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We are excited to share the latest edition of the Law Update, beautifully and appropriately titled “Sustainable Horizons: The Saudi Arabian Vision.” Giving special honor to the Kingdom’s 2030 vision, this update focuses on a collection of both informative and inspiring articles.
For those in construction, you can learn about how the tendering environment impacts risk-pricing for contractors, the updates on the legal framework of the construction industry and how contractors can protect themselves against financial difficulties.
There is good news too from the kingdom’s banking sector, from which the practice of “Open Banking” is being pushed for! But what is open banking? We’re answering that too.
Also . . . Are there any women trail blazers in Saudi Arabia you can name? We’ll help you with that. We cover how the Middle East has been making strides in empowering women in the entrepreneurial space,most notably in STEM fields.Read the full edition
Izabella Szadkowska - Partner - Corporate Structuring / Corporate Services / Corporate / Mergers and Acquisitions / Capital Markets / Family Business
Although prior to the listing and the offering the business might have been managed by directors or managers, the scope and nature of duties and responsibilities as well as potential liability of the board of directors (“Board”) and its members post listing/offering will be much broader than before.
For example, Board members may be required to carefully monitor and report their interest in the issuer, become responsible for numerous filings with the exchange and the regulatory authority and cannot be remunerated otherwise than in compliance with a prescribed process.
This article examines the context of Saudi companies that have their shares listed and admitted to trading on the Saudi Stock Exchange (Tadawul) (“SSE”).
It further sets out some main considerations for Board members of Saudi companies whose shares are listed and admitted to trading on the SSE.
Duties, responsibilities as well as certain restrictions concerning operations of the Board are prescribed under a number of sources:
1. COMPANIES REGULATIONS
Under the Companies Regulations, with due regard to the prerogatives vested in the general meeting, the Board has full power in the administration of the issuer.
Despite its broad powers, under the Companies Regulations, the Board is subject to restrictions that include the following:
Directors who are found to be in breach of the provisions prescribed under the Companies Regulations may be subject to civil or criminal liability.
The issuer may institute a personal action in liability against any Director for wrongful acts that cause prejudice to the shareholders.
Directors are jointly responsible for damages to the issuer, or the shareholders, or third parties, arising from their maladministration of the affairs of the issuer or their violation of the provisions of the Companies Regulations or of the issuer’s bylaws.
In certain cases, e.g. if a Director has dishonestly overestimated the value of contribution in kind or the special privileges granted to founders or received or distributed fictitious (unearned) profits, the Director may be subject to imprisonment for a period of between three months and a year and/or to a fine.
2. LISTING RULES
Apart from those established under the Companies Regulations, the Directors and the Board have certain responsibilities under the Listing Rules including, without limitation:
3. CORPORATE GOVERNANCE REGULATIONS
The Directors and the Board have numerous responsibilities and obligations under the Corporate Governance Regulations that include, in particular:
4. CAPITAL MARKETS LAW
Finally, Directors need to act in compliance with the Capital Markets Law, such as:
Should a prospectus contain incorrect statements of material matters or omit material facts, the Board may be held liable.
As the above indicates, apart from the commonly known responsibilities of protecting the shareholders’ assets and ensuring they receive a decent return on their investment, actions of Board members are under scrutiny at all times.
Not only is the Board prohibited from taking certain actions, e.g. participating in a competing business to the one of the issuer or taking a loan from the issuer but also required to take certain measure, such as declaring their interest in the issuer, making timely and not misleading market disclosures and introducing internal policies.
Before taking up a role as a Board member of a SEE-listed company, a candidate should become familiar with the rules and regulations that govern operation of the Board and conduct by its members.
Failure to be aware of and meet these legal requirements could result in a legal action taken by the shareholders or third parties against the Board and/or its member.
With valuable contributions from the Riyadh team of Al Tamimi & Company, particularly Hesham Al Homoud, Partner.
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