Article 172 of the Saudi Companies Law
المادة 172 من نظام الشركات · الفصل الثالث: إدارة الشركة ذات المسؤولية المحدودة
The article allows the memorandum of association to be amended, and capital increased or reduced, with the approval of three quarters of the capital, and gives partners priority in new cash shares.
Official text (Arabic)
This article has not been amended since the law was issued.
1- يجوز تعديل عقد تأسيس الشركة بما في ذلك زيادة رأس مالها أو تخفيضه بموافقة شريك أو أكثر يمثلون (ثلاثة أرباع) رأس المال على الأقل، ما لم ينص عقد التأسيس على نسبة أكبر.
2- يكون للشريك -عند الموافقة على زيادة رأس مال الشركة عن طريق إصدار حصص جديدة- الأولوية في تملك الحصص التي تصدر مقابل حصص نقدية بنسبة ما يملكه في رأس مال الشركة، وذلك وفقًا لما تحدده اللوائح.
3- لا يجوز زيادة رأس المال عن طريق رفع القيمة الاسمية لحصص الشركاء أو وقف العمل بحق الأولوية، إلا بإجماع الشركاء.
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 172 explained in plain English
This article regulates the amendment of the memorandum of association of a limited liability company, including changing the capital:
- The approval percentage: the memorandum of association may be amended, including by increasing or reducing the capital, with the approval of one or more partners representing at least three quarters of the capital, unless the memorandum of association sets a greater percentage.
- Priority right: when an increase in capital by issuing new shares is approved, a partner has priority to acquire the shares issued against cash contributions, in proportion to what they own of the capital, as the regulations specify.
- What needs unanimity: capital may not be increased by raising the nominal value of the partners' shares, or the priority right suspended, except with the unanimity of the partners.
The priority right protects a partner from having their percentage in the company reduced against their will when new money comes in. Raising the nominal value, on the other hand, obliges the partners to pay additional sums, which is why the article requires unanimity.
Article 171 provides that a partner's number of votes equals the number of their shares, which is used to calculate whether the three-quarters percentage is reached. Article 173 allows the memorandum of association to provide for settling disputes by arbitration except for criminal acts. Because the article refers the details of the priority right to the regulations, it is advisable to consult a lawyer who specializes in companies and commercial disputes before voting on any material amendment.
Practical example
The partners in a company in Dammam proposed increasing the capital by issuing new cash shares, and those representing 80% of the capital approved. The decision is valid because the percentage exceeded three quarters. Omar, who owns 10%, is entitled to subscribe with priority for 10% of the new shares, and this right may not be suspended except with the unanimity of the partners.
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 172 of the Saudi Companies Law
What percentage is required to amend the memorandum of association of a limited liability company?
The approval of one or more partners representing at least three quarters of the capital, unless the memorandum of association sets a greater percentage.
Does a partner have priority when capital is increased?
Yes. They have priority to acquire the new shares issued against cash contributions in proportion to what they own, as the regulations specify.
When is the unanimity of partners required to increase capital?
When it is increased by raising the nominal value of the partners' shares, or when the priority right is suspended.
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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.