Undoubtedly, joint stock companies constitute the basis for combining small savings, and the actions of such companies make economic growth for the Kingdom possible.
As per Vision 2030 of the Kingdom, some regulations regarding the economic field have been introduced; some of them are listed below: Companies Act issued through Royal Decree (M/132) and dated 1/12/1443 AH, which corresponds to 30/6/2022 AD and will come into force from 19/1/2023 AD.
Several questions come to mind: What is meant by a joint-stock company? What is the difference between a shareholder and a registered shareholder? What are the basic rights of a shareholder?
First: Definition of a joint-stock company
According to the Companies Act, a joint stock company is described as follows:
“A company formed by one or more individuals or legal entities wherein the capital of the company is divided into shares which can be transferred, whereby the liabilities of the company will only extend to the company itself, but not to the subscribers of the shares” (1).
Second: The difference between a shareholder and a registered shareholder
1- A shareholder is defined as any natural or legal person who owns a number of shares in a joint-stock company that confer certain rights upon them, and whose liability for the company’s debts is limited to the value of those shares.
2- A registered shareholder is a shareholder who is recorded in the shareholders’ register at the end of the day on which the extraordinary general meeting is held to approve the company’s capital increase and the issuance of the corresponding new shares, or at the end of the dividend payment date set by the general meeting or the board of directors, as the case may be (2).
Third: Basic Rights of Shareholders
The founders and shareholders who have subscribed to shares in the joint-stock company are considered members thereof, and all enjoy equal rights (3), which are as follows:
1. The right to stand for election to the Board of Directors
Each stockholder has a right to submit his nomination for himself, someone else, and any number of other stockholders or non-stockholders to be members of the board of directors of the joint-stock company (4). The involvement of a stockholder in the management of the company can be ensured by their membership in the board of directors.
2. The right to attend general meetings and vote
The rights of each individual shareholder to participate in the general meeting shall prevail despite what the articles of association provide to the contrary, and such a shareholder can appoint another party that is not a board member to act as their proxy.
It is possible for a general meeting to take place and for a shareholder to participate in the discussions as well as to vote in respect of a resolution using contemporary technological methods (5).
This is carried out according to the provisions of the Companies Law and the company’s articles of association; it is an important shareholder right and any provisions to the contrary in the company’s articles of association shall have no legal effect (6).
3. The Right to Oversee the Board of Directors and Discuss Matters at the General Assembly
A shareholder has the right to keep an eye on the Board of Directors as outlined in this Law. However, they can’t meddle in the Board’s or the company’s executive management’s affairs unless they are part of the Board themselves, work in executive management, or their involvement comes through the General Assembly as per its authority (7). Every shareholder is entitled to discuss the agenda items during the General Assembly and to pose questions to the Board members and the auditor. Any clause in the company’s articles of association that takes away this right from a shareholder is considered invalid (8).
4. The Right to Request an Inspection of the Company and to File a Lawsuit
Any shareholder, or group of shareholders collectively holding no less than five percent (5%) of the company’s issued capital, shall have standing to petition the competent judicial authority for an order to inspect the company’s affairs, provided that the conduct of the members of the Board of Directors or the external auditor in the management of such affairs gives rise to reasonable grounds for suspicion (9).
Furthermore, any person — including but not limited to shareholders — shall be entitled to institute a claim for compensation against any party whose acts or omissions have caused them harm, where such acts or omissions constitute a crime or violation as expressly prescribed under the provisions of the Companies Law (10).
In addition to the foregoing, any such person shall have the right to bring an action before the competent court seeking the annulment of any resolution issued by the Board of Directors or the General Assembly, where such resolution is found to be in contravention of the Companies Law or the company’s articles of association, or where it is established that such resolution was passed with the intent to prejudice the company’s interests — without prejudice to the right to claim such compensation as may be warranted by the circumstances (11).
5. The Right to Receive Dividends, Obtain Bonus Shares, and Dispose of Shares
Shareholders shall be entitled to the full bundle of rights attached to their shares, including the right of free disposition thereof and the right to receive a proportionate share of the net profits resolved to be distributed. The entitlement to such profits shall vest exclusively in shareholders whose names are recorded in the company’s shareholder register at the close of business on the date designated as the profit entitlement record date, in accordance with the relevant resolution of the General Assembly (12).
Moreover, a registered shareholder shall be entitled to preemptive subscription rights in any new share issuance, such rights being calculated in proportion to the shareholder’s existing holding in the company’s issued capital as at the close of business on the day on which the Extraordinary General Assembly convened and passed its resolution approving the increase of the company’s issued capital through the issuance of new shares, within the ceiling of the authorized capital (13).
It is further established that shareholders retain an unrestricted right to dispose of their shares — whether by way of sale, transfer, assignment, or otherwise — irrespective of whether the company’s shares are listed and traded on a recognized stock exchange or remain unlisted.
6. The right to obtain the company’s financial statements or a portion of its assets
Every shareholder shall be entitled to receive, within a period sufficiently in advance of the convening of any Extraordinary General Assembly, the company’s audited financial statements for the preceding accounting period, together with the Board of Directors’ report and the external auditor’s report, so as to afford shareholders an adequate and meaningful opportunity to review and assess the company’s financial position prior to deliberation and voting (14).
