LLC Manager Liability in Saudi Arabia: Conflict of Interest Rules

At the year-end review, the partners discover the company paid SAR 380,000 to a transport business owned by the manager himself. The manager says the trucks really moved the goods, at market price. The partners say they never knew about the relationship. Both may be partly right.

The short answer: before asking about the price, the law asks whether the partners authorised the deal. Without authorisation, the company can ask the court to cancel the contract and make the manager give up any profit. The manager is also personally liable for damage caused by breaking the law, the articles of association, or by his errors and negligence.

What duties does an LLC manager have under Saudi law?

The manager runs money that is not his. Even if he is a partner, the company's money does not become his own to use as he likes. Article 26 of the Companies Law imposes duties of care and loyalty. These include acting within his powers and in the company's interest, deciding independently, using reasonable care and skill, avoiding conflicts of interest, disclosing any direct or indirect interest in the company's business and contracts, and not accepting a benefit from third parties because of his role.

Article 11 of the Implementing Regulations sets the standard: he must work with the usual skill of a careful person, with the knowledge and experience he actually has, and with what is expected from someone in that position. Having signing authority is not enough. A manager may have it and still use it in a way that harms the company.

These duties do not mean the manager guarantees profit. He is responsible for how the decision was made and for its integrity, not for the market result. So any serious dispute starts with two questions: what did the manager do, and did he have an interest in the decision?

Can the manager contract with the company or with his own business?

The general rule in Article 27 is no. The manager may not have a direct or indirect interest in the business and contracts made for the company's account without authorisation from the partners or whoever they delegate. He also may not compete with the company in its activity without authorisation, or use its assets, information or opportunities offered to him as manager or offered to the company for his own benefit. Article 12 of the regulations explains that an opportunity is barred to him if it falls within the company's usual activity, or the company wants it or is expected to benefit from it.

The law exempts certain cases from the authorisation requirement, including contracts made through a public tender, and dealings to meet personal needs if they are on the same terms as for ordinary customers and within the company's usual activity. If the company has a board of managers, Article 62 of the regulations applies the authorisation rules for boards of joint stock companies unless the articles of association set different rules, and the interested manager does not vote on the decision unless the articles allow it.

If the manager breaches the authorisation requirement, the company may ask the court to cancel the contract and order him to hand over any profit or benefit he gained. Competing without authorisation leads to appropriate compensation. A fair price alone does not cure the lack of authorisation, and authorisation does not protect an invoice for a service that was never performed.

Back to the SAR 380,000: the transfer to the manager's business deserves review, but it does not automatically mean the whole amount is damage.

If the transport really happened, its price is compared with the market, along with the business's profit on it, and the missing authorisation, which opens the door to cancellation and return of the benefit.

If there was no real transport and no legitimate obligation, a claim for return of the money and compensation is much stronger.

When does the manager pay compensation from his own pocket?

Article 28 makes managers jointly liable to compensate the company, the partners or third parties for damage caused by breaching the law or the articles of association, or by their errors, negligence or failures. Any clause releasing them from this is void. In practice a compensation claim needs three things: a specific act by the manager, damage that can be calculated, and a link between them. Falling revenue alone proves nothing. But a transfer with nothing in return, or letting a valid claim lapse, deserves review.

If there are several managers, liability may fall on one manager, or on all of them if the decision was unanimous. If the decision was made by majority, a manager who expressly recorded his objection in the minutes is not liable. Absence from the meeting is no excuse unless he proves he did not know about the decision or could not object after learning of it.

On the other hand, Article 31 protects a decision the manager made in good faith, when he had no interest in its subject, was properly informed about it, and reasonably believed it served the company's interest. Whoever claims otherwise must prove it. Buying equipment after studying prices and needs may end in a loss because the market changed, and that does not make the manager liable. Buying from a business he owns, without authorisation and without comparing prices, is a completely different matter.

Who files the claim: the company or the partner?

Article 29 distinguishes three claims, each with its own claimant:

• The company's claim: the partners decide to file it and appoint someone to pursue it for the company. Any compensation goes to the company.
• A partner's claim on behalf of the company: one or more partners holding 5% of the capital (or a lower percentage if the articles say so) may file it if the company does not. The partner must act in good faith, the claim must have a valid basis, and the manager must be notified of the intention to file at least 14 days before.
• The personal claim: for a partner who suffered damage of his own, not merely a reduction in the company's assets.

