Related-Party Disclosure Rules for Tadawul-Listed Companies
Related‑party transactions are a routine part of business, but for companies listed on the Saudi Stock Exchange (Tadawul) the Capital Market Authority (CMA) imposes specific disclosure and shareholder‑approval rules. The purpose of these rules is to ensure that minority shareholders receive transparent information about deals that could affect the value of their shares. Failure to comply can lead to market sanctions, reputational damage, and delayed transactions. This guide outlines the key requirements and practical steps boards can take to document related‑party dealings before regulators intervene.
When is a transaction considered related‑party?
The CMA defines a related‑party transaction as any deal between the listed company and a person or entity that has a close personal or economic relationship with the company, its directors, or its major shareholders. Such parties include family members, affiliates, subsidiaries, joint ventures, and entities in which a director or a significant shareholder holds a controlling interest. The rule also covers transactions that are not at arm’s length, even if the counter‑party is not formally related, when the terms could materially affect the company’s financial position. Boards must assess each proposed deal against this definition before proceeding.
Disclosure obligations to the CMA and the market
When a related‑party transaction meets the CMA criteria, the company must disclose the deal in a timely filing with the CMA and the Tadawul market. The disclosure must contain the identity of the related party, the nature and purpose of the transaction, the commercial terms, and any financial impact on the company. If the transaction is material, the information must be included in the next periodic report or an interim announcement, whichever occurs first. The filing must be signed by the chief executive officer and the chief financial officer, and a copy is circulated to all shareholders through the exchange platform.
Shareholder approval requirements and thresholds
Shareholder approval is required when the transaction exceeds the materiality thresholds set by the CMA or when the board determines that the deal could influence voting rights. The approval process is carried out at an extraordinary general meeting, and the agenda must clearly describe the related‑party nature of the transaction. Shareholders receive a proxy statement that outlines the terms, the potential benefits, and any conflicts of interest. An independent committee or a majority of disinterested directors must recommend the transaction before the vote is taken.
Governance best practices for board documentation
Effective governance begins with a written related‑party policy that defines the approval workflow, delegation limits, and documentation standards. The board should maintain detailed minutes that record the identification of the related party, the analysis of the transaction, and the rationale for any waivers. Independent directors or a specially appointed committee should review the deal for fairness and market comparability, and their written opinion should be attached to the board resolution. All supporting documents, such as valuation reports and legal opinions, must be retained in the corporate records for the period required by the CMA.
Common pitfalls and how to avoid regulatory review
Common pitfalls include relying on informal emails as evidence of approval, overlooking indirect relationships, and delaying disclosure until after the transaction closes. Companies sometimes assume that a minor equity stake automatically exempts a deal from shareholder approval, which the CMA does not accept if the commercial impact is significant. Early involvement of legal counsel can identify hidden related parties and ensure that the required filings are prepared well before the market deadline. Conducting an internal audit of existing contracts can also reveal transactions that need to be reported retrospectively.
If you need assistance navigating the CMA’s related‑party rules or want to strengthen your board’s documentation practices, Northman Sterling Legal is ready to help. Contact us to discuss how we can support your compliance strategy and protect the interests of your shareholders.
Contact Northman Sterling Legal to discuss your matter with our team.