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Article 77 of the Saudi Companies Law

المادة 77 من نظام الشركات · الفرع الأول: مجلس الإدارة

The article gives the board the widest powers to manage the company, subject to the general assembly's powers, allows delegation, and binds the company by the board's acts even outside its powers unless the counterparty acted in bad faith.

Official text (Arabic)

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

1- مع مراعاة الاختصاصات المقررة للجمعية العامة، يكون لمجلس الإدارة أوسع السلطات في إدارة الشركة بما يحقق أغراضها، وذلك فيما عدا ما استثني بنص خاص في النظام أو نظام الشركة الأساس من أعمال أو تصرفات تدخل في اختصاص الجمعية العامة. ويكون للمجلس أيضًا -في حدود اختصاصاته- أن يفوض واحدًا أو أكثر من أعضائه أو من الغير في مباشرة عمل أو أعمال معينة.

2- تلتزم الشركة بجميع الأعمال والتصرفات التي يجريها مجلس الإدارة باسمها ولو كانت خارج اختصاصه، إلا إذا كان من تعامل معه سيء النية أو كان يعلم أن تلك الأعمال خارج اختصاصات المجلس.

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 77 explained in plain English

This article defines the extent of a joint stock company's board's authority and protects those who deal with the company.

1- The board's powers:

  • Subject to the powers vested in the general assembly, the board has the widest powers to manage the company in a way that achieves its purposes.
  • Excepted is whatever the Law or the articles of association provide is within the general assembly's powers.
  • Within its powers, the board may delegate one or more of its members or third parties to carry out a particular act or acts.

2- The company's commitment toward third parties:

  • The company is bound by all the acts and dealings the board carries out in its name even if they are outside its powers.
  • Unless the person dealing with the board is in bad faith, or knows that those acts are outside the board's powers.

In practical terms, a supplier, bank or customer who deals in good faith with the board does not bear the risk of the board exceeding its internal limits; the company is bound toward him. If he knows of the excess, he does not benefit from this protection.

This article comes before Article 78, which distributes powers within the board: the board appoints a chairman from among its members, and a chief executive and a secretary, and may appoint a managing director. It follows Article 76, which regulates board members' remuneration. In disputes over whether the company is bound by a particular act, it is advisable to consult a lawyer specialized in companies and commercial cases.

Practical example

The board of a joint stock company in Riyadh signed a supply contract with a business in Jeddah, and it then emerged that the articles of association make this type of contract a matter for the general assembly. As long as the business did not know this and was not in bad faith, the company remains bound by the contract toward it.

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 77 of the Saudi Companies Law

What are the limits of the authority of a joint stock company's board of directors?

It has the widest powers to manage the company in a way that achieves its purposes, subject to the general assembly's powers and whatever is excepted by a special provision in the Law or the articles of association.

Is the company bound by a contract the board concluded outside its powers?

Yes, the company is bound by it, unless the person dealing with the board is in bad faith or knows that the act is outside the board's powers.

May the board delegate others?

Yes. Within its powers it may delegate one or more of its members or third parties to carry out a particular act or acts.

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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.