders. The Amendments also require disclosure of the identity of the buyer. 

Minority shareholders

Whereas the existing Companies Law requires shareholders representing half of the capital to call an extraordinary general assembly meeting, the Amendments lower this threshold. Thus, now shareholders representing only 10% of the capital may call a shareholder meeting.

Joint stock companies:

Clarifying directors' liabilities in conflicts of interest

The Amendments clarify that damage caused to a joint stock company by a director's conflict of interest shall be attributable to that director and to the wider board – except for those directors who opposed the action giving rise to the harm and whose objections were duly noted in the minutes. Absence from a board meeting where a director's conflict of interest caused harm to the company is not a defense to liability unless the director can also prove that s/he had no knowledge of the proposed resolution.

Additionally, whereas previously the board's consent to a director's personal interest in the company's affairs could be renewed annually, the Amendments provide that such consent must be made "in accordance with the controls laid down by the competent authority."

Cost-shifting in shareholder lawsuits

The Amendments provide that a shareholder may sue the company, and the company shall bear the costs of the lawsuit – no matter the result of the claim – if the following conditions are met: 1) the claim was filed in good faith, on valid legal grounds, and is in the best interests of the company as per Art. 79 of the Companies Law (pertaining to company lawsuits against the board of directors instituted by the shareholders at an ordinary meeting); and 2) the shareholder submitted the complaint to the company prior to filing the claim and did not receive a reply within 30 days.

Other legal developments

Saudi courts continue automation improvements

With 99.9% of court procedures having been automated and executive courts going completely paperless, the Ministry of Justice (MOJ) performed over 7 million judicial functions over the past six months. These functions include documentation and execution of verdicts, as well as routine judicial work in the summary, commercial, and personal affairs courts. The MOJ stated that the automation of court systems has facilitated the process of litigation and helped in reducing expenses.

Saudi Gazette – 21 March 2018

New rules on organizing commercial exhibitions

Saudi Commission for Tourism and National Heritage (SCTH) has issued new rules set to organize seminars, lectures, training courses, meetings, and workshops in Saudi Arabia, in order to ensure fair competition among organizers and commercial exhibitions. The principle of these new rules is to encourage stakeholders to invest in Saudi Arabia.
The general conditions state that Arabic should be the official language of the conferences, though other languages may be used. Further, the number of attendees in each conference should not exceed 50 people, and the duration of the conference should be at least four hours, but no more than seven days.

Arab News – 2 April 2018

Medicine and law forum held in Riyadh

The Saudi Law Training Center hosted the 2018 Medicine and Law forum in Riyadh. The aim of the forum was to establish a code of conduct for practicing medicine in the Kingdom and to provide medical competence and clinical awareness. At the forum, it became apparent how unfamiliar those attending the event were with some of the laws governing medical practice (particularly with respect to the Law of Practicing Healthcare Professions of the Kingdom of Saudi Arabia, which covers medical malpractice), thus highlighting the need for further public education on the subject.

Arab News – 29 March 2018

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