Are shareholder agreements recognised in Saudi Arabia?

Yes. Article 11(1)(a) of the Companies Law allows incorporators, partners or shareholders to conclude one or more agreements regulating their relationship with each other or with the company, during or after the incorporation period. Article 11(2) makes such an agreement binding and allows it to form part of the articles of incorporation or articles of association, provided it does not violate the Law or those documents.

Can drag-along and tag-along rights sit in the shareholders' agreement alone?

Article 113 of the Companies Law places drag-along and tag-along rights in the company's articles of association and conditions them on the approval of shareholders representing at least 90 percent of the company's voting shares, without prejudice to the Capital Market Law. Article 11(2) allows a shareholders' agreement to form part of the articles, which is the route by which those rights are brought within Article 113.

Can share transfers be restricted?

Article 111(2) of the Companies Law allows the articles of association of a joint-stock company to restrict the trading of shares, including a right for shareholders to request redemption, so long as the restrictions do not lead to a permanent ban on trading. In a limited liability company, Article 178 imposes a statutory pre-emption process on any assignment to a non-partner, with a 30-day window measured from notification of the manager.

Shareholder Agreement in Saudi Arabia

The 2022 Companies Law recognises shareholder agreements outright: Article 11 lets incorporators, partners or shareholders agree how they deal with each other and with the company, and makes those agreements binding. What such an agreement cannot do alone is create drag-along and tag-along rights, which Article 113 places in the articles of association and conditions on holders of at least 90 percent of voting shares.

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Governing law

Shareholder and partner agreements are recognised by Article 11 of the Companies Law, Royal Decree No. M/132 of 30 June 2022, and the transfer, drag-along and tag-along provisions sit in Articles 111 to 113 for joint-stock companies and Article 178 for limited liability companies.

Companies Law, Royal Decree No. M/132 of 30 June 2022, Arts. 11, 111 to 113 and 178 (Bureau of Experts official translation, Ministry of Investment)

What a shareholder agreement has to contain in Saudi Arabia

Article 11(1)(a) lets incorporators, partners or shareholders conclude one or more agreements regulating their relationship with each other or with the company, including how their heirs join, personally or through a company formed for that purpose.
Companies Law, Royal Decree No. M/132 of 30 June 2022, Art. 11(1)(a) (Bureau of Experts official translation, Ministry of Investment)
Article 11(2) makes such an agreement or a family charter binding and allows it to form part of the articles of incorporation or articles of association, provided it does not violate the Companies Law or those documents.
Companies Law, Royal Decree No. M/132 of 30 June 2022, Art. 11(2) (Bureau of Experts official translation, Ministry of Investment)
Article 113 allows drag-along and tag-along rights in the articles of association, without prejudice to the Capital Market Law, on the approval of shareholders representing at least 90 percent of voting shares.
Companies Law, Royal Decree No. M/132 of 30 June 2022, Art. 113 (Bureau of Experts official translation, Ministry of Investment)
Article 111(2) allows the articles of association to restrict the trading of shares, including a right to request redemption, provided the restrictions do not lead to a permanent ban on trading.
Companies Law, Royal Decree No. M/132 of 30 June 2022, Art. 111(2) (Bureau of Experts official translation, Ministry of Investment)
Article 178 applies a statutory pre-emption process in a limited liability company where a partner assigns to a non-partner, running through the manager with a 30-day window and an accredited valuer where value is disputed.
Companies Law, Royal Decree No. M/132 of 30 June 2022, Art. 178 (Bureau of Experts official translation, Ministry of Investment)
Article 112 requires an unlisted joint-stock company to keep a shareholder register in the Kingdom and to provide the Commercial Register with that information and any amendment within 15 days.
Companies Law, Royal Decree No. M/132 of 30 June 2022, Art. 112 (Bureau of Experts official translation, Ministry of Investment)

Form, notarisation and registration

Where the parties fold the agreement into the constitutional documents under Article 11(2), Article 7(3) requires those documents to be in Arabic and Article 8(1) requires them to be in writing on pain of nullity.
Companies Law, Royal Decree No. M/132 of 30 June 2022, Arts. 7(3), 8(1) and 11(2) (Bureau of Experts official translation, Ministry of Investment)

What catches drafters out

Article 11(2) makes the agreement binding only so far as it does not violate the Companies Law or the company's articles, so a shareholders' agreement cannot simply override the constitutional documents.
Companies Law, Royal Decree No. M/132 of 30 June 2022, Art. 11(2) (Bureau of Experts official translation, Ministry of Investment)
Article 111(1) lets the Capital Market Authority set restrictions on the trading of shares of joint-stock companies that intend to be listed, on top of any privately agreed restriction.
Companies Law, Royal Decree No. M/132 of 30 June 2022, Art. 111(1) (Bureau of Experts official translation, Ministry of Investment)
Article 13(2) allows a partner's contribution to be work in return for a profit percentage fixed in the articles, except in joint-stock and simplified joint-stock companies, and rules out reputation or influence as a contribution.
Companies Law, Royal Decree No. M/132 of 30 June 2022, Art. 13 (Bureau of Experts official translation, Ministry of Investment)