Article 177 of the Saudi Companies Law
المادة 177 من نظام الشركات · الفصل الرابع: رأس المال والحصص
The article allows the memorandum of association to set aside a percentage of net profits for a reserve, and lets the partners at the annual meeting form reserves and deduct amounts for social purposes for the company's employees.
Official text (Arabic)
This article has not been amended since the law was issued.
1- يجوز أن ينص في عقد تأسيس الشركة على تجنيب نسبة معينة من صافي الأرباح لتكوين احتياطي يخصص للأغراض التي يحددها عقد التأسيس.
2- للشركاء -عند تحديد نصيب الحصص في صافي الأرباح في اجتماع الجمعية العامة السنوي- أن يقرروا تكوين احتياطيات، وذلك بالقدر الذي يحقق مصلحة الشركة أو يكفل توزيع أرباح ثابتة -قدر الإمكان- على الشركاء. ولتلك الجمعية أن تقتطع من صافي الأرباح مبالغ لتحقيق أغراض اجتماعية لعاملي الشركة.
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 177 explained in plain English
This article regulates reserves in a limited liability company, which are amounts held back from profits and not distributed to the partners, in two ways:
- A reserve in the memorandum of association: the memorandum of association may provide for setting aside a certain percentage of net profits to form a reserve for the purposes that the memorandum itself specifies.
- Reserves by decision of the partners: when determining the shares' portion of net profits at the annual general assembly meeting, the partners may decide to form reserves in the amount that serves the company's interest, or that ensures, as far as possible, the distribution of steady profits to the partners.
- Social purposes for employees: the assembly may deduct amounts from net profits to achieve social purposes for the company's employees.
Note that the article is permissive: it does not set a mandatory percentage for the reserve, but leaves that to the memorandum of association or a decision of the partners.
A reserve reduces what is distributed to the partners in the same year, but it may support the company's stability. Article 176 regulates reducing capital if it exceeds the company's needs or if it suffers losses, and Article 178 regulates assigning shares and the right of redemption. To set a suitable reserve policy, it is possible to consult a lawyer who specializes in companies and commercial disputes.
Practical example
A maintenance company in Khobar made good profits, so the partners decided at the annual meeting to set aside part of the profits as a reserve to ensure steady profit distributions in coming years, and to deduct an amount to fund a social program for the company's employees. This is permitted under the article.
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 177 of the Saudi Companies Law
Does the Law require a limited liability company to form a reserve?
This article does not impose a mandatory percentage; it allows the memorandum of association to provide for setting aside a percentage of net profits, and allows the partners to decide on reserves at the annual meeting.
Can part of the profits be allocated to the company's employees?
Yes. The general assembly may deduct amounts from net profits to achieve social purposes for the company's employees.
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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.