Article 174 of the Saudi Companies Law
المادة 174 من نظام الشركات · الفصل الرابع: رأس المال والحصص
The article requires the capital to be stated in the memorandum of association and divided into equal shares that are indivisible and non-negotiable, and regulates the case of a share owned by several persons.
Official text (Arabic)
This article has not been amended since the law was issued.
يحدد الشركاء مقدار رأس مال الشركة في عقد تأسيسها، ويقسم إلى حصص متساوية القيمة، وتكون الحصة غير قابلة للتجزئة والتداول. فإذا ملك الحصة أشخاص متعددون، جاز للشركة أن توقف استعمال الحقوق المتصلة بها إلى أن يختار مالكو الحصة من بينهم من يعد مالكًا منفردًا لها في مواجهة الشركة. ويجوز للشركة أن تحدد لهم ميعادًا لهذا الاختيار وإلا كان لها بعد انقضائه بيع الحصة لحساب مالكيها. وفي هذه الحالة، تعرض الحصة على الشركاء الآخرين ثم على الغير، وفقًا لما ورد في المادة (الثامنة والسبعين بعد المائة) من النظام، ما لم ينص عقد تأسيس الشركة على غير ذلك.
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 174 explained in plain English
This article regulates the capital of a limited liability company and the nature of its shares:
- Fixing it: the partners state the amount of the capital in the memorandum of association.
- Division: the capital is divided into shares of equal value.
- Nature of the share: a share is indivisible and non-negotiable.
If a single share is owned by several persons, as may happen when it passes to more than one person:
- The company may suspend the exercise of the rights attached to the share until its owners choose from among themselves a person who is treated as its sole owner as against the company.
- The company may set them a period for this choice, and if it passes without a choice, it may sell the share for the account of its owners.
- In the event of a sale, the share is offered first to the other partners and then to third parties, in accordance with Article 178 of the Law, unless the memorandum of association provides otherwise.
The aim is for the company to deal with one voice for each share, so its decisions are not held up by a dispute among the owners of a share.
Article 175 provides that shares carry equal rights in net profits and in liquidation surplus unless the memorandum of association provides otherwise. Article 173 allows the memorandum of association to provide for arbitration. To deal with a share owned by several persons, it is possible to consult a lawyer who specializes in companies and commercial disputes.
Practical example
A share in a company in Riyadh passed to three brothers. The company suspended the exercise of the share's rights and gave them a month to choose one of them to be its sole owner as against the company. If the month passes without a choice, the company may sell the share for their account, offering it first to the other partners and then to third parties.
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 174 of the Saudi Companies Law
Can a single share in a limited liability company be divided?
No. The article provides that a share is indivisible and non-negotiable.
What happens if a share is owned by more than one person?
The company may suspend the rights attached to the share until its owners choose who is treated as its sole owner as against the company, and it may set a period for this.
Can the company sell a share owned by several persons?
Yes. If the period it set passes without a choice, it offers the share to the other partners and then to third parties under Article 178, unless the memorandum of association provides otherwise.
Articles this article refers to
More articles on Limited Liability Company
- Article 25
The article states when ownership of shares and stock transfers: by commercial register entry for partnership and limited liability shares, by shareholders' register entry for unlisted joint stock and simplified companies, and under the Capital Market Law for listed ones.
1- تنتقل ملكية الحصص في شركة التضامن وشركة التوصية البسيطة والشركة ذات المسؤولية المحدودة بالقيد لدى السجل التجاري، ولا يُعتد بنقل ملكية الحصة في مواجهة الشركة
- Article 156
The article defines the limited liability company as a company with a separate financial liability formed by one or more persons, in which a partner is liable for its debts only to the extent of their share in the capital.
الشركة ذات المسؤولية المحدودة: هي شركة يؤسسها شخص واحد أو أكثر من ذوي الصفة الطبيعية أو الاعتبارية، وتعد ذمتها مستقلة عن الذمة المالية لكل شريك فيها أو المالك ل
- Article 157
The article regulates a limited liability company owned by one person: their powers, documenting their decisions, appointing a manager, and the company having articles of association in place of a memorandum of association.
1- في حال تأسيس الشركة ذات المسؤولية المحدودة من شخص واحد، أو إذا آلت جميع حصصها إلى شخص واحد، يترتب ما يأتي: أ- أن تكون لهذا الشخص صلاحيات وسلطات المدير ومجلس
- Article 158
The article sets out the details that must be stated in the memorandum of association of a limited liability company, and the documents attached to it when applying for formation.
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
- Article 159
For valuing in-kind shares in a limited liability company, the article refers to the provisions of Article 141 of the Companies Law.
يتبع في تقييم الحصص العينية الأحكام المنصوص عليها في المادة (الحادية والأربعين بعد المائة) من النظام.
- Article 160
The article provides that a limited liability company is managed by one or more managers appointed by the partners in the memorandum of association or a separate contract, and that a board of managers may be formed.
يدير الشركة مدير أو أكثر من الشركاء أو من غيرهم، ويعين الشركاء المدير أو المديرين في عقد تأسيس الشركة أو في عقد مستقل، لمدة محددة أو غير محددة. ويجوز بقرار من ا
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.