Qanoon
Sign in

Article 127 of the Saudi Companies Law

المادة 127 من نظام الشركات · الفرع الأول: زيادة رأس المال

The article allows the extraordinary general assembly to increase the issued or authorized capital on condition that the issued capital is fully paid, and to allocate increase shares to employees without shareholders' priority right.

Official text (Arabic)

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

1- للجمعية العامة غير العادية أن تقرر زيادة رأس مال الشركة المصدر، أو المصرح به -إن وجد- بشرط أن يكون رأس المال المصدر قد دفع كاملًا. ولا يشترط أن يكون رأس المال قد دفع بأكمله إذا كان الجزء غير المدفوع منه يعود إلى أسهم صدرت مقابل تحويل أدوات دين أو صكوك تمويلية إلى أسهم ولم تنتهِ بعد المدة المقررة لتحويلها.

2- للجمعية العامة غير العادية في جميع الأحوال أن تخصص الأسهم المصدرة عند زيادة رأس المال أو جزءًا منها للعاملين في الشركة والشركات التابعة أو بعضها. ولا يجوز للمساهمين ممارسة حق الأولوية عند إصدار الشركة الأسهم المخصصة للعاملين. وللجهة المختصة وضع ضوابط وإجراءات تخصيص الأسهم للعاملين في الشركة أو في الشركات التابعة أو بعضها، أو أي من ذلك.

3- في جميع الأحوال، يجب أن تكون القيمة الاسمية لأسهم الزيادة مساوية للقيمة الاسمية للأسهم الأصلية من ذات النوع أو الفئة.

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 127 explained in plain English

This article governs the decision to increase a joint-stock company's capital and its conditions, in three paragraphs:

1- Who decides the increase, and the condition

  • The extraordinary general assembly decides to increase the issued capital, or the authorized capital if there is one.
  • The condition: the issued capital must have been paid in full.
  • The exception: full payment is not required if the unpaid part relates to shares issued in exchange for converting debt instruments or financing sukuk whose conversion period has not yet ended.

2- Employee shares

  • In all cases, the extraordinary general assembly may allocate the increase shares, or part of them, to the employees of the company and of some or all of its subsidiaries.
  • Shareholders may not exercise the priority right when shares allocated to employees are issued.
  • The competent authority may set the rules and procedures for this allocation; the article does not detail them.

3- Nominal value

In all cases, the nominal value of the increase shares must equal the nominal value of the original shares of the same type or class.

This article is linked to Article 126, which lists the ways of increasing capital, and to Article 128, which gives a shareholder priority to subscribe for new shares issued for cash contributions. For planning an employee share program, it is advisable to consult a lawyer specializing in companies.

Practical example

The shareholders of a joint-stock company in Riyadh have paid the whole of the issued capital, and the company wants to reward its employees. The extraordinary general assembly decides to increase the capital and to allocate part of the increase shares to the employees of the company and of one of its subsidiaries, at the same nominal value as the original shares. The existing shareholders have no priority right in these shares allocated to employees.

Translated from our Arabic explanation with machine assistance. For guidance only; it does not replace advice from a lawyer on your situation.

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

See all lawyers

Frequently asked questions about Article 127 of the Saudi Companies Law

Can capital be increased before it has been paid in full?

No. The issued capital must have been paid in full, unless the unpaid part relates to shares issued in exchange for converting debt instruments or financing sukuk whose conversion period has not ended.

Can a company allocate shares to its employees?

Yes. The extraordinary general assembly may allocate the increase shares, or part of them, to the employees of the company and of some or all of its subsidiaries, under rules set by the competent authority.

Do shareholders have priority in employee shares?

No. Shareholders may not exercise the priority right when shares allocated to employees are issued.

Can the increase shares be issued at a different nominal value?

No. The nominal value of the increase shares must equal the nominal value of the original shares of the same type or class.

More articles on Shares and Capital Increase

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.