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Article 124 of the Saudi Companies Law

المادة 124 من نظام الشركات · الفصل الخامس: مالية شركة المساهمة

The article says who decides how a joint-stock company's reserves are used, and allows the ordinary general assembly to use retained profits and distributable reserves to pay the unpaid balance of share value.

Official text (Arabic)

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

1- لا يجوز أن يستخدم الاحتياطي المخصص لأغراض محددة في نظام الشركة الأساس إلا بقرار من الجمعية العامة غير العادية. وإذا لم يكن هذا الاحتياطي مخصصًا لغرض معين، جاز للجمعية العامة العادية -بناء على اقتراح مجلس الإدارة- أن تقرر صرفه فيما يعود بالنفع على الشركة أو المساهمين. وللجهة المختصة وضع ضوابط استخدام الاحتياطيات.

2- يجوز للجمعية العامة العادية استخدام الأرباح المبقاة والاحتياطيات القابلة للتوزيع لسداد المبلغ المتبقي من قيمة السهم أو جزء منه، على ألا يخل ذلك بالعدالة بين المساهمين وفقًا لأحكام النظام.

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 124 explained in plain English

Article 123 explains how reserves are formed; this article sets out how they are used and who decides:

First: a reserve allocated to a specific purpose in the articles of association

It may be used only by a decision of the extraordinary general assembly, because it is set aside by a provision of the articles of association for a particular purpose.

Second: a reserve not allocated to a specific purpose

The ordinary general assembly, on the board of directors' proposal, may decide to spend it on what benefits the company or the shareholders.

In both cases, the competent authority may set rules for using reserves; the article does not give the details of these rules.

Third: paying the unpaid balance of share value

  • If shareholders have not paid the full value of their shares, the ordinary general assembly may use retained profits and distributable reserves to pay the remaining amount of the share value, or part of it.
  • This is on condition that it does not undermine fairness among shareholders under the provisions of the law.

This article is connected to Article 125, which makes the profits distributed to shareholders come from net profits after deducting reserves, if any. To learn how these decisions affect a particular shareholder's rights, you can consult a lawyer specializing in companies.

Practical example

The articles of association of a joint-stock company in Khobar provide for a reserve to expand its factory, and the company also has a general reserve not allocated to any purpose. If the board wants to use the expansion reserve for another purpose, that can be done only by a decision of the extraordinary general assembly. As for the general reserve, the board proposed to the ordinary general assembly that it be spent on a project benefiting the company, and the assembly approved.

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 124 of the Saudi Companies Law

Who decides how a reserve allocated in the articles of association is used?

It may be used only by a decision of the extraordinary general assembly.

How is a reserve not allocated to a specific purpose spent?

The ordinary general assembly decides to spend it, on the board of directors' proposal, on what benefits the company or the shareholders.

Can the unpaid balance of the shares be paid from the company's profits?

Yes. The ordinary general assembly may use retained profits and distributable reserves to pay the remaining value of the share, or part of it, provided this does not undermine fairness among shareholders.

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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.