Article 173 of the Saudi Companies Law
المادة 173 من نظام الشركات · الفصل الثالث: إدارة الشركة ذات المسؤولية المحدودة
The article allows a limited liability company's memorandum of association to provide for settling disputes between partners, or between the company and its managers, by arbitration or alternative means, except criminal acts.
Official text (Arabic)
This article has not been amended since the law was issued.
فيما عدا الأفعال الجنائية، يجوز أن يُنص في عقد تأسيس الشركة على تسوية المنازعات أو الخلافات أيًّا كانت طبيعتها التي قد تقع بين الشركاء أو بين الشركة ومديريها باللجوء إلى التحكيم أو غيره من الوسائل البديلة لتسويتها.
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 173 explained in plain English
This article lets partners agree in advance, in the company's memorandum of association, on how to resolve their disagreements, so the memorandum may provide for settling disputes or disagreements of whatever nature by arbitration or other alternative means of dispute settlement.
This covers two kinds of dispute:
- Disputes between the partners themselves.
- Disputes between the company and its managers.
Criminal acts are excluded, so this provision may not cover them.
Because this provision is included in the memorandum of association, adding it after formation counts as an amendment of the memorandum. Article 172 provides that the memorandum of association is amended with the approval of one or more partners representing at least three quarters of the capital, unless the memorandum sets a greater percentage. Article 174 regulates the company's capital and shares.
Drafting an arbitration clause is a delicate matter that affects how any future dispute is resolved, so it is advisable to consult a lawyer who specializes in companies and commercial disputes when writing this clause or when a dispute arises.
Practical example
The memorandum of association of a distribution company in Riyadh provides for resolving disputes between partners and managers by arbitration. The partner Turki then disagreed with the manager over how the marketing budget was spent. This dispute is referred to arbitration under the memorandum of association, because it is not a criminal act.
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 173 of the Saudi Companies Law
Can arbitration be agreed between partners in a limited liability company?
Yes. The memorandum of association may provide for settling disputes between partners, or between the company and its managers, by arbitration or other alternative means.
Does an arbitration clause cover crimes?
No. The article excludes criminal acts from this provision.
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1- يجب أن يشتمل عقد تأسيس الشركة ذات المسؤولية المحدودة بصفة خاصة على البيانات الآتية: أ- أسماء الشركاء، وبياناتهم. ب- اسم الشركة. ج- المركز الرئيس للشركة. د- غ
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يتبع في تقييم الحصص العينية الأحكام المنصوص عليها في المادة (الحادية والأربعين بعد المائة) من النظام.
- Article 160
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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.