Shareholder disputes are a common occurrence in many business entities worldwide, and Saudi Arabia is no exception. Disputes can arise because of disagreements over the company’s direction, distribution of profits, or management.
When shareholders are unable to resolve their disputes themselves, they may bring the matter to the attention of the board of directors to seek a resolution. In Saudi Arabia, the board of directors has the authority to resolve shareholder disputes. However, if the board is unable to reach a decision, the shareholders may seek resolution through arbitration or the courts. This can be a time consuming and expensive process, so it’s always preferable to try to find a working solution before the situation gets to the point of arbitration or litigation.
What Is Dispute Resolution?
Dispute resolution is the process of resolving conflicts between two or more parties. It can take many different forms, such as mediation, arbitration, and litigation. Mediation is a process in which a neutral third party helps the parties involved in the dispute come to an agreement. Arbitration also involves a neutral third party who listens to both sides of the dispute, but the difference is that they are granted authority to make a binding decision. Litigation is a process in which the dispute is resolved by a court of law.
Key Elements Of Effective Dispute Resolution
The key elements of effective dispute resolution are:
- Communication – The parties involved in the dispute must be willing to communicate with each other to reach a resolution.
- Cooperation – The parties must be willing to cooperate with each other and the mediator or arbitrator to reach a resolution.
- Flexibility – The parties must be willing to be flexible to reach a resolution that is acceptable to all parties involved.
- Respect – The parties must respect each other and the mediator or arbitrator to reach a resolution.
- Time – The parties must be willing to invest the time necessary to reach a resolution.
Why Are Shareholder Agreements Important?
Shareholder agreements are a key tool in managing and resolving shareholder disputes. These agreements can provide a mechanism for shareholders to resolve their differences without resorting to arbitration or litigation. They can also help prevent disputes from arising in the first place by setting out clear rules and procedures for the management of the company.
How To Start The Arbitration Process In KSA
In 2012, the Saudi government issued the new Law of Arbitration with the aim to modernize and streamline the arbitration process in the Kingdom. This law made arbitration a more viable option for businesses seeking to resolve disputes, which they have failed to resolve internally.
If you are a shareholder in a Saudi company and you have a dispute with another shareholder, you can commence an arbitration process. The arbitration process will typically take about six months to complete. Once the arbitrator has decided, it will be final and binding for the parties involved.
To discuss arbitration in further detail please contact our Head of Dispute Resolution, Ali Altoukhi.