Undoubtedly, joint stock companies constitute the basis for combining small savings, and the actions of such companies make economic growth for the Kingdom possible.<\/p>\n
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.<\/p>\n
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?<\/p>\n
According to the Companies Act, a joint stock company is described as follows:<\/p>\n
“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).<\/p>\n
1- A shareholder<\/strong> 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.<\/p>\n 2- A registered shareholder<\/strong> 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).<\/p>\n 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:<\/p>\n 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.<\/p>\n 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.<\/p>\n 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).<\/p>\n 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).<\/p>\n 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).<\/p>\n 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).<\/p>\n Furthermore, any person \u2014 including but not limited to shareholders \u2014 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).<\/p>\n 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 \u2014 without prejudice to the right to claim such compensation as may be warranted by the circumstances (11).<\/p>\n 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).<\/p>\n 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).<\/p>\n It is further established that shareholders retain an unrestricted right to dispose of their shares \u2014 whether by way of sale, transfer, assignment, or otherwise \u2014 irrespective of whether the company’s shares are listed and traded on a recognized stock exchange or remain unlisted.<\/p>\n 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).<\/p>\n 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 \u2014 a residual entitlement commonly referred to as the liquidation surplus.<\/p>\n 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 \u2014 whether contained in the company’s articles of association, internal regulations, or otherwise \u2014 to the contrary.<\/p>\n Under the Companies Law, a joint-stock company is defined as a company incorporated by one or more persons \u2014 whether natural or legal \u2014 whose capital is divided into negotiable and tradable shares. In respect of the allocation of liability, the Law establishes the following framework:<\/p>\n 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:<\/p>\n Legal Significance of the Distinction:<\/strong> 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.<\/p>\n Yes. The law expressly confers upon every shareholder the right to nominate themselves, any fellow shareholder, or any third party \u2014 irrespective of any affiliation with the company \u2014 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.<\/p>\n 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 \u2014 either directly, through their own board membership, or indirectly, through the board membership of a person of their nomination.<\/p>\n 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 \u2014 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.<\/p>\n 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 […]<\/p>\n","protected":false},"author":3,"featured_media":0,"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 center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[30],"tags":[],"class_list":["post-5992","post","type-post","status-publish","format-standard","hentry","category-commercial-law-and-corporate-governance"],"acf":[],"_links":{"self":[{"href":"https:\/\/alrashidi.law\/en\/wp-json\/wp\/v2\/posts\/5992","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/alrashidi.law\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/alrashidi.law\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/alrashidi.law\/en\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/alrashidi.law\/en\/wp-json\/wp\/v2\/comments?post=5992"}],"version-history":[{"count":2,"href":"https:\/\/alrashidi.law\/en\/wp-json\/wp\/v2\/posts\/5992\/revisions"}],"predecessor-version":[{"id":5994,"href":"https:\/\/alrashidi.law\/en\/wp-json\/wp\/v2\/posts\/5992\/revisions\/5994"}],"wp:attachment":[{"href":"https:\/\/alrashidi.law\/en\/wp-json\/wp\/v2\/media?parent=5992"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/alrashidi.law\/en\/wp-json\/wp\/v2\/categories?post=5992"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/alrashidi.law\/en\/wp-json\/wp\/v2\/tags?post=5992"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Third: Basic Rights of Shareholders<\/strong><\/h2>\n
1. The right to stand for election to the Board of Directors<\/strong><\/h3>\n
2. The right to attend general meetings and vote<\/strong><\/h3>\n
3. The Right to Oversee the Board of Directors and Discuss Matters at the General Assembly<\/strong><\/h3>\n
4. The Right to Request an Inspection of the Company and to File a Lawsuit<\/strong><\/h3>\n
5. The Right to Receive Dividends, Obtain Bonus Shares, and Dispose of Shares<\/strong><\/h3>\n
6. The right to obtain the company’s financial statements or a portion of its assets<\/strong><\/h3>\n
What is the legal definition of a joint-stock company, and what are the parameters of a shareholder’s liability?<\/strong><\/h2>\n
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What is the legal distinction between a “shareholder” and a “registered shareholder”?<\/strong><\/h2>\n
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Is a shareholder entitled to nominate a candidate from outside the company for membership on the Board of Directors?<\/strong><\/h2>\n
Summary<\/strong><\/h2>\n
Sources<\/strong><\/h2>\n
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