The Ministry of Commerce (“MC") and the Capital Market Authority (“CMA") announced publishing the Draft Implementing Regulations of the New Companies Law for public consultation for a period of fifteen (15) calendar days. The Draft comes pursuant to the issuance of the New Companies Law and based on the authority the Law grants to the CMA and MC to regulate some matters and subjects stipulated in the Law.
The Draft aims to facilitate the legal procedures and requirements to promote the business environment and support investment, to provide an efficient and fair framework for corporate governance, to contribute to attracting foreign and domestic investment and to provide sustainable financing resources.
The key elements included in the Draft are: Clarifying the mechanism of filing companies' financial statements, the Board's report, and the external auditor's repor;, stipulating the detailed provisions for Board Members' duty of care and duty of loyalty; determining the method of voting in the election of Board Members; stipulating the requirements related to a shareholder reserving a seat on the Board pursuant to the company's bylaws; and clarifying the procedures to be applied in the removal of a Board Member by the ordinary general assembly. The Draft also included updating the name of (the Regulatory Rules and Procedures issued pursuant to the Companies Law relating to Listed Joint Stock Companies) to become (the Implementing Regulation of the Companies Law for Listed Joint Stock Companies).
The Draft also included regulating the period in which Board Members shall continue in their capacity after the end of the Board tenure or the resignation of its members and until the election of a new Board, regulating the distribution of dividends to partners and shareholders and what constitutes distributable profits, and stipulating the prohibition of using the share premium in distributing cash dividends to shareholders. Also, the Draft included setting out the controls on the general assembly's delegation to the Board to authorize a Board Member's participation in any businesses that may compete with the company or any of its activities, and setting out the maximum period for the external auditor's tenure.
Further, the Draft included clarifying the provisions governing a company's demerger, and determining the provisions of Chapter (10) of the Law that do not apply in case of a merger of a wholly-owned subsidiary in its parent company, given the nature of this type of merger, setting out the provisions governing the issuance of a company's shares and its conversion and controls of its issuance and buy-back, including the specific provisions in relation to issuing redeemable shares and the terms and conditions for redemption, and regulating the forward split or reverse split of shares, as well as the maximum period between the issuance of the accredited valuers report for the fair value of in-kind stakes and the issuance of shares for such stakes.
The Draft also included regulating the Squeeze-out and Sell-out provisions stipulated in Article (230) of the Law, including the relevant disclosure requirements and the conditions for the offer price.
When developing the Draft, the CMA also took into consideration aligning the scope of the definition of the term “Related Parties" used for the purposes of the Corporate Governance Regulations with the scope of the definition of the term “Related Parties" used for the purposes of the Rules on the Offer of Securities and Continuing Obligations, and the scope of relatives for related parties for both definitions.
It is worth mentioning that the Draft is divided into the Implementing Regulations issued by the MC comprising the regulation of companies' forms, except joint stock companies listed on the Exchange, and the Implementing Regulations issued by the CMA comprising the regulation of listed joint stock companies. The CMA, in preparating of the Draft, took into consideration including the necessary amendments on its issued Regulations to align with the Law.
The MC and CMA, with full gratitude, would receive the opinions and comments of relevant and interested persons, through the Unified Electronic Platform for Consulting the Public and Government Entities (Public Consultation Platform), affiliated with the National Competitiveness Center, through the following link: istitlaa.ncc.gov.sa.
The Draft can be reviewed via the following link:
Draft Implementing Regulations of the Companies Law for Listed Joint Stock Companies
All opinions and comments will be taken into full consideration and study for the purpose of approving and finalizing the Draft.
