Profit Distribution in an LLC in Saudi Arabia: Partner Rights

The 2025 financial statements show the company made a net profit of SAR 1.2 million. You own 25%, so you quickly calculate SAR 300,000. But the manager says the profits will stay in the company to buy equipment, and in the bank statement you notice monthly transfers to two other partners. Before you claim the SAR 300,000, you need to know two things: was a decision to distribute ever made? And what are those transfers?

The short answer: in a Saudi limited liability company (LLC), profit in the financial statements is not yet money owed to you. It becomes your right only when it is distributable and the general assembly decides to distribute it. But no one may deprive you of profit completely, and any reserve must be decided by the partners, not by the manager alone.

Does profit in the financial statements mean I am owed money?

In an LLC, profit passes two steps before it becomes your right. First, it must be distributable profit: Article 22 of the Companies Law allows annual or interim distributions only from distributable profits. Second, the general assembly must decide to distribute it.

Article 175 is clear: the general assembly sets the percentage of net profit to be distributed after deducting any reserves, and the partner is entitled to his share under the decision of the assembly or the partners, which states the entitlement date and the payment date. If the decision was made and payment is late, you have a fixed amount to claim. If no decision was made, your claim is to have the assembly meet and vote, not to be paid an amount.

Article 10 of the Implementing Regulations defines distributable profits as the retained earnings in the latest statement of financial position, plus distributable reserves, meaning reserves formed from profits and not allocated to a specific purpose. Total sales or the bank balance do not measure your right.

Can a partner be deprived of profits in a Saudi company?

No. Article 23 states that partners share profits and losses in proportion to their shares, and any agreement to deprive one of them of profit is treated as if it does not exist. The articles of association may set different profit percentages. This is a lawful arrangement and is different from total deprivation. Article 175 gives shares equal rights in net profits unless the articles say otherwise.

Removing a partner from management, or a dispute with the other partners, does not cancel the profit share of his stake. The only case where the law allows suspending the right to profit is when a partner fails to pay his capital contribution on time (Article 15). This is a penalty linked to paying the contribution, not to a dispute.

When can the company lawfully keep profits as reserves?

Article 177 allows the articles of association to set aside a percentage of net profit for a reserve with specific purposes. It also allows the partners at the annual assembly to form reserves to the extent that serves the company's interest or keeps dividends as stable as possible. So keeping part of the profit for expansion is lawful if the assembly decides it by the required majority. It is not a decision the manager can make alone.

The annual assembly also has deadlines. It must meet at least once within the six months after the end of the financial year (Article 165). Its agenda must include a decision on the manager's proposal for profit distribution (Article 168). The partners must receive the financial statements and the activity report at least 21 days before the meeting (Article 167).

Can profits be paid during the year, and must unlawful dividends be returned?

Interim distribution is allowed under the conditions in Article 10 of the Implementing Regulations: the articles of association must provide for it, the partners must authorise the manager by an annual decision, there must be reasonable liquidity, and the distributable profits in the latest financial statements must be enough to cover it.

If profits are distributed in breach of these rules, the company may demand that each partner returns what he received, even if he acted in good faith, and the company's creditors may claim against the company (Article 22). Profits that were distributed correctly do not have to be returned, even if the company later makes a loss.

Net profit is SAR 1.2 million. The assembly decides to keep SAR 200,000 as a reserve for expansion and to distribute SAR 600,000, due on 30 June.

The share of the partner who owns 25% is SAR 150,000 from the distributed amount, not SAR 300,000 from the whole net profit.

If the due date passes without payment, he has a fixed amount to claim from the company. If he believes the reserve or the distribution percentage breaches the articles or the law, his route is a written objection to the decision and then a lawsuit to annul it within 90 days of the decision.

This is general information based on the official Arabic texts of Saudi laws, which prevail over any translation. It is not legal advice for your specific case.

Practical solutions for both sides

If you are the partner who has not received his profits:

• Ask for a copy of the assembly's distribution decision. If it exists, claim the amount and the due date stated in it.
• If the annual assembly did not meet on time, ask for it to be called. You can do this if you, alone or with others, hold 10% of the capital.
• Use your right to inspect the records (Article 171) to find out what the transfers to the other partners are.
• Object in writing to any decision you believe breaches the law or the articles. A lawsuit to annul it is not heard after 90 days from the decision.
• If the other partners' transfers turn out to be profits paid only to them, claim your share in proportion to your stake.

If you are the manager or represent the majority:

• Present a written profit distribution proposal to the annual assembly, with reasons and figures on liquidity and obligations.
• Keep profits or form a reserve only by an assembly decision, not by your own management decision.
• Give every transfer to a partner its correct name and document: a salary under a contract, a loan repayment under a signed instrument, or profit under a decision.
• Do not pay interim profits without a clause in the articles, an annual authorisation and distributable profits. Otherwise the partners may have to return them later.
• If payment of a declared profit is late, offer a written payment schedule instead of denying it.

Resolving a profit dispute starts with the articles of association, the assembly minutes and the account statements. Send them to us on WhatsApp, and we will tell you whether you have a claim for an amount or a dispute about the decision itself.