Article 106 of the Saudi Companies Law

المادة 106 من نظام الشركات · الفرع الأول: الأسهم

The article prohibits issuing shares below their nominal value and allows issue above it if the articles of association provide or the extraordinary assembly approves, with the difference placed in a separate item within shareholders' equity.

Official text (Arabic)

This article has not been amended since the law was issued.

لا يجوز أن تصدر الأسهم بأقل من قيمتها الاسمية، ويجوز أن تصدر بأعلى من هذه القيمة إذا نص نظام الشركة الأساس على ذلك أو وافقت عليه الجمعية العامة غير العادية، وفي هذه الحالة يوضع فرق القيمة في بند مستقل ضمن حقوق المساهمين، وتحدد اللوائح ضوابط استخدامه.

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 106 explained in plain English

This article sets a rule protecting the company's capital concerning the issue price of shares compared with their nominal value.

First: issuing below nominal value is prohibited

Shares may not be issued below their nominal value. If the nominal value is SAR 10, a share may not be issued for SAR 8, for example, because that would mean the stated capital is not matched by real money.

Second: issuing above nominal value is permitted

Shares may be issued at a price above their nominal value in either of two cases:

If the company's articles of association so provide.
If the extraordinary general assembly approves it.

Third: treatment of the difference in value

Where shares are issued above nominal value, the difference is placed in a separate item within shareholders' equity, and the regulations set the rules for using it; the article itself does not state these rules.

Issuing above nominal value usually happens when the company has grown and its shares are worth more than their nominal value, so a new shareholder pays a price that reflects this. This article complements Article 105, which regulates the issue of shares against cash or in-kind contributions and the amount that must be paid. To learn the rules for using this difference in a particular case, it is advisable to consult a lawyer who specializes in companies and commercial disputes.

Practical example

A joint stock company in Riyadh has a nominal share value of SAR 10 and wanted to issue new shares to investors at SAR 25 per share, and obtained the approval of the extraordinary general assembly. SAR 10 per share is recorded in the capital, and the difference of SAR 15 is placed in a separate item within shareholders' equity and used in accordance with the rules set by the regulations.

Translated from our Arabic explanation with machine assistance. For guidance only; it does not replace advice from a lawyer on your situation.

How we write and review content

A question about Article 106 of Companies Law?

Describe what happened and specialist lawyers answer. You can write in English.