Article 78 of the Saudi Companies Law

المادة 78 من نظام الشركات · الفرع الأول: مجلس الإدارة

The article regulates the appointment of the chairman, vice chairman, managing director, chief executive and secretary in a joint stock company, and the board's power to relieve them of their posts without ending their membership.

Official text (Arabic)

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

1- مع مراعاة نظام الشركة الأساس، يعين مجلس إدارة شركة المساهمة في أول اجتماع له من بين أعضائه رئيسًا للمجلس، ويجوز أن يعين من أعضائه عضوًا منتدبًا أو رئيسًا تنفيذيًّا. ويبين نظام الشركة الأساس اختصاصاتهم وصلاحياتهم. وإذا خلا نظام الشركة الأساس من توزيع الاختصاصات تولى مجلس الإدارة ذلك.

2- يعين مجلس إدارة شركة المساهمة المدرجة في السوق المالية في أول اجتماع له من أعضائه نائبًا للرئيس. ويجوز تعيين نائب للرئيس في شركة المساهمة غير المدرجة في السوق المالية.

3- يعين مجلس الإدارة في شركة المساهمة رئيسًا تنفيذيًّا من أعضائه أو من غيرهم، ويحدد المجلس صلاحياته وأجره إذا لم يتضمن نظام الشركة الأساس أحكامًا في هذا الشأن.

4- يعين مجلس الإدارة في شركة المساهمة أمين سر من أعضائه أو من غيرهم، ويحدد المجلس اختصاصاته وأجره إذا لم يتضمن نظام الشركة الأساس أحكامًا في هذا الشأن.

5- لمجلس الإدارة أن يعفي رئيس المجلس، ونائبه، والعضو المنتدب، والرئيس التنفيذي، وأمين السر، أو أيًّا منهم، من تلك المناصب، ولا يترتب على ذلك إعفاؤهم من عضويتهم في 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 78 explained in plain English

This article explains how the board of a joint stock company distributes posts and powers among its members and others.

The chairman and the managing director: Subject to the articles of association, the board appoints a chairman from among its members at its first meeting, and may appoint from among its members a managing director or a chief executive. The articles of association state their powers, and if they are silent on that, the board does so.
The vice chairman: Mandatory in a company listed on the capital market, appointed by the board at its first meeting from among its members, and optional in an unlisted company.
The chief executive: The board appoints him from among its members or others, and sets his powers and pay if the articles of association do not contain provisions on this.
The secretary: The board appoints him from among its members or others, and sets his powers and pay if the articles of association do not contain provisions on this.
Relief from posts: The board may relieve the chairman, vice chairman, managing director, chief executive or secretary, or any of them, of the post, and this does not result in relieving them of board membership.

Note the difference between a post and membership: relieving the chairman of the chairmanship does not remove him from the board, because membership is tied to the general assembly's election.

This article follows Article 77, which gives the board the widest powers of management and allows it to delegate, and precedes Article 79, which makes the chairman the company's representative before the courts, arbitration bodies and third parties, while allowing the articles of association to give the power of representation to the managing director or chief executive. In disputes over posts, it is advisable to consult a lawyer specialized in companies.

Practical example

At the first meeting of the board of a listed joint stock company in Riyadh, the board appointed a chairman and a vice chairman from among its members, and appointed a chief executive from outside the board and set his pay because the articles of association did not regulate it. A year later the board relieved the chairman of the chairmanship, and he remained a member of the board.

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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