Who Does This Apply To?
The provisions on management duties apply to company managers (typically in LLCs and partnerships) and board members (in joint-stock companies and simplified joint-stock companies). If you hold either role in a Saudi-registered company, these rules apply to you — regardless of your nationality.
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The Duty of Care
Under Article 26, every company manager and board member must exercise a duty of care in carrying out their responsibilities. In practice, this means:
- Acting within the scope of your powers as defined in the articles of association or by the partners/shareholders
- Making decisions based on adequate information and reasonable judgment
- Attending meetings, reviewing relevant documents, and being actively engaged in governance
- Not being reckless or negligent in how you exercise your authority
What this means for expats: Even if you're a non-executive or part-time director, Saudi law expects you to be genuinely informed and involved. Simply rubber-stamping decisions made by others without scrutiny could expose you to liability.
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The Duty of Loyalty
Also under Article 26, managers and board members must exercise a duty of loyalty to the company. This includes:
- Acting in the best interest of the company and working to promote its success
- Making decisions and casting votes independently, free from outside influence or personal interest
- Keeping company information confidential and not using it for personal gain
- Not placing your own interests — or the interests of a third party — above those of the company
Practical example: If you're a board member of a Saudi LLC and you receive a business opportunity that could benefit the company, you must disclose it to the company rather than pursue it personally.
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Conflict of Interest Rules
Article 27 specifically addresses conflicts of interest. A company manager or board member may not have any direct or indirect interest in transactions or contracts entered into on the company's behalf — unless they receive prior authorization from the relevant parties (partners, general assembly, or shareholders depending on company type).
You must also avoid:
- Competing with the company in its business activities
- Exploiting company assets, opportunities, or information for personal benefit
- Acting in ways that benefit a related party at the company's expense
Disclosure is key: If you have a potential conflict of interest, the law requires you to disclose it promptly. Failing to do so — and proceeding with a conflicted transaction — can result in the transaction being voided and personal liability being imposed.
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Personal Liability for Managers and Board Members
Under Article 28, managers and board members can be held jointly and severally liable for damages suffered by:
- The company itself
- Partners or shareholders
- Third parties
This liability arises from:
- Violating the Companies Law
- Breaching the company's articles of incorporation or association
- Committing errors in management
Joint and several liability means that each manager or board member can be held responsible for the full amount of the damages, not just their proportional share. If one person cannot pay, another can be required to cover the entire amount.
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Legal Actions Against Managers
Under Article 29, both the company and individual partners or shareholders have the right to initiate legal action against managers or board members for damages caused by their misconduct or negligence.
Under Article 30, even if the partners or shareholders vote to relieve a manager of liability, this does not automatically prevent a legal action from being filed. Courts retain the ability to hear such cases in appropriate circumstances.
Limitation period: Be aware that there is a limitation period on bringing such actions — consult a Saudi legal advisor to understand the applicable timeframes for your situation.
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Practical Guidance for Expat Managers
- Always act within your authorized scope — review your articles of association carefully and know exactly what decisions you are empowered to make
- Document your decisions — maintain written records of board decisions, meeting minutes, and the basis for significant choices
- Disclose conflicts early — if you identify a potential conflict of interest, raise it before any decision is made, not after
- Don't sign documents you haven't reviewed — as a manager, your signature carries legal weight and implies informed consent
- Get independent legal advice — if you're unsure whether a proposed transaction involves a conflict, seek legal counsel before proceeding
- Understand that your personal assets may be at risk — in cases of serious breach, personal liability can extend beyond your role as a manager
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Partnership Agreements and Shareholder Agreements
Under Article 11, incorporators, partners, or shareholders may enter into partnership agreements or family charters to regulate their relationships. As a manager, you should be familiar with any such agreements as they may impose additional obligations or restrictions on your conduct beyond what appears in the articles of association.