Duties and liability of board members in Saudi Arabia

Composition and meetings

A joint stock company must be managed by a board of at least three members (Article 67), appointed by the general assembly for terms that may not exceed four years (Article 68). The board must meet at least four times a year (Article 80). The articles can set more demanding rules, and listed companies face additional requirements from the Capital Market Authority.

Simplified joint stock companies are more flexible: their articles can provide for management by a chief executive, one or more managers, or a board. LLCs are run by one or more managers appointed by the partners.

The core duties

Care. Directors must act with the care of a prudent person: inform themselves, ask questions, and take decisions on an adequate basis.

Loyalty. Directors must act in the company's interest, not their own or that of the shareholder who appointed them.

Disclosure of interests. A director must immediately disclose to the board any direct or indirect interest in the company's business or contracts (Article 71), must not take part in voting on it, and must not hold such an interest without the required authorisation (Article 27).

No unauthorised competition. Competing with the company without authorisation exposes the director to claims.

When liability arises

Article 28 makes managers and board members jointly liable for damage the company suffers because of breaches of the law or the articles of association, or because of errors in management. The same article distinguishes between decisions taken by the board as a whole and those attributable to particular members.

In practice, liability claims usually follow a crisis: losses, an insolvency, a dispute between shareholders, or a transaction that benefited a director. Directors protect themselves by:

• insisting on board papers before meetings;
• making sure minutes record the discussion, the decision and any objections;
• declaring interests in writing and leaving the room for the vote;
• working within a written delegation of authority;
• taking advice before decisions with legal or financial risk.

When losses reach half of capital

If a joint stock company's losses reach half of its issued capital, the board must act within 60 days of learning of it (Article 132), including calling the shareholders to decide the company's future. Ignoring the threshold is one of the clearest routes to personal exposure.