Article 32 of the Saudi Companies Law
المادة 32 من نظام الشركات · الفصل الثالث: إدارة الشركة
Article 32 allows the competent judicial body, on a partner's or shareholder's request, to charge the company with the costs of a liability action whatever its outcome, if it was brought in good faith and in the company's interest.
Official text (Arabic)
This article has not been amended since the law was issued.
للجهة القضائية المختصة بناء على طلب الشريك أو المساهم تحميل الشركة النفقات التي تكلفها لإقامة دعوى المسؤولية أيًا كانت نتيجتها، إذا أقام الدعوى بحسن نية، وكان من مصلحة الشركة إقامة هذه الدعوى.
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 32 explained in plain English
This article deals with a practical issue that deters many partners and shareholders from suing managers: who bears the costs of a liability action?
The text allows the competent judicial body, on the request of the partner or shareholder, to charge the company with the costs it incurs in bringing the liability action, whatever the outcome of the action, that is, even if judgment was not given in their favor. Two conditions must both be met:
- That they brought the action in good faith.
- That bringing the action is in the company's interest.
Note that the text is phrased permissively (the judicial body may), so the matter is left to its discretion when the two conditions are met, and it does not happen automatically but requires a request from the partner or shareholder.
The article complements those before it: Article 31 deems a manager or board member to have performed their duty in good faith in their decision if they had no interest in it, informed themselves of its subject to the appropriate extent, and firmly and rationally believed it served the company's interests, and places the burden of proving otherwise on the claimant. Article 32 eases the financial burden on a partner or shareholder who takes up such an action in good faith in the company's interest.
To assess the viability of the action and its conditions in your case, it is advisable to consult a lawyer specialized in company and commercial matters.
Practical example
Sarah, a shareholder in a company in Jeddah, noticed that a board member had concluded a deal that harmed the company, so she brought a liability action and spent money on expert fees and procedures. She may ask the competent judicial body to charge the company with these costs, and the judicial body may do so whatever the outcome of the action if it is shown that she brought it in good faith and that bringing it was in the company's interest.
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 32 of the Saudi Companies Law
Does the company bear the costs of a shareholder's action against a manager?
The competent judicial body may, on the request of the partner or shareholder, charge the company with these costs if the action was brought in good faith and it was in the company's interest to bring it.
Must I win the case to recover its costs?
No. The text allows charging the company with the costs whatever the outcome of the action, once both conditions are met.
Are the costs charged to the company automatically?
No. It is on the request of the partner or shareholder, and the decision is for the competent judicial body.
More articles on Company Management and Managers' Liability
- Article 11
The article allows founders, partners and shareholders to conclude agreements regulating their relationship, and a family charter for family companies, and makes them binding provided they do not contravene the Law or the company's founding document.
1- يجوز للمؤسسين أو الشركاء أو المساهمين -سواء خلال مدة تأسيس الشركة أو بعدها- ما يأتي: أ- إبرام اتفاق أو أكثر ينظم العلاقة فيما بينهم أو مع الشركة، بما في ذلك
- Article 16
Article 16 sets a company's financial year at twelve months fixed by the formation contract or bylaws, with the first financial year allowed to run between 6 and 18 months from registration.
تكون السنة المالية للشركة (اثني عشر) شهرًا تُحدد في عقد تأسيسها أو نظامها الأساس. ومع ذلك، يجوز أن تحدد السنة المالية الأولى بما لا يقلّ عن (ستة) أشهر ولا يزيد
- Article 17
Article 17 requires keeping accounting records, preparing annual financial statements and filing them within 6 months of the end of the financial year, and supplying a controlling company with the information it needs.
1- على الشركة الاحتفاظ بالسجلات المحاسبية والمستندات المؤيدة لها لتوضيح أعمالها وعقودها وقوائمها المالية في مركز الشركة الرئيس أو في أي مكان آخر يحدده مدير الشر
- Article 18
Article 18 requires a company to have a licensed auditor appointed by the partners, general assembly, or shareholders, and regulates the auditor's removal, with notice to the competent authority within 5 days, and resignation by reasoned written notice.
1- يكون للشركة مراجع حسابات (أو أكثر) من المراجعين المرخص لهم في المملكة يعينه ويحدد أتعابه ومدة عمله ونطاقه الشركاء أو الجمعية العامة أو المساهمون بحسب الأحوال
- Article 19
The article exempts micro and small companies and the general partnership company from the requirement to appoint an auditor in Article 18, with specified exceptions, and allows holders of 10% of voting rights to request that one be appointed.
1- لا يسري على الشركة متناهية الصغر والصغيرة الحكم المتعلق بإلزامية تعيين مراجع الحسابات الوارد في المادة (الثامنة عشرة) من النظام، عدا الشركة متناهية الصغر وال
- Article 20
The article sets the auditor's obligations: independence and the bar on combining roles or conflicts, his right to inspect company documents, submitting his report to the partners or general assembly, keeping secrets, and liability for his errors.
1- يجب أن يتصف مراجع حسابات الشركة بالاستقلال وفقًا لما تحدده المعايير المهنية المعتمدة في المملكة. 2- لا يجوز الجمع بين عمل مراجع الحسابات والاشتراك في تأسيس 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.