The Ministry of Commerce (MC) and the Capital Market Authority (CMA) clarified the mechanism for implementing the new Companies Law today, 11/06/1444 H corresponding to 04/01/2023. This comes in line with the MC and CMA's joint efforts to achieve integration and harmony while implementing the new Companies Law and ensuring that the law accomplishes its objectives.
The Ministry and the CMA said the new Companies Law was approved by Royal Decree No. (M / 132) dated 1/12/1443 H, which is included in Clause (3) thereof: “Existing companies must amend their status in conformity with the Regulations' provisions within two years of the date of the Regulations' entry into force, as stated in Clause (1) of this Decree.”
As an exception, the Ministry of Commerce and the Capital Market Authority - each in its own jurisdiction - determine the provisions contained therein to which these companies are subject during that period. Whereas the new Companies Law was published in Umm Al-Qura Gazette on 23/12/1443 H, corresponding to 7/22/2022, and it will go into effect on 26/6/1444 H, corresponding to 19/1/2023, the period for revising the conditions indicated in the preceding clause does not include new companies founded after the law has become effective.
All of the Law's provisions will apply to them as of the date the law becomes effective. This period also excludes the provisions that were extended from the Companies Law issued by Royal Decree No. (M / 3) dated 28/1/1437 H, as well as the crimes and violations decided by the law and the punishments imposed by the law for the commission of these crimes. The provisions that established procedural responsibilities will also apply to the company or its administrative employees in charge of law enforcement.
Examples of articles whereby a company is given a grace period to rectify its status include the following articles: (36, 52, 61, and 158). Notably, with regard to the provision of section (1) of Article 68 of the Law, companies must apply the aforementioned provision at the end of the current Board of Directors' term and the election of a new Board of Directors, or after two years as of the date the Law goes into force, whichever comes first.
Among the provisions that businesses must implement as of the date the law takes effect are the following:
S/N | Article No. | Subject-matter |
1 | Sections (1, 2) of Article 17 | Accounting Records and Financial Statements |
2 | Section (2) of Article 20 | Obligations of the Company's Auditor |
3 | 26 | Duty of Care and Loyalty |
4 | 27 | Conflict of Interests, Competition and Asset Utilization |
5 | 31 | Decision Evaluation Rule |
6 | Section (5), Article (68) | Election of Members of Board of Directors |
7 | 69 | End of Board of Directors Term or Resignation of Members |
8 | 71 | Disclosure of Interest in Business and Contracts |
9 | 75 | Sale of Company's assets |
10 | 80 | Board of Directors' Meetings |
11 | 81 | Representation for Attendance of Meetings and Validity of Board of Directors' Resolutions |
12 | 88 | Ordinary General Assembly Meeting |
13 | Article 90 | General and Special Assemblies |
14 | Article 91 | Call for an Assembly Meeting |
15 | 92 | Quorum for Holding an Ordinary General Assembly Meeting |
16 | 93 | Quorum for Holding an Extraordinary General Assembly Meeting |
17 | 94 | Effectiveness of Ordinary Assembly's Resolution |
18 | 96 | General Assembly Meeting Agenda |
19 | Section (2), Article 112 | Shareholders' Register |
20 | Article 122 | Providing Shareholders with Financial Statements and Uploading Them |
21 | Article 32 | Company's Losses |
22 | Article 134 | Issuing a Resolution to Decrease Share Capital |
23 | Article 162 | Vacancy of Director's Position |
24 | Article 164 | Removal of Director |
25 | Article 182 | Company's Losses |
26 | Article 216 | Holding Company |
27 | Article 217 | Subsidiary |
28 | Article 218 | Owning Shares or Stocks in Holding Company |
29 | Article 244 | Liquidation of Company |
30 | Article 248 | Resolution to Appoint a Liquidator |
31 | Article 254 | Insufficient Assets
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Additionally, the Ministry of Commerce and the Capital Market Authority have stated that current businesses may not, when the law takes effect, engage in any conduct, make any arrangements, or establish any new legal position that is against the new law.
The company must adjust all the sections of its articles of association or bylaws that need to be changed in order to bring its conditions into compliance with the law if it amends its articles of association or bylaws during the period when it is rectifying its status, with the exception of situations decided by the Ministry of Commerce in consultation with the Capital Market Authority.
It should be noted that from the date the law takes effect, companies, partners, and shareholders may exercise all the rights outlined in it, taking into consideration any necessary amendments that need to be made to the companies' bylaws or articles of association.
By clarifying the mechanism for applying the provisions of the new Companies Law, the Ministry of Commerce and the Capital Market Authority are looking forward to contributing to achieving its objectives. These objectives include strengthening the regulatory environment for companies, facilitating procedures and regulatory requirements to stimulate the business environment and support investment. They also include achieving a balance between stakeholders, and providing an effective and fair framework for corporate governance, intensifying corporate work, contributing to the sustainability of economic entities, attracting local and foreign investments, providing sustainable financing sources, in addition to meeting the needs and requirements of the entrepreneurship sector, and stimulating the growth of small and medium enterprises.