Responsibilities of board members
Joint stock companies have an important and large role in the Saudi economy. As a result, the Kingdom has approved many laws and regulatory procedures to facilitate the process of controlling companies, in addition to severe penalties for noncompliance with laws and specialized procedures.
According to the first paragraph of Article 71 of the Saudi Companies Law, there are specific controls for licensing business and contracts that are made for the company’s account, that the member of the board of directors has a direct or indirect interest in it.
Today we will briefly go through these controls in addition to addressing the scope of the indirect interest of a member of the board of directors in such business and contracts.
Firstly, it is not considered a direct or indirect interest in which a general assembly license is required and has to be obtained for the businesses and contracts that are made for personal needs, provided that they are carried out on the same terms that are followed by the company with the rest of the contracting parties, as well as that these businesses agreed upon are within the company’s usual activity.
When there is a business or contract for a member of the board of directors having a direct or indirect interest in it, he must inform the board of directors about that, as the total contract amount is taken into consideration if it is less than 1 percent of the company’s revenues according to the latest financial statements.
In addition, the business or the contract has to be covered by the scope of the company’s activity, and if it includes any preferential conditions for a member of the board of directors, it must be ensured that the contract is not among the activities that the member carries out under a professional license in favor of the company.
As for the steps for delegating the validity of the license, the clause delegating the validity of the procedure shall be added within the agenda of the ordinary general assembly, and upon approval of the delegation clause, it shall be applied for a maximum period of one year starting from the date of the assembly’s approval or until the end of the session of the board of directors, whichever is earlier, as well as it is not permissible for any of the members of the board of directors to vote on any of the articles of delegation or to cancel it in the general assembly meetings.
Furthermore, it is worth noting that the general assembly has the right to add other conditions to the conditions set by the Capital Market Authority, and these conditions must be shared in the conflict of interest policy contained in the Corporate Governance Regulations.
As for the indirect interest that takes place for the account of the company and may achieve financial or other benefits, it includes those related to the relatives of a member of the board of directors, any legal entity represented by a member of the board of directors, a limited or a simple partnership companies in which any of its board members or relatives is a partner or among its directors.
• Dimah Talal Alsharif is a Saudi lawyer and legal consultant. Twitter: @dimah_alsharif