Article 32 allows the court, at the partner's request, to make the company pay the costs of a claim he filed in good faith for its benefit, whatever the result. The Commercial Court has jurisdiction over claims arising under the Companies Law, except those relating to joint stock companies listed on the stock exchange, which go to the Committee for Resolution of Securities Disputes (Companies Law Article 266). Territorial jurisdiction lies with the court where the company's head office is, unless the partners agreed on arbitration in the articles of association, which Article 173 allows except for criminal acts.

Does a release by the partners or the passage of time end the claim?

The partners' approval of a release (discharge) of the manager at the general assembly does not prevent the claims, under Article 30. But the same article sets a time limit: a liability claim is not heard after five years from the end of the financial year in which the harmful act occurred, or three years from the end of the manager's service, whichever is later. Forgery and fraud are excluded from this limit.

The breach occurred in the financial year ending 31 December 2024, and the manager left his post in June 2025.

The five years end on 31 December 2029, and the three years end in June 2028.

The later date applies, so the company has until the end of 2029.

Removing the manager does not replace holding him to account

Article 164 allows the partners to remove the manager, whether he was appointed in the articles of association or in a separate contract, and appoint a replacement. Article 63 of the regulations sets the quorum for a removal decision as the usual quorum for partners' decisions: approval by those holding more than half the capital, unless the articles require more. If the manager is a partner, he does not vote on his own removal. Partners holding at least a quarter of the capital may ask the court to remove him.

If the manager is the one who calls the general assembly and he delays, Article 165 allows one or more partners holding 10% of the capital to ask for it to be called at any time. Article 169 requires the manager to put the partner's item on the agenda and answer partners' questions. Removal stops future damage but does not return what left the company. So the two tracks usually run together: a decision to change management and record it in the commercial register, and a separate claim for compensation or return of the benefit.

How do you prepare the file, and when does the case become criminal?

• The articles of association, the manager's appointment decision, and the limits of his powers.
• A file for each incident: the contract, invoice, transfer, correspondence, and the decision or approval minutes if any.
• A timeline linking each amount to its document, its beneficiary and its effect on the company.
• The manager's expected defence (real consideration, valid authorisation, or an earlier partners' decision) and the answer to each.

An accounting report helps trace money and calculate damage, but it does not replace explaining why a transaction breaches the rules. The matter may go beyond a financial claim. Article 260 punishes with up to three years in prison and a fine of up to SAR 5 million, or either penalty, a manager who uses the company's money or powers in a way he knows is against its interests, for personal purposes, to favour others, or to benefit from a deal in which he has an interest. Still, not every management failure is a crime until all its elements are proven, above all knowledge of the harm.

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 a partner who suspects the manager:

• Ask in writing to inspect the company's records and documents. Article 171 gives a non-manager partner this right twice in each financial year, and the company must respond within 15 days.
• Put each transfer in a table: date, beneficiary, amount, contract or invoice, and whether there is written authorisation.
• Decide what you want: cancellation of a contract and return of the benefit, compensation for the company, compensation for your own damage, removal, or a criminal route alongside the claim.
• Count the Article 30 period from now, and do not wait until it is close to ending.
• If the partners refuse to file the claim, notify the manager in writing of your intention to file at least 14 days before.

If you are the manager:

• Disclose in writing any relationship you or your relatives have with a supplier or customer before contracting, and get the partners' authorisation before performing the deal, not after.
• Keep a file for each important decision: the study, comparative quotes and correspondence. They are your evidence of good faith and of being properly informed.
• If you object to a joint decision, ask for your objection to be recorded expressly in the minutes.
• Give the partners a clear report on the disputed deal before the disagreement becomes a lawsuit. If there was a real error, a written settlement returning a specific amount is easier for you than a dispute that opens every file.
• Do not rely on a release at the general assembly, because it does not prevent a claim. It is more useful to ask the company for insurance cover for your liability, which Article 28 allows.

Each of these files is decided by documents and dates. Send us your contracts, transfers and decisions on WhatsApp and we will tell you where you stand and the best next step.