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Article 133 of the Saudi Companies Law

المادة 133 من نظام الشركات · الفرع الثاني: تخفيض رأس المال

The article sets out four ways to reduce a joint-stock company's capital: cancelling shares, reducing nominal value by cancelling a part equal to the loss or by refund or release, or buying shares and cancelling them.

Official text (Arabic)

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

يخفض رأس المال بإحدى الطرق الآتية:

أ- إلغاء عدد من الأسهم يعادل القدر المطلوب تخفيضه.

ب- تخفيض القيمة الاسمية للسهم بإلغاء جزء منها يعادل الخسارة التي لحقت الشركة.

ج- تخفيض القيمة الاسمية للسهم برد جزء منها إلى المساهم أو بإبراء ذمته من كلّ أو بعض القدر غير المدفوع من قيمة السهم.

د- شراء الشركة عددًا من أسهمها يعادل القدر المطلوب تخفيضه، ومن ثم إلغاؤها.

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 133 explained in plain English

This article lists the ways in which the capital of a joint-stock company may be reduced:

  1. Cancelling a number of shares equal to the amount to be reduced.
  2. Reducing the nominal value of the share by cancelling a part of it equal to the loss the company has suffered; this is a way of absorbing losses in the accounts without returning money to shareholders.
  3. Reducing the nominal value of the share by refunding a part of it to the shareholder, or by releasing the shareholder from all or some of the unpaid amount of the share value.
  4. The company buying a number of its own shares equal to the amount to be reduced, and then cancelling them.

The methods differ in their effect: some return money to shareholders or relieve them of the remaining value, and some only address losses. A reduction by any of them cannot be made without a decision; Article 134 gives the decision to the extraordinary general assembly where the capital exceeds the company's needs or the company has suffered losses, and requires, before it, that a statement from the board of directors on the reasons for the reduction and the company's obligations be read out, with a report from the auditor attached.

The article is also linked to Article 132, which requires the board to call the extraordinary general assembly if losses reach half of the issued capital. To choose the right method of reduction, it is advisable to consult a lawyer specializing in companies.

Practical example

A joint-stock company in Dammam has accumulated losses and decides to address them by reducing the nominal value of each share by cancelling a part of it equal to the loss, without returning any amount to shareholders. In another case, a company with liquidity beyond its needs chooses to buy part of its shares from shareholders and then cancel them.

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 133 of the Saudi Companies Law

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

Cancelling a number of shares; reducing the nominal value by cancelling a part equal to the loss, or by refunding a part to the shareholder or releasing them from the unpaid amount; or the company buying its own shares and cancelling them.

Can capital be reduced to address losses?

Yes. One of the methods is reducing the nominal value of the share by cancelling a part of it equal to the loss the company has suffered.

Can a shareholder be released from the remaining value of a share?

Yes. One of the methods of reduction is releasing the shareholder from all or some of the unpaid amount of the share value.

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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.