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Literature Review: Legal System in Saudi Arabia

Added on - 20 Sep 2019

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LITERATURE REVIEWPage |0Literature ReviewMINORITY SHAREHOLDERS PROTECTION THROUGH DERIVATIVESUIT
IntroductionThe rights belonging to shareholders varies from country to country and is dependent solely onsome factors which includes political and economic structures of the company. It is important toprotect the rights of the shareholders, by the using the regulations or by the use of the judicialprocess or by the maintenance of the corporate governance within the company itself, since thispractice of corporate governance ensure the foreign investments where the directors are underobligation to consider the rights of the investors with other clients and employees and obviouslythe minority shareholders.Minority ShareholdingIt is crucial to have the definition of the minority shareholding before actually deciding what it isin Saudi Arabia. It is obvious that the minority do not possess the control over the firm’soperational activities when it is done through voting. But, when a shareholder has the majorityshare then they enjoy their influence in operation including decision making. But, to ensure theeffectivity of the good corporate governance, it is essential to protect the rights of the minorityshareholders.The Saudi legal systemThe legal system in Saudi Arabia, gives the option to the shareholder in minority to place againstthe majority shareholder, the complaint. But, the complaint so made cannot be to the Board ofdirectors based on the fact of assumption about the future occurrence of any unethical or illegalbehavior which is likely to happen. So, it is clear that minority shareholder can only complainafter the occurrence and not in suspicion of it. The minority shareholder is also restricted to seek
review after the completions of the actions which is on the contrary with the majorityshareholder. When there is the situation which report for the abuse of power, then also majorityshareholder is in the forefront and they have the right to held the directors liable or accountablefor any misconduct on their part. In general circumstances, the Court often take the side of themajority shareholder, so that they do not have to intervene in the internal affairs of the company.Even the majority shareholders incorporate their own terms and conditions in the shareholderagreement, subject to the fulfillment of conditions that the terms and conditions so included isnot in conflict with the company’s original vision. So, it is apparently obvious that the legalsystem in Saudi Arabia do not actually take the side and in so doing do not provide adequateprotection in securing the rights and the interests of the minority shareholders.Again, the company law in Saudi Arabia, do not provide the definition of the word share, but theSaudi Arabia Capital Market provides a definition for it and held share to be an investmentindicating ownership in the company. The UK Companies Act 2006, also do not provide thedefinition of share but, precedence as observed in Borland'sTrusteevSteelBrothers&CoLtdisused, where share was defined as the liability and 2ndly the interests and also includes mutualcovenants.OECD Principles ofCorporate GovernanceThe OECD set principlesfor countries to develop corporate governance for achieving minimumstandards. Fairness, Responsibility, Transparency, Accountability are the major pillars ofcorporate governance. To achieve the standard of fairness, the shareholder’s rights must besafeguarded by the laws and the regulations. In order to incorporate responsibility, compliance to
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