Choosing the type of company is one of the first and most important decisions that any entrepreneur or investor must make. The company structure affects not only business management but also the level of partners’ liability, methods of raising capital, commercial credibility, and future business development.

Among the types of commercial companies in Iran, limited liability companies (LLC) and private joint stock companies (PJSC) are the two most commonly used forms. Many individuals and legal entities, including foreign investors intending to register a company in Iran, typically choose one of these two structures. Therefore, understanding the characteristics, advantages, disadvantages, and differences between these two types of companies can lead to a more informed choice.

 

What is a Limited Liability Company (LLC)?

According to Article 94 of the Commercial Code, a limited liability company is a company formed between two or more persons for commercial purposes, where each partner is liable only up to the amount of capital they have contributed to the company.

In an LLC, the capital is not divided into shares; each partner holds a “partnership share.” The administration of the company involves fewer formalities compared to joint stock companies.

This type of company, due to its simpler structure and fewer formalities, has always been attractive to small and medium-sized business owners. Establishing an LLC requires at least two partners, and the law does not impose a specific minimum capital beyond the legal threshold. The entire capital must be provided by the partners, and managers can be selected from among the partners or even from outside the company.

Advantages of a Limited Liability Company

  • Simpler registration and administration process
  • Lower costs compared to a private joint stock company
  • No obligation to appoint an auditor
  • Possibility to appoint managers from outside the partners
  • Suitable for small or family-run businesses

What is a Private Joint Stock Company (PJSC)?

On the other hand, a private joint stock company is one of the most well-known and widely used commercial company forms in Iran. According to Article 4 of the Amended Commercial Code, a private joint stock company is a company in which all the capital is exclusively provided by the founders at the time of incorporation. The capital is divided into shares, and each shareholder’s liability is limited to the nominal value of their shares.

To establish a PJSC, at least three shareholders are required, and appointing a main auditor and a substitute auditor is mandatory. Additionally, at the time of registration, at least 35% of the company’s capital must be deposited in the company’s bank account, and the bank certificate must be submitted.

Advantages of a Private Joint Stock Company

  • Higher credibility with banks and financial institutions
  • Suitable for attracting investors
  • Greater ability to participate in tenders and auctions
  • More organized management structure
  • Easier transfer of shares

The more structured organization and additional legal formalities of a PJSC increase its credibility with third parties, banks, and financial institutions. Many banks and governmental agencies consider private joint stock companies more suitable for loans, tenders, and large projects. This structure also facilitates attracting investors and expanding business activities. The division of capital into shares and the relatively easier transfer process allow for smooth entry and exit of investors. Consequently, a PJSC is often the preferred choice for startups, growing companies, contractors, and businesses planning to attract investment.

Differences Between a PJSC and an LLC

1. Number of partners:
An LLC requires at least two partners, while a PJSC requires at least three shareholders.

2. Initial capital:
Although both types of companies require a minimum capital of one million rials, there are key differences. In a PJSC, at least 35% of the company’s capital must be deposited in the company’s bank account at the time of registration. In an LLC, the full capital must be paid upfront and acknowledged by the managing director.

3. Liability of partners:
In a PJSC, each shareholder’s liability is limited to the amount of their shares. In contrast, in an LLC, each partner is liable only up to their partnership share. This distinction affects trust among partners and the allocation of responsibilities.

4. Transfer of shares or partnership shares:
Another major difference is how ownership can be transferred. In an LLC, transferring partnership shares to someone outside the current partners requires the consent of at least three-quarters of the partners (by capital and number), and the transfer must be registered in the official deeds registry. Transfers to existing partners do not require consent but must still be registered. In a PJSC, share transfers are generally simpler and do not require the consent of other shareholders, unless stipulated in the company’s articles of association, and registration with the deeds registry is not mandatory.

5. Board of directors and general assemblies:
A PJSC must hold ordinary general assemblies. In an LLC with 12 partners or fewer, holding a general assembly is not required; however, if there are more than 12 partners, company decisions must be made in a general assembly.

6. Auditors:
A PJSC must appoint a main and a substitute auditor. In an LLC, there is no such obligation. Instead, if there are more than 12 partners, an LLC is required to have a supervisory board (Hayat-e Nazer), which performs auditing functions similar to an auditor in a PJSC.

7. Valuation of non-cash contributions:
Non-cash capital, such as property or vehicles, is valued by the partners themselves in an LLC, while in a PJSC, such contributions must be valued by certified judicial experts.

8. Official newspaper for company notices:
Publishing company notices in an official newspaper is mandatory for a PJSC but optional for an LLC.

9. Company directors:
In a PJSC, the board of directors must have at least three members, all of whom must be shareholders. In an LLC, managers can be chosen from among the partners or outside the company, and the number of managers can be one or more.

Which Structure is More Suitable?

If you have a small business, a limited number of partners, and prefer a simple structure with fewer formalities, an LLC is a suitable choice.

However, if you plan to expand your activities, attract investors, secure bank financing, participate in tenders, or undertake large projects, a PJSC is a more appropriate option.

Ultimately, neither structure can be universally considered superior. The choice between a PJSC and an LLC should be based on business goals, capital amount, number of partners, and the company’s development plan. If the aim is to start a small or family-run business with minimal formalities, an LLC is suitable. But if the goal is to expand operations, attract investors, secure financing, or participate in large tenders, a PJSC, with its higher credibility and more organized structure, is the preferred option. Therefore, a thorough understanding of each structure before company registration can prevent many future legal and commercial issues.