Proxies and Voting by Proxy

Provisions, Forms, Verification, and Permitted Limits

Introduction

The proxy mechanism is among the oldest and most essential tools in the practice of General Assemblies. It enables a shareholder who cannot attend in person to be represented by another person who exercises their rights of attendance, discussion, and voting on their behalf. Without an effective proxy mechanism, large segments of shareholders—particularly retail and foreign investors—would be unable to participate, undermining the legitimacy of the Assembly’s resolutions.

In Saudi Arabia, the proxy mechanism is precisely regulated to balance two objectives: empowering shareholders to participate even when absent, and preventing abuse of the mechanism for concentrating control or manipulating outcomes. This article examines the legal provisions, the approved forms, the verification procedures, the permitted thresholds, and modern practices in electronic proxy management.

First: The Legal Framework for Proxies

Definition

A proxy in a General Assembly is a written authorization by which a shareholder delegates another person to attend the Assembly, exercise voting rights, and engage in deliberations on behalf of the principal, within the limits specified in the authorization.

The Legal Nature of the Proxy

• It is a unilateral juristic act creating an agency relationship between the shareholder and the proxy holder.
• It is governed by the general rules of agency in Saudi law, with special rules in the Companies Law.
• It is revocable in principle by the principal at any time before the Assembly is convened.
• It must be specific in scope, time, and subject matter.
• It does not transfer ownership of the shares—only the right to exercise rights at the Assembly.

Statutory Provisions in the Saudi Companies Law

The Companies Law and its implementing regulations have organized the proxy mechanism in detail:

• Article (90) of the Companies Law affirms the right of every shareholder to be represented by another person.
• The implementing regulations specify the procedural requirements for proxies.
• The Corporate Governance Regulations of the CMA impose additional requirements for listed companies.
• The articles of association may add reasonable restrictions provided they do not nullify the right.

Second: Persons Eligible to Act as Proxy

General Rule: Freedom to Choose

The shareholder has, in principle, freedom to choose their proxy. The chosen person need not be a shareholder of the company. They may be a relative, a friend, an attorney, or any other person whom the shareholder trusts.

Statutory Restrictions

Despite this general rule, the law and the regulations impose certain restrictions to prevent conflicts of interest:

1. Directors

• As a general rule, directors may not act as proxies for other shareholders.
• The objective is to prevent the Board from concentrating votes in its own hands.
• Exceptions exist where the director is also a major shareholder representing a specific class.

2. Company Employees

• Senior executives and company employees may not act as proxies for ordinary shareholders.
• To prevent improper influence by management.
• Some companies extend the restriction to all employees.

3. External Auditor

• The external auditor may not act as proxy.
• To preserve their independence and avoid conflict of interest.

4. Parties with Conflicts of Interest

• Any person with a personal interest in a particular agenda item may not vote on that item on behalf of others.
• This applies even if they are otherwise eligible to act as proxy.

Third: Form and Content of the Proxy

Written Requirement

The proxy must be in writing. An oral proxy is not legally accepted in General Assemblies. Forms of written proxy include:

• A traditional paper proxy with handwritten signature.
• A digital proxy signed using an approved electronic signature.
• A proxy issued through the official electronic platform (Tadawulaty for listed companies).

Mandatory Elements

The proxy must contain a defined set of elements to be valid:

1. Information About the Principal (the Shareholder)

• Full name as recorded in the shareholder register.
• National ID number / commercial registration.
• Investor number with the depository center.
• Address and contact details.
• Number of shares owned and their type.

2. Information About the Proxy Holder

• Full name.
• National ID number.
• Address and contact details.
• Relationship to the principal (if applicable).

3. Information About the Company

• Full legal name of the company.
• Commercial registration number.
• Type of the Assembly to which the proxy relates.
• Date of the Assembly.

4. Scope of the Authorization

• Whether the authorization covers attendance, voting, or both.
• Whether it is general (for the entire Assembly) or specific to particular items.
• Voting instructions, where applicable (for or against each item).

5. Signatures and Authentications

• Signature of the principal.
• Date of signing.
• Authentication of the signature, where required (notarization, banker’s authentication).

Fourth: Maximum Proxy Holdings

The Principle of Capping

To prevent concentration of voting power in the hands of a few proxies, the Companies Law and the CMA regulations impose limits on the number of shares one person may represent by proxy.

