Article 109 of the Saudi Companies Law
المادة 109 من نظام الشركات · الفرع الأول: الأسهم
The article allows one type or class of shares to be converted into another if the articles of association provide and the extraordinary assembly approves, except for automatic conversion, and requires unanimity to convert into redeemable shares.
Official text (Arabic)
This article has not been amended since the law was issued.
1- يجوز في الحالات التي يكون فيها لدى الشركة أسهم من أنواع أو فئات مختلفة تحويل نوع أو فئة منها إلى نوع أو فئة أخرى إذا نص نظام الشركة الأساس على ذلك.
2- يشترط لتحويل نوع أو فئة من الأسهم إلى نوع أو فئة أخرى الحصول على موافقة الجمعية العامة غير العادية. ويستثنى من ذلك الحالات التي ينص قرار إصدار الأسهم على تحولها تلقائيًّا إلى نوع أو فئة أخرى عند تحقق شروط معينة أو بعد مضي مدة محددة.
3- تسري الأحكام الواردة في المادة (العاشرة بعد المائة) من النظام في الحالات التي يترتب فيها على تحويل الأسهم تعديل أو إلغاء الحقوق أو الالتزامات المتصلة بنوع أو فئة السهم.
4- لا يجوز تحويل الأسهم العادية ولا الأسهم الممتازة ولا أي فئة من فئاتهما إلى أسهم قابلة للاسترداد أو أي من فئاتها؛ إلا بموافقة جميع المساهمين في الشركة.
5- تحدد اللوائح ضوابط تنفيذ ما ورد في هذه المادة وكيفية التعامل مع آثار وحقوق والتزامات الأسهم قبل التحويل أو بعده.
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 109 explained in plain English
This article regulates the conversion of shares from one type or class into another, in companies that have shares of different types or classes.
Conditions for conversion:
- The company's articles of association must provide that conversion is permitted.
- The extraordinary general assembly must approve the conversion.
The exception, automatic conversion: the approval of the extraordinary general assembly is not required if the resolution issuing the shares provides that they convert automatically into another type or class when certain conditions are met or after a specified period.
Protection of those whose rights are affected: if the conversion results in amending or cancelling the rights or obligations attached to the type or class of share, the provisions of Article 110 apply. They require the approval of a special assembly of the shareholders who are adversely affected by the conversion, in addition to the approval of the extraordinary general assembly.
A special restriction on redeemable shares: ordinary shares, preferred shares, or any class of either, may not be converted into redeemable shares or any of their classes except with the approval of all the shareholders in the company.
Role of the regulations: the regulations set the rules for implementing this article, and for dealing with the effects of the shares and their rights and obligations before or after conversion.
The types of shares referred to are those set out in Article 108: ordinary, preferred and redeemable. Because a conversion may affect shareholders' rights, it is advisable to consult a lawyer who specializes in companies and commercial disputes.
Practical example
A joint stock company in Jeddah issued preferred shares to an investor, and the issue resolution provided that they convert automatically into ordinary shares after three years. When the period ends, the shares convert without any new approval from the extraordinary general assembly. If the company wanted to convert ordinary shares into redeemable shares, however, that would not be permitted except with the approval of all the shareholders.
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 contentA question about Article 109 of Companies Law?
Describe what happened and specialist lawyers answer. You can write in English.
- Completely free
- Lawyers from the directory answer
- Your name stays hidden
Commercial & Corporate Law lawyers: ask a specialist about your case
Describe your situation briefly and we'll suggest a lawyer who specialises in this law
Commercial & Corporate Law lawyers
Lawyers who handle this kind of case
شركة امتداد النظام للمحاماة والاستشارات المهنية
- Labour & Employment Law
- Criminal Law
- Criminal Law
- Commercial & Corporate Law
Frequently asked questions about Article 109 of the Saudi Companies Law
Can preferred shares be converted into ordinary shares?
A type or class of shares may be converted into another if the articles of association so provide and the extraordinary general assembly approves, unless the issue resolution provides for automatic conversion.
When does a conversion of shares not need the approval of the extraordinary assembly?
When the resolution issuing the shares provides that they convert automatically when certain conditions are met or after a specified period.
What is required to convert ordinary shares into redeemable shares?
This is not permitted except with the approval of all the shareholders in the company.
Articles this article refers to
More articles on Shares and Capital Increase
- Article 25
The article states when ownership of shares and stock transfers: by commercial register entry for partnership and limited liability shares, by shareholders' register entry for unlisted joint stock and simplified companies, and under the Capital Market Law for listed ones.
1- تنتقل ملكية الحصص في شركة التضامن وشركة التوصية البسيطة والشركة ذات المسؤولية المحدودة بالقيد لدى السجل التجاري، ولا يُعتد بنقل ملكية الحصة في مواجهة الشركة
- Article 34
Article 34 allows a partner's or shareholder's personal creditor to ask for the sale of what is needed of their shares or stock to collect their right, with other partners' right of redemption and shareholders' priority in specified cases.
مع مراعاة أحكام نظام ضمان الحقوق بالأموال المنقولة، والأنظمة الأخرى ذات العلاقة، للدائن الشخصي للشريك أو المساهم -فضلًا عن الحق المشار إليه في المادة (الثالثة و
- Article 59
Article 59 requires a joint stock company's issued capital to be at least SAR 500,000, with not less than one quarter paid at formation.
يجب ألا يقلّ رأس مال شركة المساهمة المصدر عن (خمسمائة ألف) ريال، ويجب ألا يقلّ المدفوع منه عند التأسيس عن (الربع).
- Article 60
Article 60 states that a joint stock company has an issued capital representing subscribed shares and may have an authorized capital, within which the board may increase the issued capital once it has been paid in full.
1- يكون لشركة المساهمة رأس مال مصدر يمثل الأسهم المكتتب بها، ويجوز أن يحدد نظام الشركة الأساس رأس مال مصرحًا به. 2- يجوز بقرار من مجلس إدارة الشركة زيادة رأس ال
- Article 62
The article requires the founders, if they do not subscribe to all the company's shares themselves during incorporation, to offer the remaining shares for subscription in accordance with the Capital Market Law.
إذا لم يقصر المؤسسون خلال مرحلة التأسيس الاكتتاب بجميع الأسهم على أنفسهم، وجب عليهم طرح الأسهم التي لم يكتتبوا بها للاكتتاب وفقًا لنظام السوق المالية.
- Article 63
The article gives the Ministry and the Authority the power to set the controls, procedures, documents and approvals for incorporating a joint stock company whose shares are offered for public subscription during incorporation or which is listed on the capital market.
للوزارة والهيئة وضع الضوابط والإجراءات وتحديد الوثائق والموافقات اللازمة لتأسيس شركة مساهمة تطرح أسهمها للاكتتاب العام خلال مرحلة التأسيس أو تدرج في السوق المال
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.