{"id":2584,"date":"2026-02-23T11:09:33","date_gmt":"2026-02-23T11:09:33","guid":{"rendered":"https:\/\/alrashidi.law\/?p=2584"},"modified":"2026-03-24T13:01:53","modified_gmt":"2026-03-24T13:01:53","slug":"corporate-governance-of-commercial-companies","status":"publish","type":"post","link":"https:\/\/alrashidi.law\/en\/corporate-governance-of-commercial-companies\/","title":{"rendered":"Corporate Governance of Commercial Companies"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">The term corporate governance is a relatively modern economic concept that emerged as a result of the financial crises the world has witnessed in recent years, which prompted international organizations to focus on corporate governance, such as the Cadbury Committee established in 1992 in the United Kingdom, as well as the Organisation for Economic Co-operation and Development, which issued governance principles in 1999, and the issuance of the Sarbanes-Oxley Act in 2002 (3). This also led countries around the world to seek a legal framework that protects investors\u2019 funds and mitigates the risks of corporate collapse.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The corporate governance regime is grounded in several core principles, namely disclosure, transparency, accountability, responsibility, and fairness, in order to tighten oversight of economic entities and major companies by separating ownership from management. This achieves an acceptable balance among the interests of all parties connected with the company, which in turn is reflected in the efficiency of companies and financial markets (3). The Saudi legislator has been keen to establish controls for the governance of commercial companies in the new Companies Law issued pursuant to Royal Decree No. (M\/132) dated 1\/12\/1443H, as well as the Corporate Governance Regulations issued pursuant to the Resolution of the Capital Market Authority Board No. 8-16-2017 dated 16\/5\/1438H based on the Companies Law issued pursuant to Royal Decree No. (M\/3) dated 28\/1\/1437H, as amended by the Resolution of the Capital Market Authority Board No. 8-5-2023 dated 25\/6\/1444H.<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Meaning of Governance:<\/b><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">It is a set of rules for leading and directing the company, comprising mechanisms that regulate the various relationships between the board of directors, executive management, and stakeholders, by establishing procedural rules designed to facilitate decision-making and to impart transparency and credibility to it, with the aim of protecting the rights of shareholders and stakeholders and achieving competitive fairness and transparency in the market and the business environment.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The Organisation for Economic Co-operation and Development defined governance as: \u201ca set of relationships that organize the framework between a company\u2019s executive management, its board of directors, its shareholders, and other related parties.\u201d (4)<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>The Importance of Governance and Its Objectives:<\/b><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">The importance of governance is evident in that it constitutes one of the most important reforms in the commercial arena, protecting partners and investors, regulating competition among giant entities, and assisting local companies in attracting more capital, thereby enabling them to compete, grow, and continue, particularly in light of the significant success achieved by the World Trade Organization in reducing and removing barriers to free trade, without disregarding other stakeholders (6).<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Corporate governance aims to:<\/span><\/p>\n<p><span style=\"font-weight: 400;\">1- Strengthen the elements of transparency in all transactions and operations of the company, and in audit and financial accounting procedures.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">2- Improve and develop corporate management, and assist managers and the board of directors in building a robust strategy for making merger and control decisions.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">3- Monitor performance and improve the economic efficiency of companies.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">4- Avoid confusion between the duties and responsibilities of executive management and the functions of the board of directors.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">5- Facilitate companies\u2019 access to financing at a cost lower than borrowing (7).<\/span><\/p>\n<p><span style=\"font-weight: 400;\">6- Increase the attraction of foreign investments and partnerships.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">7- Respect and protect the rights of stakeholders.<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Ensuring the Existence of a Foundation for an Effective Corporate Governance Framework:<\/b><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">This requires clearly defining the allocation of responsibilities among the various bodies, through the availability of regulations governing administrative performance within the company. Authorities and responsibilities must also be determined in accordance with the company\u2019s organizational structure, reports must be issued transparently, and the company\u2019s oversight bodies must be multiple (8).<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Shareholders\u2019 Rights and Equal Treatment Among Them:<\/b><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">A shareholder is vested with all rights associated with the share, in particular the following:<\/span><\/p>\n<p><span style=\"font-weight: 400;\">1- To receive the shareholder\u2019s share of net profits that have been resolved upon, or by the issuance of shares resolved to be distributed in cash.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">2- To receive the shareholder\u2019s share of the company\u2019s assets upon liquidation.