Article 66 of the Saudi Companies Law

المادة 66 من نظام الشركات · الفصل الثاني: تأسيس شركة المساهمة

The article requires in-kind shares to be valued, on incorporation or a capital increase, by an accredited valuer's report submitted for deliberation, bars those who contributed them from voting on it, and requires their consent to any reduction.

Official text (Arabic)

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

1- إذا قدمت حصص عينية عند تأسيس الشركة أو عند زيادة رأس مالها، وجب تقييم تلك الحصص من مقيم معتمد أو أكثر، وأن يعد المقيم تقريرًا يُبين فيه القيمة العادلة لهذه الحصص، ويعرض ذلك التقرير على المؤسسين أو الجمعية العامة غير العادية بحسب الأحوال للمداولة فيه، ولا يكون لمقدمي الحصص العينية المشاركة في التصويت على القرار بشأن التقرير المعد عنها، فإن قرر المؤسسون أو الجمعية تخفيض المقابل المحدد للحصص العينية، وجب الحصول على موافقة مقدمي تلك الحصص على ذلك التخفيض.

2- يشترط ألا تتجاوز المدة ما بين إصدار تقرير المقيم المعتمد بتقدير القيمة العادلة للحصص العينية، وإصدار الأسهم مقابل تلك الحصص، المدة التي تحددها اللوائح.

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 66 explained in plain English

An in-kind share is what a partner or shareholder contributes other than cash, such as land, a building or equipment. This article regulates how such shares are valued so that their value is not overstated at the expense of the other shareholders.

When does it apply? When in-kind shares are contributed at the incorporation of the company or when its capital is increased.

Steps of the valuation:

The shares are valued by one or more accredited valuers.
The valuer prepares a report stating the fair value of these shares.
The report is submitted for deliberation to the founders (at incorporation) or to the extraordinary general assembly (on a capital increase), as the case may be.
Those who contributed the in-kind shares do not take part in the vote on the resolution concerning the report prepared on them.
If the founders or the assembly decide to reduce the consideration set for the shares, the consent of those who contributed them to that reduction must be obtained.

Time condition: the period between the issue of the valuer's report and the issue of the shares in return for the contributions must not exceed the period set by the regulations. The article does not state this period.

This valuation protects the cash shareholders from an overstatement of the value of in-kind shares, and also protects the contributor from having their value reduced without his consent. To assess the effect of the valuation on the parties' rights, it is advisable to consult a lawyer specialized in companies.

Practical example

Fahd wanted to contribute a warehouse he owns, instead of cash, to a new joint stock company in Qassim. The accredited valuer submitted a report on its fair value, and the report was submitted to the founders, who voted on it without Fahd taking part. The founders considered reducing the proposed consideration, but that reduction cannot take effect without Fahd's consent.

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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