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Article 194 of the Saudi Companies Law

المادة 194 من نظام الشركات · الباب السابع: الشركة غير الربحية

The article requires a non-profit company to spend its profits on its fields, bars distributing them to members, managers and employees except within those fields, and allows reasonable remuneration and a suit for recovery.

Official text (Arabic)

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

1- على الشركة غير الربحية أن تنفق الأرباح المتحققة من ممارسة أنشطتها في المصارف والمجالات المنصوص عليها في عقد تأسيسها أو نظامها الأساس. ويجوز للشركة أن تخصص بعض أرباحها لتنمية استثماراتها والتوسع في أعمالها وفق ما تحدده اللوائح.

2- يحظر على الشركة غير الربحية توزيع أي من أرباحها على أي من أعضاء الشركة أو مديريها أو أعضاء مجلس إدارتها أو عامليها، ما لم يكن مشمولًا بمصارف ومجالات الشركة غير الربحية. وتحدد اللوائح الحد الأقصى لنسبة الأرباح التي يمكن توزيعها وفقًا لما ورد في هذه الفقرة.

3- يجوز للشركة غير الربحية أن تدفع مكافآت أو أي مزايا أخرى معقولة لمديريها أو أعضاء مجلس إدارتها أو عامليها لقاء الخدمات والأعمال التي يقدمونها إلى الشركة.

4- لأي من أعضاء الشركة غير الربحية أن يرفع دعوى أمام الجهة القضائية المختصة نيابة عن الشركة لطلب استرداد أي أرباح توزع أو تصرف بالمخالفة لأحكام هذه المادة.

5- لا يجوز للدائن الشخصي لأي عضو في الشركة غير الربحية العامة أن يطلب التنفيذ على أسهم ذلك العضو أو على الحقوق التي تتصل بها.

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 194 explained in plain English

This article is the core of the non-profit company idea: profits exist, but they are not distributed to the owners of the company.

1- Where profits go: the company must spend its profits on the outlets and fields stated in its formation contract or articles of association. It may allocate some of its profits to developing its investments and expanding its business as the regulations specify.

2- Prohibition of distribution: it is prohibited to distribute any profits to members, managers, members of the board of directors or employees, unless that falls within the company's outlets and fields. The regulations specify the maximum percentage of profits that may be distributed in that case.

3- Reasonable remuneration: the company may pay reasonable remuneration or other benefits to its managers, members of its board of directors or employees in return for the services and work they provide to it. This is payment for work, not a distribution of profits.

4- Suit for recovery: any member may bring a suit before the competent judicial authority on behalf of the company to claim recovery of any profits distributed or spent in violation of this article.

5- Protection of the shares of the public company: a personal creditor of a member of the public non-profit company may not request enforcement against that member's shares or the rights connected with them.

The article is connected to Article 195, which permits government entities and public sector employees to form non-profit companies. To assess whether a particular payment is permitted, it is advisable to consult a lawyer specializing in companies and commercial cases.

Practical example

A non-profit company in Riyadh made profits from selling its products, and its board of directors wanted to distribute part of them to the members. This is prohibited unless it falls within the company's outlets and fields, but the company may pay its manager reasonable remuneration for his work. If profits were distributed in violation, any member may bring a suit before the competent judicial authority on behalf of the company to recover them.

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 194 of the Saudi Companies Law

May the profits of a non-profit company be distributed to its members?

No. Distributing any of its profits to members, managers, members of the board of directors or employees is prohibited unless it falls within the company's outlets and fields, and the regulations specify the maximum percentage for that.

Does the manager of a non-profit company receive a salary or remuneration?

Yes. The company may pay reasonable remuneration or other benefits to its managers, board members and employees in return for the services and work they provide.

What should I do if the profits of a non-profit company were distributed in violation?

Any member may bring a suit before the competent judicial authority on behalf of the company to claim recovery of those profits.

Can a member's creditor seize his shares in a public non-profit company?

No. A personal creditor of any member of the public non-profit company may not request enforcement against his shares or the rights connected with them.

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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.