The Chief Executive Officer (CEO) is one of the central figures in the management structure of a joint‑stock company. In practice, the CEO is considered the company’s highest executive authority and legal representative, responsible for day‑to‑day management, conducting business relations, entering into contracts, and administering the company’s affairs.
This article provides a concise overview of the principal legal rules and considerations regarding the appointment, duties, and powers of the CEO in joint‑stock companies.
Definition and Appointment of the CEO
The CEO is appointed by the board of directors to manage the company’s current operations. Within the scope of authority delegated by the board, the CEO acts as the company’s representative and may sign documents and contracts on its behalf.
The CEO must be a natural person and may be one individual or more than one. If more than one person is appointed, they are collectively referred to as the executive board.
The CEO may be selected either from among the members of the board of directors or from outside the board. The CEO may also be a shareholder of the company or someone who is not among the shareholders.
Appointment and Removal
The CEO is appointed by the board of directors and may be removed by the board of directors at any time. However, the appointment and removal of the CEO may also be carried out by the general meeting.
If the CEO is appointed by the general meeting, only the general meeting may remove them—unless the meeting expressly delegates that authority to the board.
Conversely, if the CEO is appointed by the board of directors, both the board and the general meeting may remove them.
The board determines the scope of the CEO’s authority, term of office, and remuneration.
Persons Ineligible to Serve as CEO
The following individuals may not serve as CEO of a joint‑stock company:
- Incapacitated persons (individuals lacking legal capacity).
- Bankrupt individuals, until their commercial credibility has been legally restored.
- Persons convicted by a final court judgment of specific crimes, including:
- Theft
- Breach of trust
- Fraud
- Embezzlement
- Deceit or misrepresentation
- Unlawful appropriation of public property
- No person may simultaneously serve as CEO of more than one company (whether joint‑stock or non‑joint‑stock). Therefore, if a person who is the CEO of Company A is appointed again as the CEO of Company B, their appointment as CEO of the second company will be void. However, a person may simultaneously serve as CEO in one company and as a member of the board of directors in another company. The prohibition applies only to simultaneously holding the position of CEO in two companies.
What Happens If the CEO Lacks the Legal Qualifications?
If a person lacking legal qualification (e.g., a bankrupt or disqualified individual) is appointed as CEO, or if appointment procedures are not properly followed, their actions remain valid with respect to third parties and shareholders.
In other words, the company cannot avoid its contractual obligations by citing the CEO’s disqualification.
However, the appointment itself is void internally. Within the company, decisions made by such a CEO have no legal effect.
Example:
If a bankrupt individual was wrongfully appointed CEO but signed a property sale agreement, the company must honor the contract with the buyer—it cannot invalidate it by claiming the CEO lacked qualifications. Nonetheless, internally, that appointment is void.
If a person who is legally prohibited from serving as the CEO of a joint‑stock company is nevertheless appointed to that position, or if after being appointed as a board member or CEO becomes subject to a legal prohibition, any interested party may request the court to order that person’s removal.
Dual Roles: Chair of the Board and CEO
At its first meeting, the board of directors must elect a chairperson and a vice‑chairperson from among its members.
Under the Commercial Code of Iran, the chair of the board of directors cannot simultaneously serve as the CEO of the same company unless three‑quarters of the votes present at the general meeting approve this arrangement. This rule aims to prevent an excessive concentration of power in a single individual.
Term of Office
Under the Commercial Code of Iran, the term of office for board members is limited to a maximum of two years.
While the Code does not explicitly impose the same limit on the CEO, two scenarios generally apply:
- If the CEO is a board member:
The CEO’s term may not exceed the remainder of their board membership.
Example: If five months remain in their board term, they cannot be appointed CEO for more than five months.
- If the CEO is not a board member:
Their maximum term of office is typically considered two years.
In both cases, the CEO may be reappointed for successive terms.
Scope of Authority
The CEO represents the company within the limits of the powers granted by the board of directors and may act and sign on behalf of the company only within that authority.
Acts beyond this scope create personal liability for the CEO.
Example:
If the board authorizes the CEO to enter into transactions up to 20 billion rials, but the CEO signs a contract for 30 billion rials, the company is bound only up to 20 billion. The remaining 10 billion becomes the personal liability of the CEO.
Clearly defining the CEO’s powers helps avoid disputes and safeguards both the company and third parties in their transactions.
Conclusion
In a joint‑stock company, the CEO plays a pivotal role in executing board decisions and managing daily operations. Appointing a qualified and legally compliant CEO—and defining their powers with precision—is critical to ensure sound corporate governance.
Failure to observe these requirements can expose the company, its shareholders, and even the CEO to serious legal consequences. Consulting lawyers specialized in corporate law is therefore essential to prevent such risks.
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