Article 128 of the Saudi Companies Law
المادة 128 من نظام الشركات · الفرع الأول: زيادة رأس المال
The article gives a shareholder who owns shares when the capital increase decision is issued priority to subscribe for the new shares issued for cash contributions, and requires that they be notified of it and of the subscription terms.
Official text (Arabic)
This article has not been amended since the law was issued.
للمساهم مالك السهم -وقت صدور قرار الجمعية العامة غير العادية بالموافقة على زيادة رأس المال المصدر أو قرار مجلس الإدارة بالموافقة على زيادته في حدود رأس المال المصرح به- الأولوية في الاكتتاب بالأسهم الجديدة التي تصدر مقابل حصص نقدية، ويبلغ بأولويته -إن وجدت- بخطاب مسجل على عنوانه الوارد في سجل المساهمين، أو من خلال وسائل التقنية الحديثة، وبقرار زيادة رأس المال وشروط الاكتتاب وكيفيته وتاريخ بدايته وانتهائه، وذلك بالمراعاة لنوع وفئة السهم الذي يملكه.
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 128 explained in plain English
This article protects a shareholder from a decline in their ownership percentage when capital is increased, by giving them a priority right to subscribe.
Who is entitled to priority?
The shareholder who owns the share when either of these decisions is issued:
- a decision of the extraordinary general assembly approving an increase in the issued capital, or
- a decision of the board of directors approving the increase within the limits of the authorized capital.
On which shares? Only on new shares issued for cash contributions, taking into account the type and class of share the shareholder holds.
How is the shareholder notified?
- By registered letter to their address in the shareholders' register, or
- Through modern technological means.
The notice includes their priority, if any, the capital increase decision, the terms and method of subscription, and the start and end dates.
This right is not absolute: Article 127 prevents it from being exercised on shares allocated to employees, and Article 129 allows the extraordinary general assembly to suspend it if the articles of association so provide. If the priority right is violated, you can consult a lawyer specializing in companies and securities.
Practical example
Abdullah owns shares in a joint-stock company, and the extraordinary general assembly decides to increase capital with new shares paid in cash. Because he was an owner when the decision was issued, he receives a message by a modern technological means informing him of his priority to subscribe, the subscription terms and method, and the start and end dates, and he decides to subscribe for his portion to keep his ownership percentage.
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 128 of the Saudi Companies Law
Who is entitled to priority in subscribing for the new shares?
The shareholder who owns the share when the extraordinary general assembly decides to increase the issued capital, or when the board of directors decides to increase it within the limits of the authorized capital.
Does the priority right cover shares issued for in-kind contributions?
The article gives priority on new shares issued for cash contributions.
How does the company notify the shareholder of the priority right?
By registered letter to their address in the shareholders' register, or through modern technological means, together with the increase decision, the subscription terms and method, and the start and end dates.
More articles on Shares and Capital Increase
- Article 25
The article states when ownership of shares and stock transfers: by commercial register entry for partnership and limited liability shares, by shareholders' register entry for unlisted joint stock and simplified companies, and under the Capital Market Law for listed ones.
1- تنتقل ملكية الحصص في شركة التضامن وشركة التوصية البسيطة والشركة ذات المسؤولية المحدودة بالقيد لدى السجل التجاري، ولا يُعتد بنقل ملكية الحصة في مواجهة الشركة
- Article 34
تجيز المادة للدائن الشخصي للشريك أو المساهم طلب بيع ما يلزم من حصصه أو أسهمه لاستيفاء حقه، مع حق الشركاء في الاسترداد وأولوية المساهمين في حالات محددة.
مع مراعاة أحكام نظام ضمان الحقوق بالأموال المنقولة، والأنظمة الأخرى ذات العلاقة، للدائن الشخصي للشريك أو المساهم -فضلًا عن الحق المشار إليه في المادة (الثالثة و
- Article 59
توجب المادة ألا يقل رأس مال شركة المساهمة المصدر عن خمسمائة ألف ريال، وألا يقل المدفوع منه عند التأسيس عن الربع.
يجب ألا يقلّ رأس مال شركة المساهمة المصدر عن (خمسمائة ألف) ريال، ويجب ألا يقلّ المدفوع منه عند التأسيس عن (الربع).
- Article 60
تقرر المادة أن لشركة المساهمة رأس مال مصدرًا يمثل الأسهم المكتتب بها، وتجيز تحديد رأس مال مصرح به يزيد مجلس الإدارة المصدر في حدوده بعد دفعه بالكامل.
1- يكون لشركة المساهمة رأس مال مصدر يمثل الأسهم المكتتب بها، ويجوز أن يحدد نظام الشركة الأساس رأس مال مصرحًا به. 2- يجوز بقرار من مجلس إدارة الشركة زيادة رأس ال
- Article 62
The article requires the founders, if they do not subscribe to all the company's shares themselves during incorporation, to offer the remaining shares for subscription in accordance with the Capital Market Law.
إذا لم يقصر المؤسسون خلال مرحلة التأسيس الاكتتاب بجميع الأسهم على أنفسهم، وجب عليهم طرح الأسهم التي لم يكتتبوا بها للاكتتاب وفقًا لنظام السوق المالية.
- Article 63
The article gives the Ministry and the Authority the power to set the controls, procedures, documents and approvals for incorporating a joint stock company whose shares are offered for public subscription during incorporation or which is listed on the capital market.
للوزارة والهيئة وضع الضوابط والإجراءات وتحديد الوثائق والموافقات اللازمة لتأسيس شركة مساهمة تطرح أسهمها للاكتتاب العام خلال مرحلة التأسيس أو تدرج في السوق المال
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.