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Article 129 of the Saudi Companies Law

المادة 129 من نظام الشركات · الفرع الأول: زيادة رأس المال

The article allows the extraordinary general assembly, if the articles of association so provide, to suspend shareholders' priority right in cash subscriptions or to grant it to others in the company's interest.

Official text (Arabic)

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

يحق للجمعية العامة غير العادية -إذا نص على ذلك في نظام الشركة الأساس- وقف العمل بحق الأولوية للمساهمين في الاكتتاب بزيادة رأس المال مقابل حصص نقدية أو منح حق الأولوية لغير المساهمين في الحالات التي تراها محققة لمصلحة الشركة.

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 129 explained in plain English

The rule under Article 128 is that a shareholder has the priority right to subscribe for new shares issued for cash contributions. This article allows departing from that rule, subject to conditions.

What is permitted?

  • Suspending the priority right of shareholders to subscribe in a capital increase for cash contributions, or
  • Granting the priority right to non-shareholders.

The conditions:

  1. The decision must come from the extraordinary general assembly.
  2. The company's articles of association must provide that this is allowed; if they contain no such provision, the assembly does not have this right under this article.
  3. It must be in cases the assembly considers serve the company's interest.

In practice, this rule lets the company bring in a strategic investor or a new partner through a capital increase without the new shares going to the existing shareholders. On the other hand, the existing shareholders' ownership percentage may fall, which is why the law ties this step to an express provision in the articles of association and a decision of the extraordinary assembly.

Article 130 governs a shareholder's right to sell or waive the priority right. A shareholder who believes their right has been affected by a decision of this kind can consult a lawyer specializing in companies.

Practical example

A technology joint-stock company in Riyadh has articles of association that allow the priority right to be suspended. It wants a major investment firm to join as a partner to finance its expansion, so the extraordinary general assembly decides to increase the capital in cash, suspend the existing shareholders' priority and grant it to that firm, because it sees this as in the company's interest.

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 129 of the Saudi Companies Law

Can shareholders be deprived of the priority right?

The extraordinary general assembly may suspend it if the articles of association so provide, and in cases it considers serve the company's interest.

Can priority be given to someone who is not a shareholder?

Yes, on the same conditions: a decision of the extraordinary general assembly, a provision in the articles of association, and the company's interest.

What if the articles of association do not provide for suspending the priority right?

This article requires the provision to appear in the articles of association before the extraordinary general assembly has this right.

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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.