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Article 137 of the Saudi Companies Law

المادة 137 من نظام الشركات · الفرع الثاني: تخفيض رأس المال

The article governs capital reduction by the company buying its own shares to cancel them: inviting shareholders to offer their shares, reducing requests proportionally, and setting the price at fair value or under the market law.

Official text (Arabic)

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

1- إذا كان تخفيض رأس المال عن طريق شراء عدد من أسهم الشركة من أجل إلغائها، وجبت دعوة المساهمين إلى عرض أسهمهم للبيع، وذلك بإبلاغهم برغبة الشركة في شراء الأسهم بخطابات مسجلة على عناوينهم الواردة في سجل المساهمين، أو بالإعلان عن الدعوة من خلال وسائل التقنية الحديثة.

2- إذا زاد عدد الأسهم المعروضة للبيع على العدد الذي قررت الشركة شراءه، وجب تخفيض طلبات البيع بنسبة هذه الزيادة.

3- يقدر ثمن شراء أسهم شركات المساهمة غير المدرجة في السوق المالية وفقًا للقيمة العادلة، أما أسهم شركات المساهمة المدرجة فتشترى وفقًا لنظام السوق المالية.

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 137 explained in plain English

If a joint-stock company chooses to reduce its capital by buying a number of its shares in order to cancel them, this article explains how it is done:

1- Inviting shareholders to offer their shares

Shareholders must be invited to offer their shares for sale, by notifying them of the company's wish to buy:

  • by registered letters to their addresses in the shareholders' register, or
  • by announcing the invitation through modern technological means.

2- If offers exceed what is sought

If the number of shares offered for sale exceeds the number the company decided to buy, sale requests must be reduced in proportion to this excess, so that no seller is preferred over another.

3- The purchase price

  • Companies not listed on the financial market: the price is determined at fair value.
  • Listed companies: their shares are bought in accordance with the Capital Market Law.

These procedures achieve the equality that Article 136 requires among shareholders of the same type and class on a reduction. The article does not explain how fair value is calculated. Anyone who wants to know whether the price offered to them is fair is advised to consult a lawyer specializing in companies and securities.

Practical example

An unlisted joint-stock company in Riyadh decides to reduce its capital by buying 1000 shares and cancelling them, and sends registered letters to shareholders inviting them to offer their shares. The shareholders offer 2000 shares, so the company reduces the sale requests proportionally and buys half of what each shareholder offered, at the fair value of the share.

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 137 of the Saudi Companies Law

How does a company buy its own shares to reduce capital?

It invites shareholders to offer their shares for sale, by registered letters to their addresses in the shareholders' register or by announcement through modern technological means.

What if shareholders offer more shares than the company seeks?

Sale requests are reduced in proportion to the excess.

At what price does the company buy its shares?

At fair value if the company is unlisted, and in accordance with the Capital Market Law if it is listed.

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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.