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">3- To attend general or special shareholders\u2019 assemblies, participate in their deliberations, and vote on their resolutions.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">4- To dispose of the shareholder\u2019s shares in accordance with the provisions of the Companies Law, the Capital Market Law, and their implementing regulations.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">5- To inquire and request access to the company\u2019s books and documents, including data and information relating to the company\u2019s activity and its operational and investment strategy, provided this does not prejudice the company\u2019s interests and does not conflict with the Companies Law, the Capital Market Law, and their implementing regulations.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">6- To monitor the company\u2019s performance and the acts of the board of directors.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">7- To hold members of the board of directors to account, to bring a liability action against them, and to challenge the invalidity of resolutions of general and special shareholders\u2019 assemblies, in accordance with the conditions and restrictions set out in the Companies Law and the company\u2019s bylaws.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">8- Priority to subscribe for new shares issued in return for cash contributions, unless the extraordinary general assembly suspends the priority right, if the company\u2019s bylaws so provide, in accordance with Article One Hundred Twenty-Nine of the Companies Law.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">9- To have the shareholder\u2019s shares recorded in the company\u2019s shareholders register.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">10- To request access to a copy of the company\u2019s articles of association and its bylaws unless the company publishes them on its website.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">11- To nominate and elect members of the board of directors (9).<\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><span style=\"font-weight: 400;\">The board of directors is also obliged to provide complete, clear, correct, and non-misleading information to enable the shareholder to exercise these rights to the fullest extent. Such information shall be provided in a timely manner and updated regularly (10).<\/span><\/p>\n<p><span style=\"font-weight: 400;\">As regards equal treatment among shareholders, Article Four of the Corporate Governance Regulations provides: \u201cA- The board of directors shall be obliged to work to protect shareholders\u2019 rights in a manner that ensures fairness and equality among them. B- The board of directors and the company\u2019s executive management shall be obliged not to discriminate among shareholders holding shares of the same type and class, and not to withhold any right from them. C- The company shall set out in its internal policies the procedures necessary to ensure that all shareholders exercise their rights.\u201d<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Safeguarding the Rights of Stakeholders:<\/b><span style=\"font-weight: 400;\">\u00a0<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">The company shall safeguard the rights of stakeholders created by law or arising from mutual agreements. It shall encourage active cooperation between companies and stakeholders in creating wealth, employment opportunities, and corporate sustainability, and their entitlement to obtain information and exercise oversight, to preserve their rights, and to obtain compensation for any harm suffered by them (11).<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>The Principle of Disclosure and Transparency:<\/b><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Disclosure means: \u201cthe undertaking of issuers of securities, including joint stock companies and partnerships limited by shares, to publish and announce the data, information, and reports relating to their activities and their financial and economic positions, and to submit them periodically, as well as in exceptional cases, to the supervisory and regulatory bodies, including public securities authorities and stock exchange administrations, and to bring them to the knowledge of the public, in particular current or potential shareholders and others, by all means enabling them to review them.\u201d (12)<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Transparency means: \u201cthe undertaking of issuers of securities to provide truthful and non-misleading information and data regarding their activities, to place them at the disposal of shareholders, investors, and supervisory and regulatory bodies overseeing the securities exchange, not to withhold information from such bodies, and to enable them to review it.\u201d<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Article Eighty-Six of the Corporate Governance Regulations clarified disclosure policies and procedures. The company must disclose information relating to the company, including its financial position, performance, and ownership rights, in a timely manner, comprehensively and accurately, and must ensure that disclosed information reaches stakeholders (13).<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Among disclosure and transparency requirements in companies is what is provided in Article Seventy-One of the new Companies Law: \u201c1- Subject to the provision of Article Twenty-Seven of the Law, a member of the board of directors must, immediately upon becoming aware of any interest of the member, whether direct or indirect, in any business and contracts conducted for the account of the company, notify the board thereof. Such notification shall be recorded in the minutes of the board meeting when it convenes. Such member may not participate in voting on the resolution issued in this regard by the board and the general assemblies. The board shall notify the general assembly upon its establishment of the business and contracts in which a board member has a direct or indirect interest, and a special report from the company\u2019s auditor shall be attached to the notification in accordance with the auditing standards adopted in the Kingdom. 