Corporate governance rules in Saudi Arabia — what is mandatory and what is guidance

Layer 1: the Companies Law applies to everyone

Whatever its form, every Saudi company is subject to the Companies Law and its Implementing Regulations. For joint stock companies — listed or not — the law requires:

• a board of at least three members (Article 67);
• terms of no more than four years, renewable unless the articles say otherwise (Article 68);
• at least four board meetings a year (Article 80);
• immediate disclosure by a director of any direct or indirect interest in the company's business or contracts (Article 71), and authorisation for such interests (Article 27);
• action by the board within 60 days when losses reach half of the issued capital (Article 132).

Managers and board members are jointly liable for damage caused by breaches of the law or the articles, or by mismanagement (Article 28). The Implementing Regulations add duties of care and loyalty.

Layer 2: listed companies and the CMA

Companies whose shares are listed on the Saudi Exchange must also comply with the Capital Market Authority's Corporate Governance Regulations, which were updated when the Companies Law took effect. These deal with board composition and independence, committees, remuneration, related-party transactions, disclosure and shareholder rights. Some provisions are mandatory and others guiding, and requirements differ between the Main Market and the parallel market, Nomu.

Layer 3: unlisted joint stock companies

The Ministry of Commerce issued Corporate Governance Regulations for Non-Listed Joint Stock Companies in 2018. Their own text treats them as guidance for unlisted companies, except where a provision repeats a mandatory rule from the Companies Law or another regulation. In practice, they are a useful benchmark — investors, lenders and acquirers often expect them to be followed — but a board should know which parts are law and which are best practice.

Layer 4: limited liability companies

There is no separate governance code for LLCs. The Companies Law and Implementing Regulations deal with the appointment and powers of managers, partners' decisions and the duties of care and loyalty. When losses reach half of the capital, the managers must consult the partners about whether the company continues. Most of an LLC's governance therefore lives in its articles of association and any shareholder agreement — which is why those documents deserve careful drafting.

Family companies

The Companies Law allows shareholders to adopt a family charter that regulates family ownership, governance and management, the employment of family members and the distribution of profits. Once adopted, it binds the parties. The family business guide explains what to include.

A practical approach to a governance review

1. Identify the company type and whether it is listed, regulated or investor-backed.
2. List the binding requirements that apply and check compliance.
3. Decide which guidance to adopt, and write it into charters and policies.
4. Align the articles, shareholder agreement and any family charter so they do not conflict.
5. Keep minutes and registers that prove decisions were made properly.