Share Mortgage Agreement Template for Saudi Arabia

A Share Mortgage Agreement is essential when you need to secure financing against company shares in Saudi Arabia. This specialized security document creates a legal charge over shareholdings under the Commercial Pledge Law, allowing lenders to recover their funds through the pledged shares if borrowers default on their obligations.

When do you need this document?

You'll require this agreement in various corporate financing scenarios. Banks and financial institutions commonly demand share mortgages when providing acquisition financing, where the target company's shares serve as primary security. It's also crucial for corporate lending facilities where existing shareholders pledge their stakes to secure business loans. Private equity transactions often involve share mortgages when investors need additional security beyond personal guarantees. Listed companies may use these agreements for compliance with Capital Market Authority requirements when shares are traded as security instruments.

Key legal considerations

Your agreement must clearly identify all mortgaged shares, including certificate numbers and precise ownership details. The secured obligations section should comprehensively cover the underlying debt, interest, fees, and enforcement costs to avoid future disputes. Voting rights provisions are critical—you need to specify whether the mortgagor retains voting control or transfers it to the mortgagee upon default. Dividend arrangements require careful drafting to comply with Shariah principles, particularly regarding profit distribution and interest calculations. The enforcement mechanism must detail the mortgagee's rights to sell shares, including notice periods and valuation procedures. Consider including cross-default provisions that trigger enforcement if related obligations are breached elsewhere.

Legal requirements in Saudi Arabia

Saudi Arabian law mandates specific compliance measures for valid share mortgages. Under the Commercial Pledge Law, you must register the mortgage with the appropriate authority within prescribed timeframes to ensure legal priority over other creditors. The Companies Law requires notification to the issuing company's board and corporate secretary to update share registers accordingly. For listed companies, additional registration with the Capital Market Authority is mandatory, along with disclosure requirements that may affect share trading. All documentation must comply with Shariah principles, avoiding prohibited elements like excessive uncertainty (gharar) or usury (riba). The agreement requires execution before authorized witnesses as mandated by Saudi commercial law. Corporate resolutions from the mortgagor's board are essential, particularly for companies with constitutional restrictions on share transfers. Professional legal advice ensures compliance with evolving regulations and proper coordination with other security documents in complex financing structures.