The Approved Cap

Under current regulations, a single proxy holder may not represent shares exceeding (5%) of the company’s total share capital, unless:

• They are themselves the shareholder (the percentage of their own shares is excluded from the cap).
• They are representing a single major shareholder by virtue of statutory or contractual authority (e.g., a guardian, conservator, or liquidator).
• They are representing an institutional shareholder where the proxy is part of standard custody-and-management arrangements.

Fifth: Procedures for Issuing and Authenticating the Proxy

Step 1: Obtaining the Form

The shareholder obtains the proxy form through one of the following channels:

• Downloading from the company’s website.
• Requesting it by email from the corporate secretary.
• Through the electronic Tadawulaty platform.
• In person from the company’s offices.

Step 2: Completing the Form

• Filling in shareholder details accurately.
• Specifying the chosen proxy holder.
• Defining the scope of authorization.
• Indicating voting instructions for each item (preferred but optional).
• Signing the form.

Step 3: Authentication of the Signature

Depending on company policy, signature authentication may be required through:

• Notarization: By a Notary Public at the Ministry of Justice.
• Banker’s Authentication: By the shareholder’s bank.
• Electronic Authentication: Via Absher or Tawakkalna.
• Authentication by an Embassy: For shareholders abroad.
• Power of Attorney from Najiz: Within the Saudi e-government platform.

Step 4: Submission to the Company

The authenticated proxy must reach the company before the deadline (typically 24–48 hours before the Assembly) through:

• Hand delivery to the corporate secretary.
• Registered mail.
• Authenticated email.
• Submission via the electronic platform.

Step 5: Verification by the Company

• Verification of the principal’s identity (matching the register).
• Verification of the proxy holder’s identity.
• Verification of the authenticity of the authentication.
• Verification of compliance with the cap.
• Recording the proxy in the Assembly register.
• Issuing a registration number for the proxy.

Sixth: Electronic Proxies

The Tadawulaty Platform

The Tadawulaty platform offers an integrated solution for issuing proxies electronically for listed companies. It is among the most important manifestations of digital transformation in the Saudi capital market.

Platform Advantages

• Speed of issuance—within minutes rather than days.
• Reliable verification through National Single Sign-On.
• Immediate documentation in the company’s system.
• Easy modification or revocation before the Assembly.
• No paperwork required.
• Reduced human error.

Issuance Steps

• Sign in to Tadawulaty using an Absher account.
• Select the relevant Assembly.
• Enter the proxy holder’s details.
• Determine the scope of authorization.
• Record voting instructions for each item.
• Approve and confirm.
• Receive an electronic copy of the proxy.

Seventh: Voting Instructions

Types of Authorization

1. General Authorization

The proxy holder is granted full discretion to vote on all items in accordance with their judgment. This type is preferred when:

• The principal fully trusts the judgment of the proxy holder.
• Detailed instructions are difficult on complex matters.
• Sudden new items may be added to the agenda.

2. Specific Authorization

The shareholder specifies the voting direction (for/against/abstain) for each item. This type is preferred when:

• The principal has a clear view on each item.
• The principal wishes to ensure outcomes align with their interests.
• There is sensitivity to particular items.

3. Mixed Authorization

A combination of the previous two—instructions for specific sensitive items and discretion for the rest.

Drafting the Instructions

Best practices when drafting voting instructions:

• Be specific—’for,’ ‘against,’ ‘abstain’—for each item separately.
• Avoid conditional phrasing such as ‘if circumstances permit.’
• Provide brief reasoning for the position where useful.
• Address potential new items in advance.

Eighth: Revoking or Amending the Proxy

The Right to Revoke

• Every shareholder has the absolute right to revoke their proxy at any time before the Assembly.
• Revocation does not require a stated reason.
• Revocation must be in writing, in the same form as the original proxy.
• Revocation must reach the company before the time set for verifying proxies.

Implicit Revocation

• Personal attendance by the principal at the Assembly amounts to implicit revocation.
• Issuance of a later proxy in favor of another person implicitly revokes the earlier one.
• Direct electronic voting by the principal amounts to implicit revocation.

Modifying Instructions

The principal may modify voting instructions without fully revoking the proxy:

• Issuance of a written notice with the new instructions.
• Must be received before the start of the Assembly.
• Must be authenticated in the same manner as the original proxy.

