The Saudi Arabian Minister of Commerce and Investment recently issued new rules (the "Rules") governing unlisted joint stock companies ("UJSCs"), which were published in the 25 November 2016 edition of the Official Gazette.

Prior to their issuance in final form, the Ministry of Commerce and Investment and the Capital Market Authority had jointly circulated, for public consultation, a draft form of rules applicable to both listed and unlisted joint stock companies.1

A decision was made to split the rules governing listed and unlisted joint stock companies. The Capital Market Authority, likewise, recently proceeded to issuing in final form the rules governing listed joint stock companies.2

It was in many respects advisable to have split the rules governing each type of joint stock companies. Read separately (instead of in the previously amalgamated format), the instruments are now easier to comprehend.


The Rules discuss the remuneration payable to directors of UJSCs. Amongst other things, the Rules require that the remuneration:

  1. be proportionate to the directors' respective expertise and experience;
  2. be based on the recommendation of the remuneration committee (if one exists); and that it
  3. takes into consideration the sector in which the company operates.

Remuneration may be different between different directors. Additional remuneration may also be paid to directors if they have other roles in the company (e.g. consultancy, participation in committees, executive roles, etc.).

It is required that the remuneration of independent directors be fixed (and not a percentage of the profits) in order to ensure the neutrality of their decisions.


The Rules expressly allow the use at assembly meetings of contemporary technology for the review of meeting agendas, participation in deliberations, and voting on resolutions. In the event that such technology is utilized, the Rules require that systems be established to verify the identity of participating shareholders.


UJSCs may buy back their shares if:

  1. authorized under their bylaws;
  2. the purpose of the buy-back is the reduction of capital or the retention of treasury shares;
  3. treasury shares do not exceed at any time ten percent of the aggregate number of issued shares of the same class; and if
  4. the value of the treasury shares does not exceed retained profits.

Treasury shares may be retained by the company in any of the following circumstances:

  1. if they are meant to fulfil debt instruments that are convertible into shares or fulfill swap arrangements that imply a purchase of shares or assets;
  2. to allocate them to an employee share scheme; or
  3. for any other purpose approved by the Ministry of Commerce and Investment.

If permissible under the company's bylaws, treasury shares may also be pledged to guarantee debts. The pledge must be considered by the company's board of directors as being in the best interests of the company and its shareholders. It must also be approved by the extraordinary general assembly.

The extraordinary general assembly must specify the reason and the maximum duration for the retention of treasury shares. The Rules provide flexibility to the general assembly to modify such reason and duration, provided that treasury shares must be cancelled within six months from the expiry of the maximum duration specified by the extraordinary general assembly.

The shareholders must be given an equal opportunity to offer their shares for purchase by the company or to purchase any treasury shares placed for sale.


Shareholders in UJSCs may pledge their shares, provided that a written pledge agreement is put in place. For the purposes of perfecting the share pledge, a pledge application needs to be delivered to the company's chairman or whomever is responsible to maintain the shareholders' register. The pledge is then recorded on the register and a notation is made on the relevant share certificates.


The Rules regulate the manner by which preferred shares may be issued or bought back and the manner by which ordinary shares may be converted into preferred shares (or vice versa). Amongst other things, the company's bylaws must allow the issuance of preferred shares and such issuance requires the approval of the extraordinary general assembly of shareholders. Also, the company's share capital must have been paid in full and the proportion of preferred shares may not exceed ten percent of the share capital.

If during three consecutive years, the company fails to pay to preferred shareholders their share in the net profits, preferred shareholders may then attend and vote at shareholder assemblies or appoint directors to the board. Such a right will continue to be valid until their recovery of all amounts owed to them.


UJSCs may sell unpaid shares by public auction, following the lapse of thirty days from any unmet payment milestone.

The public sale must be preceded by an announcement in the local newspapers at least 15 days (but not more than 30 days) prior to the date set for the public auction.

If the sale proceeds are not sufficient to cover the due amount, the company may sue the shareholder for the balance.


Dividends must be distributed within 15 days from the issuance of the decision by which they were approved.

The Rules allow UJSCs to distribute interim dividends, if, amongst other things, they have liquidity and have enjoyed and foresee continued profitability.


In the event that the extraordinary general assembly approves a capital increase by way of the issuance of new shares, existing shareholders shall have the right to subscribe to such new shares in proportion to their respective shareholding in the company.

Subscription rights may be assigned to third parties (including non-shareholders), subject to any restrictions contained in the company's bylaws.


The Rules allow shareholders of UJSCs to issue written proxies or powers of attorney to others, including non-shareholders, to attend and vote at assembly meetings on their behalf. Proxies may not be delivered to board members or employees of the company.

The originals of the proxy letters need to be delivered to the company at least two days prior to the assembly meeting.


The Rules are part of a larger body of legal reforms introduced in respect of Saudi Arabian corporations.

It is worthwhile to note that the Saudi Arabian Companies Law was completely overhauled in 2015 and that the revised instrument only came into effect on 2 May 2016.3 The Rules are meant to elaborate on, and complement, many of the provisions of the Companies Law.


1 See: [ http://www.mondaq.com/saudiarabia/x/495034/Corporate+Commercial+Law/The+Draft+Rules+And+Procedures+Issued+Pursuant+To+The+Saudi+Arabian+Companies+Law]

2 Issued by the Board of the Capital Market Authority pursuant to Resolution No. 8-127-2016 dated 17 October 2016, See: [http://cma.org.sa/En/Documents/LJSCRulesEn.pdf]

3 Enacted by way of Royal Decree No. M/3 dated 10 November 2015 and published in the Official Gazette on 4 December 2015.

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.