Saudi Companies Law Implementing Regulation: Targeted governance and dividend reforms out for consultation

Scope and objectives

The Capital Market Authority (CMA) has issued for 30 day public consultation draft amendments to the Implementing Regulation of the Companies Law for listed joint stock companies. The proposals introduce a governance framework for shareholder initiated removal of board members by the ordinary general assembly and refine the regime for determining distributable profits and paying interim dividends.

Board removal governance

The draft would codify a structured pathway for shareholder requests to remove directors. A request must be submitted by one or more shareholders holding at least 10% of the company’s voting shares. A request to remove all directors cannot be made until at least six months have elapsed since the start of the board’s term. Where removal of one or more members is sought, the applicant must substantiate inability to perform duties as prescribed by law, including, for example, absence from three consecutive or five non consecutive board meetings during the term, or a conviction for a crime involving breach of trust. Repeat requests by the same shareholder during the same board term are barred if an earlier request was not approved by the general assembly.

When a valid removal request is received, the board must promptly notify the concerned director, confirm compliance with the regulatory conditions before announcing it, and disclose the request, the applicant’s identity and the justifications in the general assembly notice. The director may submit a written statement to be circulated with the notice and may address shareholders at the meeting. If approving the removal would reduce the board below the statutory or bylaw minimum, the removal only takes effect once the general assembly elects a new board or a replacement, which the board must convene within 60 days of the approval. A director who is removed, or who resigns after receiving a removal request but before the vote, may not be re-nominated until the end of the current and subsequent terms. Any director convicted of a breach-of-trust offence must immediately notify the board, and the board must then recommend removal to the ordinary general assembly.

Distributable profits and interim dividends

The definition of distributable profits would be clarified by removing the reference to “net income of the financial year” and reaffirming that distributable profits comprise net income after required reserves, plus retained earnings and distributable reserves formed out of profits. For interim dividends, companies could rely on the latest reviewed or audited financial statements. Interim distributions would require sufficient distributable profits from one or more previous years to cover the proposed dividend, after deducting amounts previously distributed or capitalised since the date of those financial statements.

The proposals would bring sharper due process to shareholder led board removals, protect board continuity where composition thresholds could be breached, and strengthen integrity related accountability. The profit and interim dividend changes add clarity and operational flexibility while preserving prudence through reliance on recent financials and a backward looking distributable profits test.

Next steps

The consultation runs for 30 calendar days from the CMA’s publication date. Market participants should verify the launch date against the CMA notice and consider responding on governance processes, timing mechanics, and dividend policy implications.

At Ashurst, we are tracking the consultation and advising clients on practical implementation for general assemblies, board governance, dividend planning, and disclosure.

We welcome a discussion on what these changes could mean for you.

Other Authors: Rayan AlMadani, Associate; Majed Alsaggaf, Trainee Associate