Exit Rights And Protecting Minority Shareholders In A Saudi Limited Liability Company: A Case For Reform

Abstract

The main purpose of this study is to suggest reforms to Saudi limited liability company (LLC) law that would better protect minority shareholders. The analysis emphasizes the present difficulties a dissatisfied minority LLC shareholder faces when seeking to sell his or her stake in a company. A lack of liquidity in the KSA’s market for LLC shares is a major impediment to minority shareholders attempting to exit a business. The paper’s research demonstrates that the Saudi Companies Regulation (SCR) inadequately protects LLC minority shareholder rights, leaving them vulnerable to majority oppression. The paper argues that the SCR should be reformed to incorporate more of the minority shareholder protections provided by United States’ LLC laws. Specifically, the SCR should adopt two reforms that would be triggered by certain majority shareholder misconduct: (1) a statutory dissolution remedy and (2) mandatory buy-out rights for minority shareholders. The paper argues that these two protections are necessary to address the KSA’s illiquid market for LLC shares, as well as the present uncertainty regarding the duties of loyalty and care owed by LLC shareholders and managers.