Article 534 of the Saudi Civil Transactions Law
المادة 534 من نظام المعاملات المدنية · الفرع الثاني: آثار عقد الشركة
The article makes the division of profits in proportion to each partner's share unless otherwise agreed, and distributes losses in proportion to each partner's share.
Official text (Arabic)
This article has not been amended since the law was issued.
1- تكون قسمة الأرباح بين الشركاء بنسبة حصة كل شريك في الشركة، ما لم يتفق على خلاف ذلك.
2- توزع الخسائر بين الشركاء بنسبة حصة كل منهم في الشركة.
This is the official Arabic wording, the only legally binding version. We do not translate the law itself; the explanation below is ours. Official source: Bureau of Experts at the Council of Ministers
Article 534 explained in plain English
This article sets how the partners divide the partnership's results, and distinguishes between profit and loss:
Profits (paragraph 1): The default is that profits are divided in proportion to each partner's share in the partnership, unless otherwise agreed. The partners may agree on profit percentages that differ from their share percentages, such as a partner who runs the business receiving a higher profit percentage than his financial share.
Losses (paragraph 2): Losses are distributed in proportion to each partner's share in the partnership. Note that the second paragraph does not contain the phrase "unless otherwise agreed" found in the first paragraph; the text ties the distribution of loss to the proportion of the share without mentioning that agreement otherwise is allowed.
The rule is read with Article 535, which bars stipulating that a partner's portion of the profit is a fixed sum, or that he does not benefit from the profit, or that he is exempted from loss. Freedom to agree on profit percentages therefore has limits: it cannot turn into guaranteeing a fixed sum or depriving a partner of profit entirely.
The article follows Article 533, which sets the rules that apply to the guarantee of a partner's share if it is a right of ownership or merely use.
To draft the clause on distributing profits and losses in a partnership contract properly, it is advisable to consult a lawyer specializing in civil or company matters.
Practical example
Omar and Hisham established a company in Riyadh, with Omar's share at 60% and Hisham's at 40%, and agreed to divide the profit equally because Hisham handles the daily work. This agreement on profit is allowed. The loss, however, is distributed under the text in proportion to the shares: 60% on Omar and 40% on Hisham.
Translated from our Arabic explanation with machine assistance. For guidance only; it does not replace advice from a lawyer on your situation.
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Frequently asked questions about Article 534 of the Saudi Civil Transactions Law
How are the company's profits distributed among the partners?
In proportion to each partner's share in the partnership, unless otherwise agreed.
How is a loss divided among the partners?
Losses are distributed among the partners in proportion to each partner's share in the partnership.
May a profit percentage different from the share percentage be agreed?
Yes, the paragraph on profits allows agreement otherwise than the rule of distribution by shares, subject to the limits in Article 535.
More articles on Partnership and Mudaraba
- Article 528
The article requires partnership contracts and their amendments to be in writing or be void, while barring reliance on the voidness against third parties and limiting its effect between the contracting parties to the period after a voidness claim is filed.
1- يجب أن تكون عقود المشاركة الواردة في هذا الباب مكتوبة، وإلا كانت باطلة، ولا يجوز أن يحتج المتعاقد بالبطلان تجاه الغير، ولا يكون للبطلان أثر فيما بين المتعاقد
- Article 529
The article defines the partnership as a contract under which two or more partners contribute a share of money, work, or both to a project in order to divide its profit or loss, and excludes partnerships governed by special legal provisions.
1- الشركة عقد يسهم بمقتضاه شريكان أو أكثر بتقديم حصة من مال أو عمل أو منهما معًا في مشروع لاقتسام ما ينشأ عنه من ربح أو خسارة. 2- لا تسري أحكام هذا الفصل على ال
- Article 530
The article bars a partner's influence, reputation or financial credibility from being his share, explains how a non-cash share is valued, and says when a partner's obligation ends if his share is a debt owed by a third party.
1- لا يصح أن تكون الحصة أو بعضها ما للشريك من نفوذ أو سمعة أو ثقة مالية. 2- إذا كانت حصة الشريك غير نقدية، قُدرت الحصة بقيمتها عند التعاقد أو بما يتفق عليه الشر
- Article 531
The article allows a partnership to be based on the partners' joint liability for what they undertake in their obligations for its benefit, makes each partner's share in the capital equal to what he undertook unless otherwise agreed, and allows partners to differ in their obligations.
1- يصح أن تقوم الشركة على أساس تضامن الشركاء فيما يلتزمون به في ذممهم من مال أو عملٍ لمصلحة الشركة، وتكون حصة كل منهم في رأس مال الشركة بقدر ما التزم به في ذمته
- Article 532
The article provides that each partner's share is determined by what he undertook in the partnership contract, and that he may not increase it except with the consent of the other partners.
تتحدد حصة كل شريك بالحصة التي التزم بها في عقد الشركة، ولا يجوز للشريك زيادة حصته عن الحصة المحددة في عقد الشركة إلا بموافقة باقي الشركاء.
- Article 533
The article subjects the guarantee of a partner's share to the rules of sale if it is a right of ownership or another real right, and to the rules of lease if it is merely the use of property.
إذا كانت حصة الشريك حق ملكية أو أي حق عينيّ آخر فإن أحكام البيع هي التي تسري على ضمان الحصة إذا هلكت أو استحقت أو ظهر فيها عيب، وإذا كانت الحصة مجرد الانتفاع با
The texts are reproduced from the official website of the Bureau of Experts at the Council of Ministers for reference; where they differ, the officially published Arabic text prevails. This content is not legal advice.