“Shareholders rights” means the bundle of privileges granted to the individuals or entities that own shares in the company’s stock. These rights protect the interests of the shareholders and enable them to participate in decision-making processes related to the company. In addition, such rights achieve a balance between the interests of the shareholders and the company’s management and protect the interests of all involved stakeholders whether they were small or senior investors. The Kingdom’s top priority is the protection of the shareholders' rights and the enhancement of transparency and justice. These interests came under the framework of Saudi Arabia's Vision 2030, which aims at fostering the private sector and achieving sustainable development. The most important rights of shareholders as stipulated in the Companies Law and the Corporate Governance Regulations issued by the Capital Market Authority.

Who are the shareholders of a company?

• Definition of a Shareholder

Shareholders are investors who hold shares in the company’s stock. In other words, they are the owners of the company, based on the number of shares they hold. Depending on the type of shares they have—whether common or preferred—and the extent of their ownership, shareholders are granted a range of rights and responsibilities.

• Types of Shareholders

Pursuant to the Companies Law, there are two types of shareholders, as detailed below:

• Individuals: Natural persons who hold shares in the company.
• Entities: Legal persons, such as corporates or companies, that invest in the shares of other companies, including investment funds or banks.

List of Shareholders' Rights

• Types of Shareholders’ Rights
• Fair Treatment of Shareholders
• The Board shall seek shareholders’ rights protection to ensure fairness and equality among them.
• The Board and the Executive Management of the Company shall not discriminate among shareholders who own the same class of shares nor prevent them from accessing any of their rights.
• The Company shall specify in its internal policies the procedures that are necessary to guarantee that all shareholders exercise their rights.
• Rights related to shares

According to the Companies Law and Corporate Governance Regulations, all rights related to shares shall be guaranteed to the shareholder, and particularly the following:

• to obtain his/her portion of the net profits which are to be distributed in cash or through the issuance of shares;
• to obtain his/her share of the Company’s assets upon liquidation;
• to attend the General or Special Shareholders Assemblies, take part in their deliberations and vote on their decisions.
• to dispose of his/her shares in accordance with the provisions of the Companies Law, The Capital Market Law and their implementing regulations.
• to enquire and request viewing the books and documents of the Company, including the data and information related to the activities of the Company and its operational and investment strategy without prejudice to the interests of the Company or breach of the Companies Law and the Capital Market Law and their implementing regulations.
• to monitor the performance of the Company and the activities of the Board.
• to hold Board members accountable, to file liability lawsuits against them and appeal for nullification of the resolutions of the General and Special Shareholders Assemblies in accordance with the conditions and restrictions provided in the Companies Law and the Company’s articles of association.
• preemptive rights to subscribe for new shares issued in exchange for cash unless otherwise the Extraordinary General Assembly suspends the pre-emptive rights as per the Company’s articles of association.
• to record his/her name in the firm’s shareholder register.
• to request to view a copy of the firm’s memorandum of association and articles of association unless the firm publishes them on its website.
• to nominate and elect the Board members.

• Shareholder access to information
• The Board shall make available to the shareholder complete, clear, accurate and non- misleading information to enable him/her to properly exercise his/her rights. Such information shall be provided at the proper times and shall be updated regularly.
• The method used to provide information to the shareholders shall be clear and detailed and shall include a list of the firm’s information that the shareholders may obtain. Such information shall be made available to all shareholders of the same class.
• The Company shall use the most effective methods in communicating with shareholders and shall not discriminate among shareholders in respect of providing information.
• Communicating with Shareholders
• The Board shall ensure communication between the Company and the shareholders based on the common understanding of the strategic objectives and interests of the Company.
• The chairman of the Board and the Chief Executive Officer shall inform the remaining Board members of the opinions of the shareholders and discuss these opinions with them.
• No shareholder may intervene in the operations of the Board or the work of the Executive Management of the firm unless he/she is a member of its Board or its management team; or unless his/her intervention is through the Ordinary General Assembly according to its powers.
• The Company shall appoint an officer to oversee investor relations, ensuring transparent and equitable communication between the Company and its shareholders.
• Electing the Board Members
• Upon calling for the General Assembly, the Company shall announce on the Exchange’s website information about the nominees for the membership of the Board which shall include the nominees’ experience, qualifications, skills and their previous and current jobs and memberships. The Company shall make a copy of the mentioned information available in the Company’s head office and its website.
• Voting in the General Assembly shall be confined to the Board nominees whose information has been announced.
• Distribution of Dividends
• The General Assembly shall prescribe the percentage of the net profits to be distributed to the shareholders after setting aside the statutory reserve.
• The Board shall establish a clear policy for the distribution of dividends to achieve the interests of the shareholders and the firm as per the firm’s articles of association.
• The shareholder shall be entitled to receive his/her share of dividends as per the decision of the General Assembly in respect of the distribution of dividends to shareholders or the Board resolution on distributing interim dividends. The resolution shall specify the record date and the distribution date provided that the resolution shall be executed as per the Implementing Regulations of the Companies Law related to Listed Joint Stock Companies.