Furthermore, in the event of the company’s dissolution and entry into liquidation proceedings, each shareholder shall be entitled to receive a proportionate share of the company’s remaining net assets following the full settlement and discharge of all outstanding debts and liabilities — a residual entitlement commonly referred to as the liquidation surplus.
By way of conclusion, it must be unequivocally affirmed that all of the rights enumerated herein constitute fundamental and inalienable rights of every shareholder in a joint-stock company. These rights are legally protected and may neither be curtailed, waived by third parties, nor infringed upon by any provision — whether contained in the company’s articles of association, internal regulations, or otherwise — to the contrary.
What is the legal definition of a joint-stock company, and what are the parameters of a shareholder’s liability?
Under the Companies Law, a joint-stock company is defined as a company incorporated by one or more persons — whether natural or legal — whose capital is divided into negotiable and tradable shares. In respect of the allocation of liability, the Law establishes the following framework:
- Corporate Liability: The company bears sole and exclusive liability for all debts and obligations arising from or incurred in the course of its activities. No such liability extends to its shareholders by virtue of their shareholding alone.
- Shareholder Liability: A shareholder’s liability is strictly circumscribed and limited to the value of the shares subscribed for. Under no circumstances shall a shareholder’s personal liability for the company’s debts exceed the subscription value of the shares held by that shareholder.
What is the legal distinction between a “shareholder” and a “registered shareholder”?
The distinction between a shareholder and a registered shareholder is one of both legal status and temporal significance, the consequences of which bear directly on the exercise of certain financial rights:
- Shareholder: Any natural or legal person who holds one or more shares in the company’s capital shall be deemed a shareholder. By virtue of such ownership, the shareholder acquires a defined set of rights, while their exposure to the company’s liabilities remains limited to the value of the shares held.
- Registered Shareholder: A registered shareholder is a shareholder whose name is entered in the company’s official shareholder register at one of two legally prescribed points in time:
- At the close of business on the day on which the Extraordinary General Assembly convenes and resolves to approve a capital increase and the issuance of corresponding new shares; or
- At the close of business on the dividend entitlement record date as determined by the General Assembly or the Board of Directors, as the case may be.
Legal Significance of the Distinction: The designation of “registered shareholder” is determinative of a shareholder’s capacity to exercise specific financial entitlements. These include the right to receive dividends allocated to shareholders of record as at the close of the designated entitlement date, as well as the right to exercise preemptive subscription rights in the event of a capital increase, calculated in proportion to the number of shares held at the close of business on the day the approving Extraordinary General Assembly was convened.
Is a shareholder entitled to nominate a candidate from outside the company for membership on the Board of Directors?
Yes. The law expressly confers upon every shareholder the right to nominate themselves, any fellow shareholder, or any third party — irrespective of any affiliation with the company — for appointment to membership on the Board of Directors of the joint-stock company. This right is not confined to existing insiders or members of the corporate structure.
The practical significance of this right lies in its function as a mechanism through which shareholders may exercise meaningful influence over the governance and strategic direction of the company — either directly, through their own board membership, or indirectly, through the board membership of a person of their nomination.
Summary
This article examines the governing legal framework for joint-stock companies in the Kingdom of Saudi Arabia in light of the legislative reforms introduced in 2023, with particular focus on the juridical nature of such companies and the attendant responsibilities of their shareholders. The analysis draws a precise and legally significant distinction between general shareholders and registered shareholders, specifically with respect to the temporal conditions governing entitlement to dividend distributions and participation in capital increases. The article further sets out, in systematic detail, the corpus of rights guaranteed to shareholders under the applicable legislation — encompassing, inter alia, the right to stand for election to the Board of Directors, to participate and vote in General Assembly proceedings, and to exercise oversight over the company’s financial affairs. Particular emphasis is placed on the legislative mechanisms designed to protect investors, including the rights of litigation, judicial inspection, and entitlement to a share of the liquidation surplus. These protections are underscored as indispensable instruments for advancing the principles of transparency and sound corporate governance, consistent with the broader economic objectives enshrined in the Kingdom’s Vision 2030.
Sources
- Article (58) of the Companies Law issued by Royal Decree No. (M/132) dated 1/12/1443 AH, corresponding to 30/6/2022 AD, published on 23/12/1443 AH, corresponding to 22/7/2022 AD.
- Article 1 of the Executive Regulations of the Companies Law issued by Ministerial Decision (Minister of Commerce) No. (284) dated 23/6/1444 AH.
- Prof. Sami Abdul-Baqi Abu Saleh, “Commercial Companies in Egyptian Law,” 2023/2024 edition, no publisher, p. 284 ff.
- Article No. (67/2) of the Companies Law.
- Article No. (84/2-3) of the same Companies Law.
- Prof. Sami Abdel-Baqi Abu Saleh, op. cit., p. 285.
- Article (73) of the Companies Law.
- Article (96/3) of the same Companies Law.
- Article (102/1) of the Companies Law.
- Article (269) of the same Companies Law.
- Prof. Sami Abdul-Baqi, op. cit., p. 285.
- Article (125/2) of the Companies Law.
- Article No. (57) of the Executive Regulations of the Companies Law.
- Prof. Mahmoud Samir Al-Sharqawi, “Commercial Companies in Egyptian Law,” 2nd ed., revised by Wael Anwar Bandak, 2016, Dar Al-Nahda Al-Arabiya, Cairo, p. 291.
