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Article 72 of the Saudi Companies Law

المادة 72 من نظام الشركات · الفرع الأول: مجلس الإدارة

The article bars a joint stock company from lending to its board members or their relatives or guaranteeing their loans, voids violating contracts, and excepts banks, finance companies and employee incentive programs.

Official text (Arabic)

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

1- لا يجوز لشركة المساهمة أن تقدم قرضًا من أي نوع إلى أيّ من أعضاء مجلس إدارتها، ولا يجوز لها عقد أي كفالة أو تقديم أي ضمانات تتعلق بقرض يعقده أيّ منهم مع الغير. ويسري ذلك على كل قرض أو كفالة أو ضمان يقدم لأي من أقاربه. ويعد باطلًا كل عقد يتم بالمخالفة لذلك. ويحق للشركة مطالبة المخالف أمام الجهة القضائية المختصة بالتعويض عما قد يلحقها من ضرر.

2- لا يسري حكم الفقرة (1) من هذه المادة على الآتي:

أ- البنوك وغيرها من شركات التمويل، إذ يجوز لها -في حدود أغراضها وبالأوضاع والشروط التي تتبعها في معاملاتها مع الجمهور- أن تقرض أحد أعضاء مجلس إدارتها أو أن تفتح له اعتمادًا أو أن تضمنه في القروض التي يعقدها مع الغير.

ب- القروض والضمانات التي تمنحها الشركة وفق برامج تحفيز العاملين فيها التي تمت الموافقة عليها وفق أحكام نظام الشركة الأساس أو بقرار من الجمعية العامة.

3- للجهة المختصة تحديد الحالات والضوابط التي لا يجوز للشركة فيها تقديم قرض أو ضمان يتعلق بقرض لأي من مساهميها.

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 72 explained in plain English

This article prevents the funds of a joint stock company from being used for the benefit of its board members through loans and guarantees.

The prohibition (paragraph 1):

  • The company may not give a loan of any kind to any of its board members.
  • It may not enter into a suretyship or provide guarantees relating to a loan any of them takes from a third party.
  • The prohibition also applies to every loan, suretyship or guarantee provided to any of his relatives.
  • Any contract made in violation is void, and the company may claim compensation from the violator before the competent judicial authority for the harm it suffers.

The exceptions (paragraph 2):

  • Banks and finance companies: Within the limits of their purposes and on the terms and conditions they apply to the public, they may lend a member of their board, open a credit facility for him, or guarantee his loans from third parties.
  • Employee incentive programs: Loans and guarantees the company gives under employee incentive programs approved in accordance with the articles of association or by a resolution of the general assembly.

Shareholders (paragraph 3): The competent authority may specify the cases and controls in which the company may not lend to any of its shareholders or guarantee them; the article does not state those cases.

This article complements Article 71, which requires a member to disclose his interest in the company's business and contracts. Anyone who needs to assess the legality of a particular financing or guarantee should consult a lawyer specialized in companies or finance.

Practical example

Saad, a board member of an industrial joint stock company in Jubail, asked the company to guarantee a personal loan for his brother from a bank. This is prohibited under the article because it is a guarantee provided to a relative of a member, and had it been made the contract would be void. If the company itself were a bank and lent to him on the terms it applies to its customers, that would fall within the exception.

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 72 of the Saudi Companies Law

May a joint stock company lend to a member of its board?

No. It is prohibited from giving a loan of any kind to its board members or their relatives, and a violating contract is void, except for the exceptions set out in the article.

May a bank lend to a member of its board?

Yes. Banks and finance companies may do so within the limits of their purposes and on the terms and conditions they follow in their dealings with the public.

Do employee loan programs cover board members?

The prohibition does not apply to loans and guarantees the company gives under employee incentive programs approved in accordance with the articles of association or by a resolution of the general assembly.

May the company lend to its shareholders?

The competent authority may specify the cases and controls in which the company may not give a loan or guarantee to any of its shareholders.

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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.