Directors Loan Agreement Template for Saudi Arabia

A Directors Loan Agreement is a formal legal contract that governs the terms when your company provides financial assistance to one of its directors. In Saudi Arabia, this document serves as critical protection for both your company and its shareholders, ensuring that any loan arrangement complies with strict regulatory requirements and Islamic finance principles.

When do you need this document?

You need a Directors Loan Agreement whenever your company considers lending money to a director for business expansion, personal financial needs, or as part of a compensation arrangement. This situation commonly arises when directors require funding for property purchases, business ventures, or temporary financial assistance. The agreement becomes essential if your director needs working capital for side businesses that don't compete with your company's interests. Listed companies particularly require this documentation to satisfy Capital Market Authority disclosure requirements and maintain transparency with shareholders.

Key legal considerations

Your agreement must address several critical legal elements to ensure enforceability and compliance. The loan structure cannot include conventional interest payments due to Sharia compliance requirements, instead utilizing profit-sharing arrangements or administrative fees. You must clearly define the loan purpose, repayment schedule, and any security arrangements such as personal guarantees or asset collateral. Default provisions should specify consequences and remedies available to your company, while ensuring fairness to the director. Corporate governance provisions must address potential conflicts of interest and require appropriate disclosure to shareholders. The agreement should also specify whether the loan affects the director's compensation or requires reduction in other benefits.

Legal requirements in Saudi Arabia

Under the Companies Law (2015), your board must formally approve any directors' loan through recorded resolution, with the benefiting director abstaining from the vote. If your company is publicly listed, you must comply with Capital Market Authority regulations requiring disclosure of related party transactions exceeding specified thresholds. Large loans may require shareholder approval depending on your company's articles of association and the loan amount relative to company assets. All financial terms must comply with Islamic Sharia principles, prohibiting riba (interest) and ensuring the arrangement follows acceptable Islamic finance structures. Your agreement should include provisions for Sharia board review if your company operates under Islamic banking principles. Documentation must be in Arabic or include certified translations, and notarization may be required for enforceability in Saudi courts.