Governance Authorities in Joint Stock Companies

Assemblies, Board, Committees: A professional reference in accordance with Companies Law M/132, its executive regulations, and the Governance Regulation, specifically aimed at closed joint-stock companies and newly transformed companies.

Reference Regulatory Framework

Companies Law: Royal Decree No. (M/132) effective January 19, 2023, which is the fundamental regulator for joint-stock companies.
Executive Regulations of the Companies Law: Details the provisions of the law and procedures for establishment, management, and assemblies.
Executive Regulations for Listed Companies: Issued by the Capital Market Authority, detailing duties of care and loyalty, and board governance.
Corporate Governance Regulation: Mandatory for listed companies and guiding for others, it regulates the board, committees, and disclosure.

System of Authorities in Joint Stock Companies

General Assemblies: The supreme authority, representing all shareholders. Appointing and dismissing the board, approving financial statements and profits, amending the articles of association.
Board of Directors: The authority elected by the General Assembly, responsible for guiding and overseeing the company. Formulating strategy, monitoring executive management, approving policies and oversight.
Committees reporting to the Board (Audit, Nominations and Remuneration): Delegation of powers and oversight.
Executive Management: The executive authority, managing daily operations, implementing plans, and submitting periodic reports to the board.

General Assemblies: Ordinary and Extraordinary

Item	Ordinary General Assembly	Extraordinary General Assembly
Legal Reference	Article (87)	Article (85)
Nature	Periodic oversight matters	Structural and critical matters
Key Competencies	Appointing/dismissing board members and their remuneration; reviewing financial statements and reports of the board and audit committee; appointing external auditors; approving profit distribution; approving related-party transactions.	Amending the articles of association; increasing or decreasing capital; extending duration or dissolution; merger or division.
Convening	At least once annually within 6 months of the end of the fiscal year	When needed, at the request of the board, or shareholders owning 10% or more
Quorum for Meeting	Not less than one-quarter and not more than one-half	Not less than half of the capital (first call)
Quorum for Decision	Absolute majority of represented shares present	Two-thirds of votes; and three-quarters for capital, duration, dissolution, and merger decisions

Board of Directors: Composition, Appointment, and Term

Minimum number of members: three or more.
Term of membership: maximum four years, renewable.
Independent members: two members or one-third of the members, whichever is greater.

Number of members: In unlisted companies, from three to eleven members; in listed companies, three or more without a specified upper limit, with a majority of non-executive members, and it is preferable for the number to be odd.

Appointment and Term: Members are elected by the Ordinary General Assembly through cumulative voting; the term does not exceed four years and is renewable unless the articles of association state otherwise; the member must be a natural person.

Membership Conditions and Prohibitions

Membership Conditions:

The member must be a natural person.
Appropriate scientific and practical competence and experience.
Ability to lead, guide, and plan.
Financial knowledge and ability to read and analyze financial statements.
Good health to perform duties effectively.
Must not have been convicted of a crime involving honor or trust, or declared bankrupt.

Prohibitions and Controls:

Disclosure of any direct or indirect interest in transactions and contracts, and abstaining from voting on them.
Not exploiting position, company assets, or opportunities for personal gain.
Not competing with the company except with permission from the General Assembly.
Not disclosing company secrets.
Restrictions on loans granted to board members.

Types of Board Members

Executive Member: A full-time member of the company’s executive management who participates in its daily operations.
Non-Executive Member: A part-time member who does not participate in daily operations, and may have a conflict affecting independence, thus not considered independent.
Independent Member: A non-executive member who enjoys complete independence in their position and decisions, and is not subject to any conflict affecting independence.

Duties of Care and Loyalty of the Board of Directors

Duty of Care:

Performing duties with the diligence and care of a prudent person.
Exercising powers within their legally prescribed limits.
Sufficient review and making decisions based on adequate information.
Monitoring the performance of executive management and the extent to which it achieves company objectives.

