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Article 71 of the Saudi Companies Law

المادة 71 من نظام الشركات · الفرع الأول: مجلس الإدارة

The article requires a board member to disclose at once his interest in the company's business and contracts, bars him from voting on them, and provides for nullity and liability in case of violation.

Official text (Arabic)

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

1- مع مراعاة حكم المادة (السابعة والعشرين) من النظام، يجب على عضو مجلس الإدارة فور علمه بأي مصلحة له سواء مباشرة أو غير مباشرة في الأعمال والعقود التي تكون لحساب الشركة، أن يبلغ المجلس بذلك، ويثبت هذا الإبلاغ في محضر اجتماع المجلس عند اجتماعه. ولا يجوز لهذا العضو الاشتراك في التصويت على القرار الذي يصدر في هذا الشأن في المجلس والجمعيات العامة. ويبلغ المجلس الجمعية العامة عند انعقادها عن الأعمال والعقود التي يكون لعضو المجلس مصلحة مباشرة أو غير مباشرة فيها، ويرفق بالإبلاغ تقرير خاص من مراجع حسابات الشركة يعد وفق معايير المراجعة المعتمدة في المملكة.

2- إذا تخلف عضو المجلس عن الإفصاح عن مصلحته المشار إليها في الفقرة (1) من هذه المادة، جاز للشركة أو لكل ذي مصلحة المطالبة أمام الجهة القضائية المختصة بإبطال العقد أو إلزام العضو بأداء أي ربح أو منفعة تحققت له من ذلك.

3- تقع المسؤولية عن الأضرار الناتجة عن الأعمال والعقود المشار إليها في الفقرة (1) من هذه المادة على العضو صاحب المصلحة من العمل أو العقد، وعلى أعضاء مجلس الإدارة عند تقصيرهم أو إهمالهم في أداء التزاماتهم بالمخالفة لأحكام تلك الفقرة أو إذا ثبت أن تلك الأعمال والعقود غير عادلة أو تنطوي على تعارض في المصالح وتلحق الضرر بالمساهمين.

4- يعفى أعضاء مجلس الإدارة المعارضون للقرار من المسؤولية متى أثبتوا اعتراضهم صراحة في محضر الاجتماع، ولا يعد الغياب عن حضور الاجتماع الذي يصدر فيه القرار سببًا للإعفاء من المسؤولية إلا إذا ثبت أن العضو الغائب لم يعلم بالقرار أو لم يتمكن من الاعتراض عليه بعد علمه به.

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 71 explained in plain English

This article deals with conflict of interest, that is, where a board member has an interest in a transaction the company concludes, subject to the provision of Article 27 of the Law.

1- The duty of disclosure:

  • As soon as he becomes aware of any interest he has, direct or indirect, in business and contracts made for the company's account, the member must notify the board, and the notice is recorded in the meeting minutes.
  • He may not vote on the resolution concerning it, either in the board or in the general assemblies.
  • The board informs the general assembly, when it meets, of these business and contracts, and the notice is accompanied by a special report from the auditor in accordance with the auditing standards approved in the Kingdom.

2- Consequence of non-disclosure: The company or any interested party may demand before the competent judicial authority that the contract be annulled or that the member be required to hand over any profit or benefit he obtained.

3- Liability for damages: It falls on the member with the interest, and on the board members where they were negligent or careless in violation of paragraph 1, or where it is proved that the business and contracts are unfair or involve a conflict of interest and harm the shareholders.

4- Exemption from liability: A member who objects to the resolution is exempt if he proves his objection expressly in the minutes. Absence exempts only if it is proved that the absent member did not know of the resolution or could not object after learning of it.

This article is linked to Article 72, which prevents a joint stock company from lending to its board members or guaranteeing their loans from third parties, with specific exceptions. Where a conflict of interest is suspected, it is advisable to consult a lawyer specialized in companies and commercial cases.

Practical example

Majid, a board member of a joint stock company in Riyadh, owns a share in a supply business that the company contracts with. He notified the board as soon as he learned of the deal, had this recorded in the minutes, and abstained from voting. Had he hidden his interest, the company or any interested party could have demanded before the competent judicial authority that the contract be annulled or that he return the profit he made.

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 71 of the Saudi Companies Law

May a board member contract with the company?

The article requires him to disclose at once any direct or indirect interest in the company's business and contracts and bars him from voting on the related resolution, subject to the provision of Article 27.

What happens if the member does not disclose his interest?

The company or any interested party may demand before the competent judicial authority that the contract be annulled or that the member hand over any profit or benefit he obtained.

Is a member who opposed the resolution liable?

He is exempt from liability if he proves his objection expressly in the meeting minutes.

Does absence from the meeting exempt a member from liability?

No, unless it is proved that the absent member did not know of the resolution or could not object to it after learning of it.

Articles this article refers to

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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.