The Two Core Legal Duties of Every Manager and Board Member
Saudi Companies Law establishes two fundamental duties that apply to every manager and board member, regardless of company type:
1. Duty of Care
You must act with the diligence and competence expected of a reasonably skilled person in your position. This means:
- Making informed, considered decisions
- Staying within the scope of your authorized powers
- Acting in the genuine interest of the company
- Making decisions independently, free from outside pressure or undue influence
2. Duty of Loyalty
You must always put the company's interests before your own. This includes:
- Avoiding situations where your personal interests conflict with the company's interests
- Not using your position to gain personal advantage at the company's expense
- Treating all partners or shareholders fairly and equally
Breaching either of these duties can expose you to significant legal and financial consequences.
Conflicts of Interest: What Is Prohibited
Saudi Companies Law takes conflicts of interest seriously. As a manager or board member, you are prohibited from:
- Having any direct or indirect personal interest in transactions or contracts made on behalf of the company — unless you have received prior authorization from the partners, general assembly, or shareholders
- Competing with the company in its area of business without proper authorization
- Exploiting company assets, opportunities, or information for personal gain
If you find yourself in a potential conflict of interest situation, the correct procedure is to disclose the conflict and obtain the required authorization before proceeding. Failure to do so can result in the transaction being voided and personal liability being imposed on you.
When Can You Be Held Personally Liable?
Managers and board members can be held jointly and severally liable for damages caused to the company, its partners, shareholders, or third parties when those damages result from:
- Violating the Companies Law
- Breaching the company's articles of incorporation or articles of association
- Negligence or misconduct in performing management duties
"Jointly and severally liable" means that any one manager can be held responsible for the full amount of damages — not just their proportional share. This is a significant personal financial risk.
Legal Actions Against Managers
Saudi law provides two routes for holding managers accountable:
Company Derivative Action
The company itself can bring a legal claim against a manager or board member for harm caused to the company. This can be initiated by the company on behalf of its partners or shareholders.
Individual Partner or Shareholder Action
Partners or shareholders can also bring their own legal actions for damages they personally suffered as a result of a manager's breach of duty.
Importantly, even if the partners or general assembly previously voted to relieve a manager from liability, this does not automatically block future legal action. In cases of forgery or fraud, no prior vote of approval can shield a manager from prosecution.
Auditors: A Separate but Related Role
While managers run the company, auditors provide an independent check on financial integrity. Key points for expat managers to understand:
- Every company must appoint at least one licensed auditor (with limited exceptions for micro and small companies)
- The auditor must be fully independent and cannot simultaneously serve as a manager, board member, or participate in company incorporation
- Auditor appointments, fees, and scope of work are determined by the partners or general assembly
As a manager, interfering with auditor independence is itself a legal risk.
Practical Protection Strategies for Expat Managers
- Read and understand your articles of incorporation — your authority as a manager is defined and limited by these documents
- Document your decisions — keep records showing that major decisions were properly considered and authorized
- Disclose conflicts early — if you have any personal interest in a transaction, disclose it formally before acting
- Do not act outside your authorized scope — if you are unsure whether a decision falls within your powers, seek legal advice before proceeding
- Ensure financial records are properly maintained — the company must keep accounting records and financial statements at its registered headquarters or a designated location
- Understand that liability follows the individual, not just the company — your personal assets may be at risk in cases of breach
Bottom Line
Being a manager or board member in Saudi Arabia is a position of genuine legal responsibility. The Saudi Companies Law creates enforceable duties and real personal liability for those who breach them. Expats in leadership roles should take these obligations seriously from day one and consider seeking regular legal advice to stay compliant.