Duty of Loyalty:

Acting in good faith to serve the best interests of the company and all shareholders.
Not prioritizing personal interests over the company’s interests.
Avoiding conflicts of interest and disclosing them.
Not exploiting opportunities or assets, and not accepting benefits from third parties.
Considering the rights of other stakeholders.

Board Competencies and Powers

Strategic Direction: Approving the company’s strategy, plans, and main objectives.
Policies and Powers: Approving internal policies and defining the powers of executive management.
Oversight and Control: Monitoring the performance of executive management and the extent to which it achieves objectives.
Financial Integrity: Verifying the integrity of financial statements, control systems, and risk management.
Structure and Governance: Approving the organizational structure and distributing tasks and responsibilities.
Company Representation: Representing the company before third parties, judicial, and official bodies.

Powers vary from company to company regarding the delegation of authority to the Chairman of the Board or the CEO.

Chairman of the Board and Separation from Executive Positions

Legal Basis: The board appoints a chairman and a vice-chairman from among its members; the chairman represents the board, leads its meetings, and presides over general assemblies; their duties and powers are defined in the articles of association and the board’s operating regulations.

Separation from Executive Roles (Guiding Principle): It is recommended, as a best practice, to separate the chairmanship of the board from any executive position, which is a guiding principle and not mandatory in itself. It is also recommended that the CEO not be appointed as chairman of the board within the first year after the end of their services.

Board Meetings and Quorum

Periodicity: The board meets at least four times a year, and whenever necessary for the company’s operations.
Quorum: A meeting is not valid unless attended by a majority of members (or as specified by the articles of association, not less than half), and attendance may be in person or by proxy according to controls.
Decisions: Issued by a majority of votes of those present and represented, and in case of a tie, the side for which the chairman voted prevails, and voting by circulation is permissible.

Organizational Structure of the Board of Directors

The typical structure consists of the Chairman of the Board at the top, directly followed by the Secretary, then the Vice Chairman and Board Members (executive, non-executive, and independent) on a single level below.

Key Committees Reporting to the Board of Directors

Audit Committee: Monitoring the integrity of financial statements, internal and external audit, and compliance.
Nominations and Remuneration Committee: Nominating members, remuneration policies, and assessing independence.

Audit Committee: Formation and Membership

Formation and Approval: The Board of Directors approves the formation and members of the committee; the Ordinary General Assembly approves the committee’s charter or operating policy; the committee reports directly to the board; and the formation decision specifies tasks, operating controls, and remuneration.

Membership and Number: Three to five members, excluding executive board members, and may include non-members; chaired by an independent member; one of whom must be specialized in financial and accounting matters; and meets at least four times annually.

Responsibilities of the Audit Committee

Financial Reports: Reviewing financial statements and accounting policies and providing an opinion to the board.
Internal Audit: Recommending the nomination and dismissal of the internal auditor, determining their fees, verifying their independence, approving the internal audit plan and charter, and reviewing their reports related to departmental operations.
External Auditor: Recommending their nomination and dismissal and determining their fees and verifying their independence.
Compliance: Verifying the company’s adherence to regulations, bylaws, and policies.

The internal auditor is a fundamental pillar in the work of the audit committee, ensuring that each audit committee has an internal auditor reporting to it, to guarantee effective oversight and understanding and analysis of internal control systems.

Nominations and Remuneration Committee

Formation: Three to five members; chaired by an independent member; the Chairman of the Board may not chair it; meets at least every six months; the board recommends its charter and the General Assembly approves it; and it is formed by a decision of the board.

Developing a clear policy for the remuneration of members, committees, and executive management.
Recommending the nomination of board members according to approved criteria.
Annually verifying the independence of independent members.
Reviewing the organizational structure.
Evaluating the board and committees.
Recommending the appointment of the CEO and CFO.
Approving the appointment of senior executives.

Sources

Companies Law (M/132).
Executive Regulations of the Companies Law.
Executive Regulations for Listed Companies.
Corporate Governance Regulation (Capital Market Authority).

This content is for general awareness and guidance purposes and does not constitute binding legal advice; reference should be made to the Companies Law, its executive regulations, the Corporate Governance Regulation, and the company’s articles of association when applying.