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Article 126 of the Saudi Companies Law

المادة 126 من نظام الشركات · الفرع الأول: زيادة رأس المال

The article sets out four ways to increase a joint-stock company's capital, all by issuing new shares: for cash or in-kind contributions, for debts, by incorporating reserves, or for debt instruments and sukuk.

Official text (Arabic)

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

يزاد رأس المال بإحدى الطرق الآتية:

أ- إصدار أسهم جديدة مقابل حصص نقدية أو عينية.

ب - إصدار أسهم جديدة مقابل ما على الشركة من ديون معينة المقدار حالَّة الأداء، بموافقة الدائنين المعنيين. على أن يكون الإصدار بالقيمة التي تقررها الجمعية العامة غير العادية بعد الاستعانة برأي خبير أو مقيم معتمد أو أكثر، وبعد أن يعد مجلس الإدارة بيانًا عن منشأ هذه الديون ومقدارها، ويوقعُ أعضاء المجلس هذا البيان ويكونون مسؤولين عن صحته، ويرفق في شأنه تقرير من مراجع حسابات الشركة.

ج - إصدار أسهم جديدة بمقدار الاحتياطي الذي تقرر الجمعية العامة غير العادية إدماجه في رأس المال، ويجب أن تصدر هذه الأسهم بنفس شكل وأوضاع الأسهم المصدرة من ذات النوع أو الفئة، وتوزع تلك الأسهم على المساهمين دون مقابل بنسبة ما يملكه كل منهم من الأسهم الأصلية.

د - إصدار أسهم جديدة مقابل أدوات الدين أو الصكوك التمويلية.

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 126 explained in plain English

This article lists the ways in which the capital of a joint-stock company may be increased, all of which involve issuing new shares:

  1. For cash or in-kind contributions: subscribers pay in cash, or contribute assets in kind such as real estate or equipment.
  2. For debts owed by the company: the creditor becomes a shareholder, subject to conditions:
    • The debts must be of a determined amount and due for payment.
    • The approval of the creditors concerned is required.
    • The issue must be at the value set by the extraordinary general assembly after obtaining the opinion of one or more accredited experts or valuers.
    • The board of directors must prepare a statement of the origin and amount of the debts, signed by its members, who are responsible for its accuracy, accompanied by a report from the company's auditor.
  3. By incorporating the reserve into capital: in the amount of the reserve that the extraordinary general assembly decides to incorporate. The shares are issued in the same form and terms as the issued shares of the same type or class, and are distributed to shareholders free of charge in proportion to the original shares each holds.
  4. For debt instruments or financing sukuk: by converting them into shares.

Article 127 governs the increase decision itself and its conditions, including the requirement that the issued capital be paid in full with an exception relating to conversion shares, the permission to allocate the increase shares to employees, and the requirement that the nominal value of the increase shares equal that of the original shares of the same type or class. To choose the right method for a particular company, it is advisable to consult a lawyer specializing in companies.

Practical example

A joint-stock company in Jeddah owes a supplier a specific amount that has fallen due, and agrees with the supplier that it will become a shareholder instead of being paid in cash. The board prepares a signed statement of the origin and amount of the debt, with the auditor's report attached, and the extraordinary general assembly obtains the opinion of an accredited valuer and then sets the issue value of the new shares for the supplier.

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 126 of the Saudi Companies Law

What are the ways of increasing a joint-stock company's capital?

By issuing new shares for cash or in-kind contributions, for debts of a determined amount that are due from the company, by incorporating the reserve, or for debt instruments or financing sukuk.

Can a debt owed by the company be converted into shares?

Yes, if the debt is of a determined amount and due, and the creditor agrees. The value is set by the extraordinary general assembly after the opinion of an accredited expert or valuer, with a statement from the board and a report from the auditor.

Does a shareholder pay for bonus shares from incorporating the reserve?

No. They are distributed to shareholders free of charge in proportion to the original shares each holds.

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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.