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A Handy Insight to Setting Up a Company (JSC and LLC) in Iran

The main law specifying the general regulation of the companies is Commercial Code of Iran (hereinafter “CCI”) adopted on 03 May 1932 and amended on 15 March 1969. There are 7 types of trading company stipulated in CCI as follows:

 

§ Joint Stock Company

§ Limited Liability Company

§ General Partnership

§ Limited Partnership

§ Joint Stock Partnership

§ Proportional Liability Partnership

§ Producers and Consumers Co-operative

 

From among the trade companies mentioned in the CCI, two types of Companies are of significant importance being more common among the merchants in private sector. They are: Private joint Stock Company (“PJSC”) and the Limited Liability Company (“LLC”).

 

The more organized management and the modalities of funding the corporate activities permitted in the PJSCs and LLCs make these forms of companies specifically designed for the structuring and implementation of projects and significant investments.

 

PJSCs are particularly recommended when it comes to structure a joint venture company for instance between Iranian and foreign parties. LLCs are closed companies usually used in case of small projects not requiring major financing but the Articles of Association (AoA) of a LLC may need to be specifically refined due to less stringent and detailed statutory rules than for PJSCs.

 

The Private Joint Stock Company Specifications

 

As mentioned above, this is the most common form of commercial enterprise in Iran and the one most frequently used by foreign investors in respect of the JVC while the set of regulations stipulated in CCI regarding this type of company are more detailed. Furthermore, PJSCs are usually favored in respect to participation in governmental tenders and receiving bank facilities.

PJSC is an independent legal entity that can enter into contracts and can sue and be sued.

Shares can be transferred (subject to certain restrictions) without affecting the continued existence of PJSC, although they may not be in principle offered for public subscription or trading.

PJSC can be formed with at least three shareholders with no restriction as to the nationality of the shareholders.

The liability of shareholders in a PJSC is in principle limited to their capital subscription. The shares may be registered or bearer and can be categorized as preference shares and ordinary shares in the AoA. Transfer of the registered shares shall be entered into company’s share register in accordance with Article 40 of the Bill Amending part of CCI.

 

For the formation of PJSC, 100% of the capital shall be secured by founders at the time of formation and at least 35% of the company’s capital in cash shall be remitted in advance. The minimum required capital for PJSC is IRR 1,000,000.

 

Executive Body

 

PJSC is managed by Board of Directors consisting of at least 3 members all of which to be amongst the shareholders and elected for a 2-years office.

 

The members of the Board of Directors must hold certain number of shares to be specified in the AoA, which cannot be less than the number required for voting at General Assemblies. These shares are placed in the custody as guarantee for the duration of the office of the directors.

 

At least one General Manager appointed by the Board of Directors (amongst or not its members) is vested with the day to day management of the company. His competencies are defined by the Board of Directors.

 

The members of the Board of Directors and the General Manager are not subject to conditions of nationality and/or residence.

 

The powers of the members of the Board of Directors can be limited by the AoA but these limitations are only valid vis-à-vis the company and the shareholders but never binding upon third parties.

 

General Assemblies

General Assemblies are in the following order:

 

  • General Assembly of Founders
  • Ordinary General Assembly
  • Extraordinary General Assembly

 

The duties of the General Assembly of the Founders are as follows:

 

§ Review and approval of the report of the founders as well as ascertaining that all shares of the company have been subscribed and the necessary amounts are paid up;

§ Approval of the draft AoA;

§ Election of the first directors and inspectors of the company;

§ Selection of the widely circulated newspaper in which all later summons and notices for the shareholders would be published until the convening of the first ordinary general assembly.

 

The Ordinary General Assembly must be convened at least once a year to deal with all of the matters not falling within the competence of the Extraordinary General Assembly and other statutory Assemblies. It has exclusive competence in the following matters:

§ Review and approval of the balance sheet and profit and loss statement and other financial reports;

§ Review and approval of the annual report of the Board of Directors;

§ Review and approval of the annual report of the inspectors;

§ Election, renewal and revocation of the members of the Board of Directors;

§ Election of inspector(s) and substitute inspector(s).

 

The Extraordinary General Assembly can be convened at any time to decide primarily on the following matters:

 

§ Alteration of the AoA;

§ The increase or decrease of the capital;

§ The dissolution of the company.

 

As a general rule, both the Ordinary and Extraordinary General Assemblies have quorum of more than 50 percent of the shares entitled to vote to be represent or legally represented. In case of lack of quorum upon first call of an Ordinary General Assembly, the quorum requirement is reduced to the number of the shareholders entitled to vote present or represented upon the second call. The Extraordinary General Meeting has quorum upon second call if more than one third (1/3) of the shareholders entitled to vote are present or represented.

 

Decisions at Ordinary General Assemblies are passed with simple majority of vote casts (more than 50 %).

 

Decisions of the Extraordinary General Assembly require a qualified majority of two-third (2/3) of the vote casts.

 

 

The Limited Liability Company Specifications

 

As previously indicated, less detailed regulations have been specified for LLCs in CCI and precise provision as to management of the LLCs can be stipulated within the AoA.

 

LLC can be established with two partners who in principle are liable only to the extent of the contributions they have made to the partnership’s capital. There is no restriction with respect to the nationality of the partners and no maximum number of partners has been stipulated in the law. However, if there are more than 12 partners in LLC, a supervisory board shall be appointed.

 

There is no minimum required capital prescribed in a LLC for each partner’s contribution, but as per CRB practice, minimum capital for a LLC is IRR 1,000,000. Partner’s contributions can be in kind and in cash, however, a LLC is formed only when all the in cash contribution is fully paid up and the contribution in kind has been assessed and delivered.

 

Furthermore, registered capital is not represented by shares in the form of transferable commercial bearer or registered instruments but by quotas entitled business shares equal to the value of the contributions made by each partner.

 

There is specific regulation as to transfer of partners’ shares stipulating that the shares shall not be transferred to an outsider except with the consent of a majority of partners holding at least three-fourths of the capital and constituting a numerical majority as well.

 

Furthermore, partners’ shares shall not be transferrable except through an official deed.

 

Executive Body

 

LLC is managed by one or more directors (employed or not by the company), elected from among or outside the partners for a definite or indefinite period of time. They are not subject to conditions of nationality and/or residence.

 

The powers of the Managing Director(s) can be limited by the AoA but any agreement to limit the powers of directors, which has not been expressly stated in the AoA, shall be null and void against third parties.

 

General Assemblies

 

Holding General Assemblies is not obligatory in LCCs but it is a usual practice to organize in the AoA, the convening of an annual Ordinary General Assemblies and Extraordinary General Assemblies. Since there are no specific regulations for LLC in this respect, the required quorum as to decision making within the assemblies would be subject to the partners’ agreement in the AoA which could be same as JSC.