Who is liable if a company director causes a loss through a decision that breaches the law or the articles of association? Can a partner sue the director? And when is a partner personally liable for the company's debts? These are questions of liability in companies, and the new Companies Law (نظام الشركات) strengthened them with clear provisions. This guide explains when directors and board members are liable, who can bring a liability claim, and how to protect yourself as a director or as a partner.
When is a company director liable?
As a rule, directors and board members are liable to compensate the company, the partners or third parties for damage arising from:
- Breach of the law, the articles of association or the company bylaws.
- Error, negligence or mismanagement.
- A conflict of interest without disclosure or approval, or use of company funds for personal benefit.
- Providing incorrect information or financial statements.
Later approval by the partners does not, in every case, release the director from liability, so proper documentation and procedure are the director's best protection. Read corporate governance.
Who brings a liability claim?
| Claimant | When |
|---|---|
| The company itself | For damage the company suffered, by decision of the competent body within it |
| A partner or shareholder | For damage that affected them personally, and, in cases the law allows, on behalf of the company |
| Creditors and third parties | For damage they suffered because of the director's fault, within the limits set by law |
As a rule, these claims are heard by the Commercial Court. Read the Commercial Courts Law.
Is a partner liable for the company's debts?
In a limited liability company, the rule is that a partner is liable for the company's debts only up to the value of their share. But liability can extend to the partner personally in exceptional cases set by the law, such as mixing company funds with personal funds, using the company as a front to evade personal obligations, or continuing to trade while knowing the company cannot pay its debts, as defined by the law.
How to protect yourself
- As a director: record your decisions in minutes, disclose any personal interest, and stay within your written powers.
- As a partner: ask for regular financial reports, and put a clear partners' agreement in writing. Read partnership agreement template.
- For both: keep company money and personal money completely separate.
For foreign partners and directors: company documents filed with Saudi authorities and court proceedings are in Arabic, so make sure you understand the Arabic version of what you sign. The firm can advise you in English.
Frequently asked questions
The director is one of our partners and refuses to share the accounts. What can we do?
A partner has the right to inspect the company's books and documents in accordance with the law. Request this in writing first, then before the competent court, and in justified cases you may also ask for the director to be removed.
Does a liability claim lapse with time?
Liability claims are subject to time limits set by the law, so do not delay once you discover the damage, and check the current official text.
A dispute between partners or with a company director?
The Usus Law Firm team handles liability claims against companies, commercial cases and partner disputes, in Riyadh and Tabuk.
This article is general legal information and is not a substitute for advice on your specific case. Court proceedings in Saudi Arabia are in Arabic; the official Arabic text of each law prevails.
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