Judicial Applications

Dismissal of Claimant’s Demand for Reinstitution of a Company’s Shares

A Company’s capital is composed of cash and in kind shares contributed by the partners of the company. The shareholding of a partner may also be compensation for some work (work share) if accepted as shares; however, it shall not be deemed to constitute the capital of the company under Article (5) of the Saudi Company Law. 

The Saudi Legislature regulates the capital of a company issue with many conditions in terms of amendment, disposal, redemption or reinstitution thereto. In applying this approach  a court having jurisdiction in a company dispute issue recently provided the following reasoning: Whereas  Claimant specified its demand for the Defendant to reinstitute the capital in addition to the amount  which the Claimant paid as an increase in the capital; whereas the relationship between the Claimant and the Defendant was a quasi–company relationship, dated 5/10/1422H; whereas the legal entity subject to such partnership was evidently involved in business activities by an admission made by the parties, therefore, neither partner was entitled to claim  reinstitution of the capital for the reason that all partners are liable for the consequences of such relationship in terms of a profit or loss.  The court further stated that the Claimant, if the latter was not interested in continuation of the partnership, may exit from the company or claim liquidation of the account between the partners but cannot claim reinstitution of the capital. 

(Please refer to the first instance case no. 31085/2/Gaf,1425H, first instance judgement no. 148/Dal/Ta Jeem/10, for the year 1431H, appeal judgement no. 400/Seen/8, 1432H, hearing 22/06/1432H,  Commercial  Judgements & Principles, 1432H, Technical Affairs Office, Board of Grievances, Riyadh, 1436H, page 1209)