The Board of the Capital Market Authority has approved an amendment to the executive regulations of the Companies Law for listed joint-stock companies, as part of developing the regulatory framework for the controls on dismissing board members and regulating the mechanism for determining and distributing profits in listed companies.
The development of the regulatory framework aims to establish specific controls for the dismissal of board members by the general assembly, which will contribute to strengthening the governance of listed companies, by enabling shareholders to exercise their rights and monitor the performance of boards of directors, raising the level of transparency, and enhancing investor protection, which contributes to supporting the stability of the financial market, in addition to increasing flexibility in the regulatory requirements related to distributable profits, in accordance with best practices.
Regarding the procedures for removing board members by the general assembly, the amendments included a statement of the controls and procedures governing requests submitted by one or more shareholders to remove board members by the ordinary general assembly, including the obligations the board must follow upon receiving such requests. According to the amendments, one or more shareholders holding at least 10% of the voting shares may submit a request to remove all board members after at least six months have passed since the start of the board's term. They may also submit a request to remove one or more board members if it is determined that the member is incapable of performing their duties as stipulated by law.
The amendments also included obligating a board member to immediately inform the board if a final judicial ruling is issued convicting him of a crime involving breach of trust, or if a decision is issued by a competent authority under the relevant regulations that affects his ability to perform his duties, provided that the board submits a recommendation to the general assembly to dismiss the member upon learning of the ruling or decision, even if the member does not inform the board of this.
The amendments also stipulate that if the dismissal of all or some members of the board of directors results in a breach of the minimum quorum required for a valid board meeting under the Companies Law or the company's articles of association, the general assembly's resolution must state that the dismissal will not be effective until the assembly approves the election of a new board or a replacement for the dismissed member. The board of directors must then take the necessary steps to have the general assembly elect the new board or a replacement for the dismissed member within a period not exceeding (75) days from the date the general assembly approves the dismissal request.
As for distributable profits, the approved amendments have given listed companies greater flexibility in calculating them, by eliminating the requirement to link the determination of their value to the audited annual financial statements, and amending the mechanism to be in accordance with the latest audited or reviewed financial statements preceding the distribution decision, which allows listed companies to rely on the latest financial statements, whether they are audited interim or audited annual, when determining the value of distributable profits.
These amendments come as part of the Capital Market Authority’s ongoing efforts to develop the regulatory environment of the financial market, enhance the governance of listed companies, and achieve a balance between protecting shareholders’ rights and enabling companies to manage their businesses efficiently, in order to support the growth and sustainability of the Saudi financial market.
Last November, the Authority published a draft amendment to the executive regulations of the Companies Law for listed joint-stock companies on the unified electronic platform for surveying the opinions of the public and government agencies affiliated with the National Competitiveness Center (Survey Platform) and the Authority’s website for a period of (30) calendar days to survey the public’s views on it.
The executive regulations for the Companies Law pertaining to listed joint-stock companies can be viewed via the following link:
Executive Regulations of the Companies Law for Listed Joint Stock Companies