On 2 May 2016, the new Companies Regulations were introduced in the Kingdom of Saudi Arabia to replace the previous regulations that were implemented in Saudi Arabia over 50 years ago. In general, the new regulations have been well-received and are seen as a step forward in the modernisation of the regulatory and investment landscape in Saudi Arabia, consistent with recent developments such as the opening of the stock market to foreign investors. The new regulations provide clarity and address several concerns regarding corporate structuring, ongoing operations and reporting obligations. One particular area that the legislator sought to strengthen was the role of managers and directors by placing additional responsibilities and obligations on them (and in some cases harsh penalties), in line with Western jurisdictions, in order to protect the wider interests of the stakeholders involved. In this article, we take a detailed look at managers’ and directors’ duties and liabilities in limited liability companies (LLCs) and joint stock companies (JSCs) in Saudi Arabia as stipulated under the new regulations.

Limited liability companies

The LLC is by far the most common corporate vehicle in Saudi Arabia. Its attractiveness generally lies in its ease of formation and the relatively limited ongoing regulatory and reporting obligations which it has to abide by. In addition, although the new regulations set forth the general framework applicable to LLCs, shareholders in LLCs are given broad discretion to agree on various matters pertaining to the business and operations of the company, which are set forth in the company’s articles of association.

Oct-Dec 2016 Issue

King & Spalding LLP