Article 114 of the Saudi Companies Law

المادة 114 من نظام الشركات · الفرع الأول: الأسهم

The article allows a company to buy or take its own shares in pledge if its articles of association permit, without voting rights, and allows shares to be pledged, with the pledgee entitled to profits and rights but not to attend or vote.

Official text (Arabic)

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

1- يجوز أن تشتري الشركة أسهمها أو ترتهنها إذا أجاز نظامها الأساس ذلك، ولا يكون للأسهم التي تشتريها الشركة أصوات في جمعيات المساهمين.

2- يجوز رهن الأسهم، ويكون للدائن المرتهن قبض الأرباح واستعمال الحقوق المتصلة بالسهم، ما لم يتفق في عقد الرهن على غير ذلك. ولا يجوز للدائن المرتهن حضور اجتماعات جمعيات المساهمين ولا التصويت فيها.

3- تحدد اللوائح الضوابط اللازمة لتنفيذ ما ورد في هذه المادة.

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 114 explained in plain English

This article deals with three transactions involving shares: the company buying its own shares, the company taking them in pledge, and a shareholder pledging their shares.

First: the company buying or taking its own shares in pledge

A company may buy its own shares or take them in pledge if its articles of association permit this.
Shares bought by the company carry no votes in shareholders' assemblies.

Second: pledging shares

Shares may be pledged, for example where a shareholder pledges them as security for a loan.
The pledgee is entitled to receive the profits and exercise the rights attached to the share, unless the pledge contract agrees otherwise.
However, the pledgee may not attend or vote at shareholders' assemblies.

Role of the regulations: the regulations set the rules needed to implement what is in this article; the article itself does not state them.

It follows from the text that the parties to a pledge contract may agree who receives the profits and exercises the rights attached to the share, whereas the bar on the pledgee attending and voting is stated in categorical terms. When pledging shares as security for financing, it is advisable to consult a lawyer who specializes in companies and securities.

Practical example

Salman pledged his shares in a joint stock company in Riyadh to a financing institution as security for a loan, and the pledge contract contained nothing contrary to the article. When the company distributed profits, the financing institution received them as pledgee, but it had no right to attend the general assembly or vote in it.

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 114 of Companies Law?

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