Amendment to the rights of shareholders related to shares

• Conditions of amendment to the rights of shareholders related to shares
• In cases where the Company has shares of different types or classes, or if the Company’s articles of association permit the issuance of various types or classes of shares, any amendment or cancellation of rights, obligations, or restrictions related to such shares requires specific approvals. Similarly, converting any type or class of shares into another type or class, if it results in amending or canceling rights or obligations related to the original type or class of shares, or issuing shares of a particular type or class that may affect the rights of another class of shareholders, shall obtain the approval of a Special Assembly consisting of the shareholders impacted by the amendment, cancellation, conversion, or issuance, in addition to the approval of the Extraordinary General Assembly.
• If the Company’s shares include preferred shares or redeemable shares, no new shares with priority over any of their classes may be issued without the approval of a Special Assembly comprising the shareholders affected by such issuance.

Suspending the enforcement of shareholders’ rights related to shares

• Regulations of suspending the enforcement of shareholders’ rights related to shares
• A shareholder shall pay the remaining value of the share within the specified deadlines. If the shareholder fails to meet the deadline, the Board of Directors may, after notifying the shareholder through the methods stipulated in the Company’s articles of association, by registered mail, or through any modern means of communication, sell the share at a public auction or on the financial exchange, as applicable. The Company’s articles of association may also provide priority rights to other shareholders to purchase the shares of a delinquent shareholder.
• The Company shall collect the amounts due to it from the proceeds of the sale and return the remainder to the shareholder. If the proceeds of the sale are insufficient to cover these amounts, the company may collect the remaining amount from all of the shareholder's funds.
• .
• The rights associated with the shares of the shareholder who fails to pay their value are suspended upon the expiration of the specified deadline until they are sold or the amount due is paid. Such suspended rights include the right to receive a share of the profits decided to be distributed and the right to attend and vote in meetings of the General Assemblies. However, the shareholder who has defaulted on payment until the day of sale may pay the value owed to them, along with any expenses incurred by the Company in this regard, and in this case, the shareholder has the right to request the distribution of profits decided to be distributed.

In conclusion, shareholders’ rights constitute a fundamental pillar in promoting trust and transparency within Companies, significantly contributing to economic stability and sustainable growth. Demonstrating its commitment to fostering a fair and competitive business landscape, Saudi Arabia ensures the protection of shareholders’ rights, including their rights to vote, receive dividends, and access financial information with transparency, through the implementation of robust laws and regulations. Such obligation reflects the Kingdom’s strategic vision of fostering sustainable development, promoting investment, and establishing a resilient economy grounded in transparency and accountability.

Legal Services Related to Shareholders’ Rights in Companies

Legal services are essential in ensuring the protection and proper exercise of shareholders' rights. Such services address various legal aspects aimed at guaranteeing that Companies comply with local laws and regulations, while protecting the rights and interests of shareholders.

Below are the key legal services provided by Dr. Fahad Alrefaei & Partners Consulting & Law Firm related to shareholders’ rights:

• Drafting and amending the Company’s articles of association
• Consultation on voting rights
• Representing shareholders in disputes
• Protecting minority shareholders’ rights
• Dividend distribution and protection of financial rights
• Enforcing the decisions made by the General Assemblies
• Legal support in issuing new shares
• Protecting shareholders’ rights upon liquidation

For legal services related to shareholders’ rights, please contact Dr.Fahad Alrefaei & Partners Consulting & Law Firm at 920012753 or via [email protected]

We are pleased to assist you.

Please find: Corporate Governance Services