Article 242 of the Saudi Companies Law
المادة 242 من نظام الشركات · الباب الثاني عشر: انقضاء الشركة وتصفيتها
The article requires managers or board members to prepare a statement confirming that the company's assets suffice to pay its debts before a dissolution decision, and bars dissolution if the assets are insufficient or the company is in financial distress.
Official text (Arabic)
This article has not been amended since the law was issued.
1- يلتزم مديرو الشركة أو أعضاء مجلس إدارتها -قبل اتخاذ الشركاء أو الجمعية العامة أو المساهمين قرارًا بحل الشركة- بإعداد بيان يفيد بقيامهم بفحص أوضاع الشركة، ويتضمن التأكيد على أن أصول الشركة تكفي لسداد ديونها بنهاية مدة التصفية المقترحة وأن الشركة غير متعثرة وفقًا لنظام الإفلاس. ويعرض هذا البيان خلال (ثلاثين) يومًا من تاريخ إعداده على الشركاء أو الجمعية العامة أو المساهمين لاتخاذ قرار بحل الشركة.
2- إذا تبين من البيان -المشار إليه في الفقرة (1) من هذه المادة- أن أصول الشركة لا تكفي لسداد ديونها أو أن الشركة متعثرة وفقًا لنظام الإفلاس، فلا يجوز للشركاء أو الجمعية العامة أو المساهمين اتخاذ قرار بحل الشركة، وإلا كانوا مسؤولين بالتضامن عن أي دين متبق في ذمتها.
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 242 explained in plain English
This article sets a safeguard to protect the company's creditors before its owners decide to dissolve it: it is not enough for the partners or shareholders to agree to end the company; it must first be confirmed that it is able to pay its debts.
First: the statement on examining the company's position (paragraph 1)
- The company's managers or board members must prepare a statement that they have examined the company's position, before the partners, the general assembly or the shareholders take the dissolution decision.
- The statement must contain two confirmations: that the company's assets suffice to pay its debts by the end of the proposed liquidation period, and that the company is not in financial distress under the Bankruptcy Law.
- The statement is presented to the partners, the general assembly or the shareholders within 30 days of its preparation for a dissolution decision.
Second: barring dissolution if assets are insufficient (paragraph 2)
If the statement shows that the assets do not suffice to pay the debts, or that the company is in financial distress under the Bankruptcy Law, the partners, the general assembly or the shareholders may not take a decision to dissolve the company. If they violate this and decide to dissolve, they are jointly liable for any remaining debt owed by the company; that is, any one of them may be claimed against for the remaining debt.
This article complements Article 243, under which the partners' or shareholders' agreement to dissolve is one of the grounds on which a company ends; that agreement is not valid if the statement shows that the assets are insufficient or that the company is in financial distress.
To assess a particular company's position before a dissolution decision, it is advisable to consult a lawyer specializing in commercial matters and companies.
Practical example
The partners in a limited liability company in Jeddah decided to close it. The manager prepared a statement after examining its position, and it turned out that its assets do not suffice to pay the suppliers' debts. In this case the partners may not take the dissolution decision, and if they took it they would be jointly liable for the remaining debts.
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 242 of the Saudi Companies Law
Can a company be dissolved if it has debts?
Dissolution is permitted if the statement confirms that the company's assets suffice to pay its debts by the end of the proposed liquidation period and that it is not in financial distress. If the assets prove insufficient or the company is in financial distress, a dissolution decision may not be taken.
Who prepares the statement on the sufficiency of assets before a company is dissolved?
The company's managers or board members prepare it after examining its position, and it is presented to the partners, the general assembly or the shareholders within 30 days of its preparation.
What happens if the partners decide to dissolve a company whose assets do not cover its debts?
They are jointly liable for any remaining debt owed by the company.
More articles on Company Liquidation
- Article 12
The article requires a company's contracts, receipts and documents to show its name, form, address, e-mail and register number, its capital and the paid-up part, and the words "under liquidation" during liquidation.
يجب أن يوضع على العقود والمخالصات وغيرها من الوثائق التي تصدرها الشركة البيانات الآتية: أ- اسم الشركة وشكلها وعنوان مركزها الرئيس وبريدها الإلكتروني -إن وجد- ور
- Article 33
Article 33 allows a partner's or shareholder's personal creditor to ask the competent judicial body to collect from the debtor's share of net distributed profits, and then from their share of the surplus on liquidation.
للدائن الشخصي للشريك أو المساهم أن يطلب من الجهة القضائية المختصة أن يتقاضى حقه من نصيب الشريك أو المساهم المدين في صافي الأرباح الموزعة. فإذا انقضت الشركة انتق
- Article 46
Article 46 regulates a partner's withdrawal from a general partnership on 60 days' notice, their removal under the contract or by court request, registering it with the commercial register, and judicial dissolution of the company.
1- ما لم ينص عقد تأسيس الشركة على غير ذلك، للشريك الانسحاب من الشركة بإرادته المنفردة بشرط إبلاغ باقي الشركاء بذلك قبل (ستين) يومًا على الأقل من التاريخ الذي حد
- Article 50
Article 50 provides that a general partnership does not end on a partner's death, interdiction, bankruptcy, or exit unless the contract says so, and regulates continuing with heirs and minors and the case of one remaining partner.
1- لا تنقضي شركة التضامن بوفاة أي من الشركاء، ولا بالحجر عليه، ولا بافتتاح أي من إجراءات التصفية تجاهه وفقًا لنظام الإفلاس، ولا بإخراجه، ولا بانسحابه، ما لم ينص
- Article 57
Article 57 provides that a simple limited partnership does not end on a limited partner's death, interdiction, insolvency, bankruptcy, or withdrawal unless the formation contract so provides.
لا تنقضي شركة التوصية البسيطة بوفاة أي من الشركاء الموصين، ولا بالحجر عليه، ولا بإعساره، ولا بافتتاح أي من إجراءات التصفية تجاهه وفقًا لنظام الإفلاس، ولا بانسحا
- Article 132
If losses reach half of the issued capital, the board of a joint-stock company must disclose this within 60 days and call the extraordinary general assembly within 180 days to decide whether to continue or dissolve.
إذا بلغت خسائر شركة المساهمة (نصف) رأس المال المصدر، وجب على مجلس الإدارة الإفصاح عن ذلك وعما توصل إليه من توصيات بشأن تلك الخسائر خلال (ستين) يومًا من تاريخ عل
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.