Protecting the rights of stockholders

Saudi Arabia is encouraging companies to list on the stock exchange as part of economic reforms aimed at reducing its reliance on oil revenues and deepening its capital market.

Saudi Aramco’s listing has sent the Tadawul, the region’s largest bourse, to ninth place globally in market capitalization.

The oil giant recently announced net profits of $16.7 billion for the first quarter of 2020 and stuck to its dividend pledge.

Since the Kingdom is leading initial public offerings in the Middle East and North African region, it is important to remind stockholders of their rights.

Saudi laws ensure safe and proper mechanisms concerning the circulation and ownership of stocks.

Regulars in the industry are already aware of the rules, regulations and their rights, but newcomers may have little idea of their rights as guaranteed by law.

Despite having some prior knowledge, many individuals need clarification on the ins and outs of being a stockholder.

A stockholder is entitled to a share of a company’s earnings proportionate to their investment. The profit can be distributed in cash or through the issuance of further shares in the company.

They can also vote on company-specific matters and have a claim on the company’s assets in the case of bankruptcy or liquidation.

They also have the right to attend stockholders’ meetings, whether public or private, and can access and peruse company documentation.

In the event of an apparent default by a company and its management, a stockholder has the right to hold members of the board of directors accountable and file a claim of responsibility against them.

Stockholders can also launch a lawsuit to nullify and withdraw decisions made in stockholders’ meetings.

If a company announces flotation of new shares, existing stockholders are given priority.

Supervision plays a major role in protecting stockholders’ rights.

There are two important executive bodies in Saudi Arabia responsible for this: The Capital Market Authority, which closely monitors mandatory declarations and disclosures and also undertakes the task of imposing appropriate penalties on companies in the event of late announcements; and the Ministry of Commerce, which supervises the deposit of financial reports annually and ensures verification and notifies companies of any missing legal requirements.

The role of companies, however, is important in making sure that these rights are clarified with stockholders.

The recently enacted corporate governance regulations requires companies to clarify all necessary measures to ensure that stockholders exercise their rights through its published and clarified internal policies and regulations.

• Dimah Talal Alsharif is a Saudi legal consultant, head of the health law department at the law firm of Majed Garoub and a member of the International Association of Lawyers. Twitter: @dimah_alsharif