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Article 64 of the Saudi Companies Law

المادة 64 من نظام الشركات · الفصل الثاني: تأسيس شركة المساهمة

The article requires the paid portion of the share price to be deposited with a licensed bank in the name of the company under incorporation, and regulates the refund of amounts and the founders' liability if the company is not registered.

Official text (Arabic)

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

1- يودع المدفوع من قيمة الأسهم المكتتب بها باسم الشركة تحت التأسيس لدى أحد البنوك المرخص لها في المملكة، ولا يجوز أن يتصرف فيه إلا مجلس الإدارة بعد قيد الشركة لدى السجل التجاري.

2- إذا لم تقيد الشركة لدى السجل التجاري، فللمكتتبين أن يستردوا المبالغ التي دفعوها، وعلى البنوك التي اكتتب فيها أن ترد -بصورة عاجلة- لكل مكتتب المبلغ الذي دفعه، ويكون المؤسسون مسؤولين بالتضامن عن الوفاء بهذا الالتزام وعن التعويض عند الاقتضاء في مواجهة المكتتبين، ويتحمل المؤسسون جميع المصروفات التي أنفقت في سبيل تأسيس الشركة، ويكونون مسؤولين بالتضامن في مواجهة الغير عن الأفعال والتصرفات التي صدرت منهم خلال مدة التأسيس.

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 64 explained in plain English

This article protects the money of those who subscribe to the shares of a joint stock company while it is being incorporated.

First: depositing the money and the ban on dealing with it:

  • The amount paid of the share price is deposited in the name of the company under incorporation with a bank licensed in the Kingdom.
  • No one may dispose of this amount except the board of directors, and only after the company is registered in the commercial register.

Second: if the company is not registered in the commercial register:

  • Subscribers may recover the amounts they paid.
  • The banks in which they subscribed must promptly return to each subscriber the amount he paid.
  • The founders are jointly liable for performing this obligation and, where appropriate, for compensating the subscribers.
  • The founders bear all the expenses incurred in incorporating the company.
  • The founders are jointly liable towards third parties for the acts and dealings they carried out during the incorporation period.

Joint liability means that any one of the founders can be required to perform the whole obligation, not just his own share.

This article is linked to Article 65, which treats the company as validly incorporated once it is registered in the commercial register. Registration is the moment after which the board may deal with the deposited amounts. Anyone harmed by the failure of a company's incorporation should consult a lawyer specialized in companies and commercial cases to assess his position.

Practical example

Khalid subscribed SAR 50,000 to the shares of a joint stock company under incorporation in Dammam, and the amount was deposited in the bank in the name of the company under incorporation. The incorporation then stalled and the company was not registered in the commercial register. Khalid is entitled to recover his money and the bank must return it to him promptly. The founders are jointly liable for that and, where appropriate, for compensating him, and they bear the incorporation expenses that were incurred.

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 64 of the Saudi Companies Law

Can the founders use the subscribers' money before the company is registered?

No. The deposited amounts may be disposed of only by the board of directors and only after the company is registered in the commercial register.

What happens to my money if the company is not registered in the commercial register?

You are entitled to recover what you paid, the bank must return it promptly, and the founders are jointly liable for performing that and, where appropriate, for compensation.

Who bears the incorporation expenses if the company's incorporation fails?

The founders bear all the expenses incurred in incorporating the company if it is not registered in the commercial register.

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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.