A Limited Liability Company (LLC) is one of the recognized forms of commercial companies in Iran and, due to the relative simplicity of the legal rules governing it compared to joint-stock companies, it is considered one of the most widely used corporate structures, particularly for small and medium-sized businesses. The legal provisions governing LLCs are set forth in Articles 94 to 115 of the Iran’s Commercial Code. This article examines the legal framework governing this type of company, as well as the requirements and documentation necessary for its registration.
Limited Liability Company in Iranian Law
Under Article 94 of the Iran’s Commercial Code, a Limited Liability Company is a company formed between two or more persons for commercial purposes, in which each partner’s liability for the company’s debts and obligations is limited to the amount of capital they have contributed to the company. Therefore, as a general rule, if the company incurs debts, creditors may only claim against the company’s assets, and the partners are not personally liable beyond the amount of their respective capital contributions.
An LLC may only be established for commercial activities and cannot be formed for matters that are inherently non-commercial. Accordingly, it cannot be established for purposes such as education or legal services.
Minimum Capital and Number of Partners
To establish an LLC in Iran, at least two partners are required, and the continuation of the company also depends on maintaining this minimum number. If the number of partners falls below two, any interested party may petition the court for the dissolution of the company.
The Commercial Code of Iran does not specify a minimum capital requirement for LLCs; however, in practice, the registration authorities generally require a minimum capital of one million Iranian Rials. The company’s capital may consist of cash or non-cash contributions. Unlike joint-stock companies, the capital of an LLC is not divided into shares; instead, each partner owns a “capital share”.
Scope of Partners’ Liability
In an LLC, the partners’ liability for the company’s obligations is limited to the amount of their capital contributions. For example, if a company has four partners and each partner has contributed 100 million Rials, and the company incurs debts amounting to one billion Rials, each partner will only be liable up to 100 million Rials, and creditors cannot claim the remaining debt from the personal assets of the partners.
Although limited liability is the general rule, it is not absolute. The Commercial Code of Iran provides certain exceptions in which partners’ liability may be extended:
- The phrase “Limited Liability” must appear immediately before or after the company’s name. If this phrase is omitted, the partners may become jointly and severally liable toward third parties for the company’s debts.
- If the name of one of the partners appears in the company’s name, that partner may be personally liable for all company obligations toward third parties.
- Partners are jointly liable for the valuation of non-cash contributions. Therefore, if non-cash capital is overvalued, the partners will be jointly responsible for the difference between the declared and actual value.
In addition to civil liability, if founders or managers falsely declare that all cash capital has been paid or that non-cash contributions have been properly valued and delivered, or if fraudulent overvaluation occurs, they may also face criminal liability and may be treated as fraudsters under Iranian law.
Time of Legal Formation of an LLC
The legal formation of an LLC is complete only when all cash capital has been fully paid and all non-cash contributions have been valued and delivered. With respect to non-cash contributions, valuation is carried out by the partners themselves with unanimous consent, unlike joint-stock companies where valuation must be conducted by an official judicial expert.
Despite this procedural simplicity, the law imposes strict liability on partners if non-cash contributions are overvalued, in order to prevent abuse and protect third parties.
Capital Contributions of Partners
As noted above, company capital may consist entirely of cash, non-cash property, or a combination of both.
- Cash contributions: The Commercial Code does not impose specific formalities on the method of payment; payment may be made in cash, by check, or by bank transfer.
- Non-cash contributions: These must be fully valued and delivered to the company’s manager.
Valuation of non-cash contributions is the responsibility of all partners and must be unanimously approved.
Transfer of Capital Shares
The transfer of capital shares in an LLC is subject to stricter requirements than the transfer of shares in joint-stock companies. Any transfer must be executed through an official deed before a notary public. The transferring partner must present the transfer minutes and request issuance of the official deed.
If the transfer is to a third party outside the company, approval is required from partners representing at least three-quarters of the company’s capital and also constituting a numerical majority of partners. For example, if the company has ten partners and a total capital of 100 million Rials, at least six partners holding no less than 75 million Rials must consent to the transfer.
