MC and CIMA explain how the new Companies Law will be implemented

04 Jan 2023

 

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
1Sections (1, 2) of Article 17Accounting Records and Financial Statements
2Section (2) of Article 20Obligations of the Company's Auditor
326Duty of Care and Loyalty
427Conflict of Interests, Competition and Asset Utilization
531Decision Evaluation Rule
6Section (5), Article (68)Election of Members of Board of Directors
769End of Board of Directors Term or Resignation of Members
871Disclosure of Interest in Business and Contracts
975Sale of Company's assets 
1080Board of Directors' Meetings
1181Representation for Attendance of Meetings and Validity of Board of Directors' Resolutions
1288Ordinary General Assembly Meeting
13Article 90 General and Special Assemblies
14Article 91Call for an Assembly Meeting
1592 Quorum for Holding an Ordinary General Assembly Meeting
1693Quorum for Holding an Extraordinary General Assembly Meeting
1794 Effectiveness of Ordinary Assembly's Resolution
1896General Assembly Meeting Agenda
19Section (2), Article 112Shareholders' Register
20Article 122Providing Shareholders with Financial Statements and Uploading Them
21Article 32 Company's Losses
22Article 134 Issuing a Resolution to Decrease Share Capital
23 Article 162Vacancy of Director's Position
24Article 164 Removal of Director
25Article 182 Company's Losses
26 Article 216 Holding Company
27 Article 217 Subsidiary
28 Article 218Owning Shares or Stocks in Holding Company
29 Article 244Liquidation of Company
30 Article 248 Resolution to Appoint a Liquidator
31 Article 254 Insufficient Assets


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.







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Last Modified 12 Jan 2023
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