2- If the board member fails to disclose the member\u2019s interest referred to in paragraph (1) of this Article, the company or any interested party may claim before the competent judicial authority for the contract to be invalidated, or for the member to be compelled to remit any profit or benefit realized by the member thereby. 3- Liability for damages resulting from the business and contracts referred to in paragraph (1) of this Article shall rest with the interested member in the business or contract, and with the members of the board of directors if they fall short or are negligent in performing their obligations in violation of the provisions of that paragraph, or if it is proven that such business and contracts are unfair, or involve a conflict of interests and cause harm to shareholders.\u201d<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Responsibilities of the Board of Directors:<\/b><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">This is achieved by ensuring the strategic direction and guidance of the company, and by holding the board of directors accountable for its acts and duties before the company and the shareholders (14). A board member incurs liability if the member fails to comply with the obligation to disclose any interest of the member, whether direct or indirect, in business and contracts conducted for the account of the company, and if any damages arise from such contracts where they involve a conflict of interests or cause harm to shareholders, in accordance with Article (Seventy-One, paragraphs Three and Two) of the Companies Law.<\/span><\/p>\n<p>&nbsp;<\/p>\n<hr \/>\n<p>&nbsp;<\/p>\n<p><b>Sources:<\/b><\/p>\n<p><span style=\"font-weight: 400;\">3- Dr. Sultan Abdulrahman Saeed Al-Omari, A Study of the Impact of Corporate Governance Mechanisms on the Financial Performance of Saudi Companies, p. 2, research published on the website \u201cA Study of the Impact of Corporate Governance Mechanisms on the Financial Performance of Saudi Companies\u201d, access date 16\/12\/2025 at 4:00 p.m.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">4- The definition is available on the organisation\u2019s website <\/span><a href=\"http:\/\/www.oecd.org\/\" target=\"_blank\" rel=\"noopener\"><span style=\"font-weight: 400;\">www.oecd.org<\/span><\/a><span style=\"font-weight: 400;\">, access date 16\/12\/2025 at 4:14 p.m.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">6- Dr. Muhammad Saad Ruwayshid Al-Harbi, The Role of the Capital Market Authority and Regulatory Bodies in Corporate Governance in Egyptian and Kuwaiti Law, A Comparative Study, the aforementioned reference, p. 5.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">7- Dr. \u2018Ayid Sultan Marzuq Al-Buqmi, The Development of the Legal Framework for Corporate Governance in the Saudi Regime, A Comparative Study, published in the International Journal for Publishing Research, the aforementioned reference, p. 9, research published on the website \u201cDevelopment of the Legal Framework for Corporate Governance in the Saudi Regime, A Comparative Study.pdf\u201d, access date 16\/12\/2025 at 4:56 p.m.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">8- Dr. Mas\u2018ud Yunus \u2018Atwan \u2018Ata, The Role of Governance in Corporate Sustainability and Achieving Saudi Vision 2030, p. 1831, published on the website: article_30621_9a63a9e50b03bcabdba6d677e15e88c5.pdf, access date 16\/12\/2025 at 5:17 p.m.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">9- Article (5) of the Corporate Governance Regulations issued pursuant to the Resolution of the Capital Market Authority Board No. 8-16-2017 dated 16\/5\/1438H based on the Companies Law issued pursuant to Royal Decree No. (M\/3) dated 28\/1\/1437H, as amended by the Resolution of the Capital Market Authority Board No. 8-5-2023 dated 25\/6\/1444H based on the Companies Law No. (M\/132) dated 1\/12\/1443H.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">10- Article (6) of the same Regulations.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">11- Dr. Mas\u2018ud Yunus \u2018Atwan \u2018Ata, The Role of Governance in Corporate Sustainability and Achieving Saudi Vision 2030, the aforementioned reference, pp. 1831 to 1832.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">12- Dr. \u2018Issam Hanafi Mahmud, Commentary on Commercial Law, Dar Al-Nahda Al-Arabiyyah, 2007, p. 19.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">13- Dr. Muhammad Saad Ruwayshid Al-Harbi, The Role of the Capital Market Authority and Regulatory Bodies in Corporate Governance in Egyptian and Kuwaiti Law, A Comparative Study, the aforementioned reference, p. 113.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">14- Dr. Mas\u2018ud Yunus \u2018Atwan \u2018Ata, The Role of Governance in Corporate Sustainability and Achieving Saudi Vision 2030, the aforementioned reference, p. 1832.<\/span><\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>The term corporate governance is a relatively modern economic concept that emerged as a result of the financial crises the world has witnessed in recent years, which prompted international organizations to focus on corporate governance, such as the Cadbury Committee established in 1992 in the United Kingdom, as well as the Organisation for Economic Co-operation [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":601,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"disabled","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"default","adv-header-id-meta":"","stick-header-meta":"default","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"set","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center 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