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Article 181 of the Saudi Companies Law

المادة 181 من نظام الشركات · الفصل الرابع: رأس المال والحصص

The article allows a company's formation contract, with the approval of partners holding at least 90% of the capital, to let the majority compel the minority to sell with them, or let the minority compel the majority to ensure the minority's shares are sold.

Official text (Arabic)

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

يجوز أن ينص في عقد تأسيس الشركة بعد موافقة شريك أو أكثر يمثلون (تسعين في المائة) من رأس مال الشركة على الأقل، على الآتي:

أ- أن يكون لأكثرية الشركاء إلزام الأقلية بقبول عرض من مشترٍ حسن النية لشراء جميع حصص الشركة بذات السعر والشروط والأحكام الخاصة بشراء حصص الأكثرية.

ب- أن يكون لأقلية الشركاء إلزام الأكثرية بضمان بيع حصص الأقلية في الحالات التي يبيع فيها الأكثرية حصصهم بذات السعر والشروط والأحكام الخاصة ببيع حصص الأكثرية.

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 181 explained in plain English

This article deals with a common situation among partners: what happens when a buyer comes forward to buy the company or the shares of most of the partners? It does not impose an automatic rule. Instead, it permits the company's formation contract to include one or both of two clauses.

Condition for including these clauses: the approval of one or more partners representing at least 90% of the company's capital. If this percentage is not reached, the clauses may not be included in the contract.

First clause (compelling the minority): the majority of partners may compel the minority to accept an offer from a good-faith buyer to buy all of the company's shares, provided it is on the same price, terms and conditions on which the majority's shares are bought. The majority may not sell the minority's shares at a lower price or on worse terms.

Second clause (protecting the minority): the minority of partners may compel the majority to ensure the sale of the minority's shares whenever the majority sells its own, at the same price, terms and conditions that apply to the sale of the majority's shares. This way, the minority is not left in a company whose control has passed to a new owner without being given a chance to exit on the same terms.

This article is connected to Article 180, which allows the company to buy or take a pledge over its own shares if its formation contract so provides, and permits the pledging of shares. Because the wording of these clauses affects each partner's rights on a sale, it is advisable to consult a lawyer specializing in companies and commercial cases when preparing or amending the formation contract.

Practical example

Three partners in a company in Riyadh: Khaled owns 70%, Saad 20% and Fahd 10%, and they all agreed at formation to include both clauses. Khaled received an offer from a good-faith investor to buy the entire company at a set price per share. Under the first clause, Saad and Fahd can be compelled to sell, but at the same price and terms that Khaled receives. If Khaled wanted to sell only his own share, then under the second clause Saad and Fahd may require him to ensure their shares are sold along with his on the same terms.

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 181 of the Saudi Companies Law

Can the majority partners force me to sell my share in the company?

Only if the formation contract provides for it with the approval of partners representing at least 90% of the capital, and only if the offer is from a good-faith buyer for all the shares at the same price and terms as the majority's shares.

What protects a minority partner if the majority sells its shares?

The formation contract may give the minority the right to require the majority to ensure the sale of the minority's shares along with theirs, at the same price, terms and conditions.

What percentage is required to include these clauses in the formation contract?

The approval of one or more partners representing at least ninety percent of the company's capital is required.

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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.