The Nature of Shares and Shareholders
The corporate world has a lot of jargons that people need to understand to be able to keep in their toes when corporate stuffs are being talked about.
Two of these—one might consider basic but are equally vital—are the words “shares” and “shareholders.” The first word, “shares,” talks of the ownership of a person or a company on a specific percent in the profit of the company that they have invested. Having a “share” in a company gives you a voting power whenever there are elections or there are things that have to be decided upon by the company’s “shareholders.”
“Shareholders,” on the other hand, are literally the person/s or the company that holds the shares to a certain corporation. They are the ones who will benefit from the income on the “shares” that they have invested on a company or on many different companies. It also refers to the persons who shoulder the responsibility of looking after managing the company’s financial status.
In the Saudi Arabia, the perception that there is rampant monopoly on the market and on insider trading still prevails even though there are actions already made to address these crises. Despite the notable changes when it comes to the extent of the rights of the shareholders, some issues are still unsubdued as people, especially the shareholders, deem the actions insufficient.
One of the purposes of all company laws is to protect the shareholders law and encourage the investments
One might be doubtful to invest or put his or her money into something when s/he knows that s/he has limited rights to manage it, as it was limited or prohibited by the law itself. It would only be a disadvantage, defeating the purpose of investing which is to provide you tons of advantages.
By purchasing a “share,” you are technically and legally entitled to have a right on what to do with it or how to manage it. The laws drafted and implemented by the Capital Market Authority (CMA) are made to extend the rights of the shareholders, protect these rights, and once successfully implemented, invite a tumultuous number of investors to Saudi Arabia, and to keep them coming.
These laws could—and would—also imply that investing in Saudi Arabia would be very strategic, thus also implying a very sturdy economy. Given these, the economic impact of these laws as it was successfully implemented could entail progress, and notably, an upward economy. You need not worry of foreign investors suddenly pulling out and becoming doubtful on the economy’s consistency.
What kinds of investments can the Saudi Company Law encourage
Given the extensive laws drafted and implemented in Saudi Arabia, there are lots of investments one can make.
One of these is the common capital investment. It refers to providing for the primary assets that the company would bank into for it to proliferate, thus providing you benefits in the future in the form of income or profit. With the company laws implemented, more people and companies would be encouraged to make this kind of investment for it signals a healthy and dependable economy.
Another is the fixed income investment. Unlike the common capital investment, the income you would generate is fixed and will not depend on the income rate of the company you’ve invested in. Whether the company profit averagely or highly will not affect the income you would generate in this investment. With these company laws, more investors would be encouraged as they would not be threatened by economic stability.
The United Kingdom company law: a comparative analysis and the reason for the comparison
One of the leading economies in the world is the United Kingdom. This monarch-run economy has company laws that have been long-established, giving it a very strong foundation. Basically, what this company law does is to arbitrate the equal address of the rights and duties of the key mechanisms of the companies in the United Kingdom which are the shareholders’ general assembly and the board directors of these companies. This serves as a venue and/or sets the parameter on how and when the power of the shareholders exercises over their stocks, and how they affect the management of the company.
On the other hand, the Saudi company law, though there are efforts to verbatim implement the laws, still faces lots of challenges. For once, these laws were revised and implemented carefully only recently, and though there are enormous positive changes, there are still some, like the protection rights of stakeholders when it comes to exposing unethical behaviors on transactions that are not implemented.
The major changes made in the Saudi company law would take time before it could reflect its full effect. For instance, the policy on the disclosure of important details of investment in the company was met with a lot of hesitancy. Coming from a set of company laws with rigid guidelines such as these, we cannot expect that these people would instantly be able to pattern or mould in to the new set of policies being implemented.
These comparisons are made to show the difference in the strategies and policies implemented of the two leading monarchy-run economy in the world. It is also made to highlight the points that can be improved for the Saudi company laws.
Al-Sayari H., “Corporate Governance for Banks in the Kingdom of Saudi Arabia,” May 2007. Available from Bank for International Settlements website. Accessed on May 26, 2010. (Al-Sayari 2007)
Girasa, R., “The Quiet Revolution: The Opening of Saudi Arabia Securities Market to the West,” Pace University, May 2005. Available from Pace University website. Accessed on Accessed on May 26, 2010. (Girasa 2005)
International Monetary Fund, “Saudi Arabia: Financial System Stability Assessment including Reports on the Observance of Standards and Codes on the following topics, Monetary and Financial Policy Transparency, Banking Supervision, and Payment Systems,” Country Report No. 06/199, Washington, D.C.: IMF, June 2006. Available from International Monetary Fund website. Accessed on May 26, 2010. (IMF 2006)
Saidi, N., “Corporate Governance in MENA Countries: Improving Transparency and Disclosure,” 2nd MENA Regional Corporate Governance Forum. Beirut: June 2004. Available from Global Corporate Governance website. Accessed on May 26, 2010. (Saidi 2004)
World Bank, “Corporate Governance Country Assessment: Kingdom of Saudi Arabia,” Report on the Observance of Standards and Codes, February 2009. Available from World Bank website. Accessed on May 26, 2010. (WB 2009)
World Federation of Exchanges website. Accessed on May 26, 2010. (WFE website)
Zawya News, “Saudi Arabia’s New Corporate Governance Rules by End ’06,” July 2006. Available from Zawya News website. Accessed on May 26, 2010. (Zawya 2006)
Baker Botts LLP, “Saudi Arabia: Capital Markets,” in International Financial Law Review, January 2005. Available from International Financial Law Review website. Accessed on May 26, 2010. (Baker Botts 2005)
Capital Market Authority website. Accessed on May 26, 2010. (CMA website)
International Monetary Fund, “IMF Executive Board Concludes 2007 Article IV Consultation with Saudi Arabia,” Public Information Notice (PIN) No. 07/131, October 2007. Available from International Monetary Fund website. Accessed on May 26, 2010. (IMF 2007)
International Monetary Fund, “IMF Executive Board Concludes 2008 Article IV Consultation with Saudi Arabia,” Public Information Notice (PIN) No. 08/102, August 2008. Available from International Monetary Fund website. Accessed on May 26, 2010. (IMF 2008)
Kaufmann et al., “Governance Matters VII: Aggregate and Individual Governance Indicators for 1996-2007,” Policy Research Working Paper No. 4654. Washington D.C.: World Bank, June 2008. Available from World Bank website. Accessed on May 26, 2010. (Kaufmann et al. 2008)
ME NewsWire website. Accessed on May 26, 2010. (ME NewsWire website)
Saudi Organization for Certified Public Accountants, “Action Plan Developed by the Saudi Organization for Certified Public Accountants,” July 2009. Available from International Federation of Accountants website. Accessed on May 26, 2010. (SOCPA 2009)
U.S. Department of Commerce, “Doing Business in Saudi Arabia: A Country Commercial Guide for U.S. Companies,” March 2009. Available from U.S. & Foreign Commercial Service and U.S. Department of State website. Accessed on May 26, 2010. (U.S. DoC 2009)