Ninth: Verification of Proxies on the Day of the Assembly

The Verification Committee

Most companies form a special committee to verify proxies, comprising:

• The corporate secretary (chair).
• Representative of the share registry agent.
• Representative of the legal advisor.
• Representative of the external auditor (in some cases).

Verification Procedures

1. Pre-Assembly Verification

• Reviewing all received proxies.
• Verifying compliance with formal and substantive requirements.
• Filtering valid from invalid proxies.
• Preparing a comprehensive register of accepted proxies.
• Calculating the number of shares represented by proxy.

2. Verification at the Door

• Confirming the identity of each proxy holder upon entry.
• Matching against the pre-verified register.
• Issuing attendance badges showing the percentage represented.
• Recording entry times.

3. Verification During Voting

• Ensuring the proxy holder is voting only on the items authorized.
• Compliance with the principal’s instructions, if specific.
• Documenting any deviation from instructions.

Tenth: Common Pitfalls in Proxies

1. Insufficient Specificity

Phrases such as ‘authorize anyone’ or ‘in everything that may be required’ are generally invalid because they are not sufficiently specific.

2. Missing Authentication

Signing the proxy without notarization or appropriate authentication—particularly for foreign shareholders.

3. Late Submission

Submitting the proxy after the deadline set by the company.

4. Conflict with the Cap

A single proxy holder representing shares above the permitted threshold.

5. Authorizing Restricted Persons

Authorizing a director or company employee in circumstances where this is prohibited.

6. Mismatched Data

Variance between the data in the proxy and the data in the shareholder register.

7. Vague Authorization Scope

Lack of clarity on whether the authorization covers all items or particular ones.

Eleventh: Best Practices for Companies

• Simplify the Form: Design a clear and simple form using plain language.
• Encourage Electronic Use: Promote the use of the Tadawulaty platform as the primary channel.
• Provide Detailed Guidance: Develop a step-by-step guide with screenshots.
• Specialized Customer Service: A dedicated team to handle proxy inquiries.
• Effective Reminders: Multiple reminders about deadlines.
• Smooth Verification: Procedures that do not cause unnecessary delays.
• Detailed Records: Maintain a comprehensive register of all received proxies.
• Active Communication: Coordinate with major shareholders to facilitate the process.
• Adequate Training: Train the team handling proxies on legal and technical aspects.
• Periodic Review: Annual review of procedures and forms based on lessons learned.

Twelfth: Common Inquiries and Their Answers

Q: Can the proxy be granted via WhatsApp or email without authentication?

A: No. The proxy must be in formal written form with an appropriate authentication of the signature. Unauthenticated electronic communication is not sufficient.

Q: Can a single shareholder authorize more than one person for the same Assembly?

A: As a general rule, no. The shareholder may have only one proxy holder for one Assembly. Multiple proxies are likely to be considered conflicting and invalid.

Q: Can the proxy holder, in turn, authorize someone else (sub-proxy)?

A: As a general rule, no. The agency in General Assemblies is personal in nature unless the principal expressly authorizes sub-delegation.

Q: What happens to the proxy if the shareholder dies before the Assembly?

A: The proxy lapses automatically upon the death of the principal. The shares pass to the heirs in accordance with succession procedures.

Q: Can a foreign shareholder authenticate the proxy with a notary in their country?

A: Yes, but in most cases the authentication must subsequently be legalized through the Saudi embassy or consulate.

Conclusion

The proxy mechanism is among the foundational instruments of corporate democracy in joint-stock companies. It enables every shareholder—regardless of geographic location or scheduling constraints—to participate effectively in major company decisions. Mature regulation of this mechanism is essential to maintain shareholder rights and prevent abuse.

In Saudi Arabia, the proxy mechanism has reached a high level of sophistication through the Companies Law, the CMA regulations, and the technical infrastructure of Tadawulaty. The challenge now is encouraging shareholders—particularly retail investors—to make effective use of these tools. This responsibility lies with companies, regulators, and shareholders’ associations alike, through education, simplification of procedures, and continual improvement of the user experience.

References and Sources

• Saudi Companies Law (M/132) — Article 90 on proxies.
• Implementing Regulations of the Companies Law.
• Corporate Governance Regulations — CMA.
• Implementing Regulations of the Companies Law for Listed Joint-Stock Companies.
• Tadawulaty Platform Guide for Investors.
• OECD Principles of Corporate Governance — Voting and Proxies.
• Best Practices in Proxy Voting — ICGN.
• Approved Notarization Procedures — Ministry of Justice.