Director Profit Sharing Agreement Template for Saudi Arabia

A Director Profit Sharing Agreement is a specialized compensation contract that establishes how company directors in Saudi Arabia will receive profit-based incentives tied to corporate performance. This agreement creates a legal framework for performance-driven compensation while ensuring compliance with Saudi Companies Law, Shariah principles, and regulatory requirements set by the Capital Market Authority.

When do you need this document?

You need this agreement when appointing new directors who will receive profit-sharing compensation, restructuring existing director compensation packages, or implementing new performance-based incentive schemes. It becomes particularly important for joint stock companies and LLCs seeking to align director interests with shareholder value creation. Listed companies on the Saudi Exchange must use this document to comply with CMA disclosure requirements regarding director compensation. The agreement is also essential when transitioning from fixed director fees to variable profit-sharing arrangements or when establishing compensation for executive directors with operational responsibilities.

Key legal considerations

The profit-sharing structure must comply with Shariah principles governing commercial transactions and avoid prohibited elements such as excessive uncertainty (gharar) or interest-based arrangements. Your agreement should clearly define profit calculation methodologies, specify performance metrics, and establish payment terms that align with Islamic financial principles. Director duties and responsibilities must be explicitly outlined to ensure compliance with fiduciary obligations under Saudi Companies Law. The document should include provisions for regulatory approval where required, particularly for significant compensation arrangements that may require shareholder or board approval. Performance metrics must be objective, measurable, and tied to legitimate business outcomes to ensure enforceability and regulatory compliance.

Legal requirements in Saudi Arabia

Under the Companies Law 2015, director compensation arrangements must receive appropriate board or shareholder approval depending on the compensation threshold and company structure. Listed companies must comply with CMA regulations requiring disclosure of director compensation in annual reports and may need specific approvals for profit-sharing arrangements. The agreement must ensure compliance with ZATCA tax regulations governing the treatment of profit-sharing payments and proper tax withholding procedures. Shariah compliance requirements mandate that profit-sharing mechanisms avoid prohibited elements and align with Islamic commercial principles. Joint stock companies must ensure the total director compensation, including profit shares, does not exceed statutory limits without proper shareholder approval. The Ministry of Commerce may require registration or approval of certain compensation arrangements depending on the company structure and compensation amounts involved.