Article 117 of the Saudi Companies Law

المادة 117 من نظام الشركات · الفرع الثاني: أدوات الدين والصكوك التمويلية

The article allows a joint stock company to issue tradable debt instruments or financing sukuk under the Capital Market Law, and requires an extraordinary assembly resolution setting a maximum for those convertible into shares.

Official text (Arabic)

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

1- لشركة المساهمة أن تصدر -وفقًا لنظام السوق المالية- أدوات دين أو صكوكًا تمويلية قابلة للتداول.

2- يشترط لإصدار الشركة أدوات دين أو صكوكًا تمويلية قابلة للتحويل إلى أسهم، صدور قرار من الجمعية العامة غير العادية تبين فيه الحد الأقصى لعدد الأسهم التي يجوز إصدارها مقابل تلك الأدوات أو الصكوك، سواء أصدرت تلك الأدوات أو الصكوك في وقت واحد أم من خلال سلسلة من الإصدارات أم من خلال برنامج أو أكثر لإصدارها. ويصدر مجلس الإدارة -دون حاجة إلى موافقة جديدة من هذه الجمعية- أسهمًا جديدة مقابل تلك الأدوات أو الصكوك التي يطلب حاملوها تحويلها فور انتهاء مدة طلب التحويل المحددة لحملة تلك الأدوات أو الصكوك، أو عند تحقق شروط تحويلها تلقائيًّا إلى أسهم أو بمضي المدة المحددة لهذا التحويل، ويتخذ المجلس ما يلزم لتعديل نظام الشركة الأساس فيما يتعلق بعدد الأسهم المصدرة ورأس المال.

3- يجب على مجلس الإدارة قيد اكتمال إجراءات كل زيادة في رأس المال لدى السجل التجاري.

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 117 explained in plain English

This article regulates a joint stock company's financing through debt instruments and financing sukuk, as an alternative to directly increasing capital.

1- Permission to issue

A joint stock company may issue tradable debt instruments or financing sukuk, in accordance with the Capital Market Law.

2- Instruments and sukuk convertible into shares

Issuing them requires a resolution of the extraordinary general assembly.
The resolution states the maximum number of shares that may be issued against them, whether the instruments are issued all at once, in a series of issues, or through one or more programs.

3- The board's role on conversion

The board of directors issues new shares against the instruments or sukuk without needing new approval from the assembly, in any of these cases:

As soon as the period set for their holders to request conversion ends, for those who requested conversion.
When the conditions for their automatic conversion into shares are met.
When the period set for conversion has passed.

The board takes the steps needed to amend the company's articles of association with respect to the number of shares issued and the capital.

4- Registration in the commercial register

The board of directors must register the completion of the procedures for every increase in capital with the commercial register.

Article 118 adds that converting debt instruments or sukuk into shares is done in accordance with the Capital Market Law and with the holder's approval, whether given beforehand or afterwards. Because these issues are also subject to the Capital Market Law, it is advisable to consult a lawyer who specializes in companies and securities.

Practical example

A joint stock company in Riyadh needed financing for an expansion project, so its extraordinary general assembly decided to issue sukuk convertible into shares, and its resolution provided that the number of shares issued against them must not exceed one million. When the period for requesting conversion ended, some sukuk holders asked for conversion, and the board issued the new shares to them without returning to the assembly, amended the articles of association for the number of shares and the capital, and then registered the increase with the commercial register.

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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