Protecting Minority Shareholders in Close Corporations: An Analysis and Critique of the Statutory Protection in the Saudi Companies Law

Posted: 14 Jun 2019

See all articles by Abdulrahman Alsaleh

Abdulrahman Alsaleh

Indiana University Maurer School of Law; King Saud University

Date Written: April 04, 2019

Abstract

Worldwide, the protection of minority shareholders in public corporations has received most of the corporate scholars’ attention. This tendency, therefore, has been reflected in the negligence of the same group but in close corporations. A close corporation minority shareholder confronts distinctive issues caused by the locked-in structure of close corporations. The lack of liquid secondary market, the oppression by majority shareholders, and the high expectations held by minority shareholders all contribute to the minority shareholders’ concern that they may be deprived of a voice in management or opportunistically be taken advantage of by those in power. Although these structural issues are hardly touched upon in the international corporate debates, jurisdictions have varied in their approaches to addressing these issues and providing protection for minority shareholders. The protection may flow from the contractual approach, the statutory approach, the judicial approach, or a combination of the three approaches.

This research demonstrates these issues, and the approaches developed to address them. After that, it explores in depth the statutory approach adopted in the Saudi Companies Law of 2015 to protect the interests of shareholders as the Law advances different rules for corporate governance than their counterparts in other jurisdictions. The study also evaluates the strengths and defects in the Law as it presents an analysis and critique of the statutory treatment of minority shareholders’ problems, their statutory protection as well as the public and private enforcement. Finally, the research identifies areas where reforms and changes are needed and thus propound some policy prescriptions to the Saudi legislature to optimize its corporate governance. A new approach to the corporate governance of close corporations, one that is perceptive of their unique nature and features, is necessary to strengthen the statutory protection for minority shareholders, who fail to protect themselves contractually.

Keywords: close corporation, minority shareholder protection, controlling shareholder, Saudi corporate law, corporate governance, director compensation, related-party transactions, shareholder assembly, shareholder oppression

Suggested Citation

Alsaleh, Abdulrahman, Protecting Minority Shareholders in Close Corporations: An Analysis and Critique of the Statutory Protection in the Saudi Companies Law (April 04, 2019). Indiana Legal Studies Research Paper No. 63 (2019). Available at SSRN: https://ssrn.com/abstract=3403697

Abdulrahman Alsaleh (Contact Author)

Indiana University Maurer School of Law ( email )

211 S. Indiana Avenue
Bloomington, IN 47405
United States

King Saud University ( email )

Riyadh, 11451
Saudi Arabia

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