Company law in Iran is a well-developed branch which has been articulated in detail in the Code of Commercial Law (hereinafter, the Code). There are seven kinds of distinct forms of companies according to the article 20 of the Code and thereby are distinguished from the civil partnership which is more casual and less demanding in terms of formality and legalities. For some loopholes in the tax laws in Iran, businessmen sometimes prefer to go civil, instead of registering an entity, especially those of smaller turnover. But, all serious businesses in Iran are inevitably destined to run on the commercial code rail.
First, we have to mention that registering a company in Iran is different from registering a representative office or branch. When you incorporate a company in Iran, the company will be assumed as Iranian, regardless of the nationality of their shareholders or those who proceed to register it, etc. However, the dichotomy of principal and subsidiary company is totally recognized in the Iranian corporate literature.
Some people might advise that in order to get the ownership over immovable properties in Iran as a foreigner, you may register a company and buy the landed property in name of that company, rather than following the normal order of obtaining real estate for foreign nationals. But, this trick is a lost cause and courts never hesitate to pierce the court veil if they feel they must. Never fall for non-starters like that.
If you institute a company inconsistent with the terms and conditions articulated mostly in the Code, the ill-founded corporation transactions are legal but you are liable for all risks towards the third parties and the company won’t be regarded as an entity independent of you.
“One person company” is not one of the company forms in the Code of Commercial Law and there is no other rule or regulation governing this kind of entity in Iran. So, remember that the forms of company numerated in the Code are almost exclusive and no other type would be recognized as a commercial company if it doesn’t match with the list of forms discussed below.
Types of companies in Iranian Code of Commercial Law
1. Joint Stock (public held and private held)
In the scenario of company forms and types in Iran, the Joint Stock is the protagonist. The rules and regulations for this type of company are embedded in the Code with a span of 300 articles. As you already know, the shares of capital in this form of company are called “stocks”. There are two different types of joint stock company, namely the public joint stock and the private joint stock. The former is capable of selling stock to the public in the stock market and the latter is not and has a pretty closed circle of shareholders. The minimum monetary fund for incorporating both types is nominal and one can properly claim there is no capital requirement in practice. But, there is a ratio requirement in this context that is absolutely noticeable: in public joint stock, the founders of the company have to guarantee 20% of the whole capital and provide for 35% of the guaranteed amount. In private joint stock, the founders have to guarantee the whole capital and provide for 35% of the whole amount. The minimum number of partners in the public held type is five persons, while the same requirement for the private held one is down to three.
2. Limited Liability Company (Ltd)
This form of corporation is the runner-up in the rank of popular forms of company in Iran. The liability of partners is limited to the amount of their shares. So, if you bring X Rials to the company, you’ll never charge with paying more than X Rials when third parties claim their loans back after the liquidation. Nonmonetary assets are to be assessed in monetary terms, but all of partners are responsible for this assessment towards third parties. Your share in the company may not be transformed into stocks and is transferable only by official documents. The nationality of company could not be changed unless all partners unanimously agree upon it. Other terms are supposed to be set in the statute. Non-statute agreements between company parties may not be cited against third parties and the outsiders are immune to updates of internal relations.
3. General Partnership Company
This is the basic form of companies in Iran which all partners are responsible for all debts to third parties. If the process of incorporating of other forms of companies doesn’t meet the tenet legal rules, the resulted entity is to be considered as a general partnership company before the courts. The whole capital has to be provided for in the first step and the shares are not transferable unless other parties pronounce their allowance. The parties are legally bound to be loyal to the partnership, i.e., they can’t go to the similar business outside the company without allowance of their co-partners.
4. Proportional Liability Partnership
The only important difference between this form of company and the general partnership company is that the liability of partners is limited to the percentage of their share of the company’s capital. So, if you provide for 20 percent of the whole capital, your liability towards third parties will never surpass one-fifth of the total debt.
5. Cooperative Company
There are two types of cooperative companies in Iran: the cooperative company for produce and the cooperative company for consumption. In order to incorporate the first type of a cooperative company, at least two thirds of partners who manage the company have to pursue the career which is the main activity of the corporation. The cooperative company for consumption is aimed to sell the household productions to the final consumers. The profits in this type have to be shared based on the amount of money every partner has bought. Both types may be incorporated according to joint stock orders or in any way that partners wish. Should the cooperative company pursue the joint stock model, none of the partners could have more than one vote in the general assembly of shareholders.
6. Limited Partnership Company
This form of company is a mixture of general partnership company and Ltd. It means that in case of liquidation, some of the partners are responsible for paying all debts and some of them are only liable up to the amount of money they have brought to the company in the first place.
7. Joint Stock Partnership Company
This form of company is a mixture of general partnership company and private joint stock.
What type of company is suitable for you?
First of all, in some fields you don’t have a choice and the laws force you to register your business in a predetermined form, for example, currency converters all have to be registered as a “general partnership company”. Besides, if you plan to sell your company stocks in a stock market, your company would have to be registered as a public joint stock.
If we look into the current situation in Iranian business frames, most of the company forms are either joint stock, especially the type of private held, and the limited liability companies (Ltd). If your business is not vast and complicated, we recommend the Ltd type. But, if you are going to conclude contracts with partners in the public sector, you’d better choose private joint stock over limited liability, since for some reasons state-owned companies are not willing to work with limited liability companies. Private held joint stock corporation is also preferable to reach your goals in terms of bank advances.
You may read about commercial laws governing companies in below.