If the transfer is to another existing partner, this condition does not apply unless otherwise specified in the articles of association.
Managers in an LLC
Management in an LLC is highly flexible. The company may be managed by one or more managers, who may be selected either from among the partners or from outside the company. Their term may be limited or unlimited.
As a general rule, managers possess all powers necessary to administer the company unless their authority is expressly restricted by the articles of association. Therefore, any limitation on the powers of managers is legally effective only if it is specifically provided for in the articles of association. As a result, if managerial powers are restricted through a separate agreement or by a resolution of the general assembly rather than through the articles of association, such limitations are invalid and unenforceable against third parties, although they remain valid internally between the manager and the partners.
For example, assume that the manager of an LLC is prohibited from entering into transactions exceeding 100 million tomans, yet the manager concludes a contract worth 2 billion tomans. If this limitation is stipulated in the articles of association and the manager exceeds it, the third party cannot hold the company liable for the amount exceeding the authorized limit and may only pursue the manager personally for the excess. However, if the limitation was imposed through a mechanism other than the articles of association, and the manager exceeds that limit, the third party may still hold the company liable for the full transaction. In such a case, the company may subsequently seek compensation from the manager for any losses caused by the unauthorized act.
Supervisory Board
Unlike joint-stock companies, LLCs do not have statutory auditors in the same form; however, the Commercial Code provides for a Supervisory Board.
If the company has more than twelve partners, establishment of a Supervisory Board is mandatory. If there are fewer than twelve partners, it is optional.
The members of the Supervisory Board are elected by the general assembly of partners immediately after the company is formed. The term of office for the first Supervisory Board is one year, while the duration of service for subsequent terms is determined by the company’s articles of association and may exceed one year.
The Supervisory Board must consist of at least three members, all of whom must be selected exclusively from among the partners of the company.
The duties and responsibilities of the Supervisory Board are as follows:
- Immediately after being elected, the Supervisory Board must examine and verify whether the company has been properly formed in accordance with legal requirements.
- The Supervisory Board must convene the general assembly of partners at least once a year.
- It must supervise the company’s accounts and all official documents, and submit an annual report to the general assembly. Any violations or irregularities discovered must be expressly stated in this report.
- If the members of the Supervisory Board disagree with the manager’s proposal regarding the distribution of company profits, they must clearly state the reasons for their objection.
Voting Thresholds for Decision-Making
Different decisions require different legal thresholds:
- Change of nationality of the company: Unanimous consent of all partners
- Forcing a partner to increase capital contribution: Unanimous consent
- Amendment of articles of association: Majority in number of partners holding at least three-quarters of capital
- Transfer of capital share to third parties: Same as above
- Voluntary dissolution: Partners holding more than half of the capital
- Other decisions: Majority of partners holding at least half of capital; if not achieved, second meeting by numerical majority
Dissolution of an LLC
An LLC may be dissolved in the following cases:
- Expiration of the company’s term (if formed for a fixed duration)
- Fulfillment or impossibility of the company’s purpose
- Bankruptcy
- Decision by partners holding more than half of the capital
- Judicial dissolution due to significant losses reducing half the capital
- Death of a partner, if provided for in the articles of association
Required Documents and Information for the Registration of an LLC in Iran
To register an LLC, the following documents are generally required:
- Certified Copies of all pages of passports for each partner and director
- Personal photos of each individual
- The proposed name of the company
- Two signed copies of the registration application form
- Two copies of the company deed
- Two signed copies of the articles of association
- Two signed copies of the Memorandum of Association
- Certificate of no criminal record for all partners
- Sana Code and SIM card for each partner and director
- Official Gazette publication of incorporation or latest amendments
- Supervisory Board documentation (if more than twelve partners)
- Receipt of payment for the registration fees
- Power of Attorney (POA), if the registration process is conducted by a representative
Timeline and Costs
The timeline and costs associated with forming a Limited Liability Company (LLC) in Iran vary depending on the complexity of the company’s structure, the nature of its founders, and the completeness of the required documentation.
In terms of timing, the registration of a standard LLC with domestic founders and complete documentation may typically be completed within a few weeks. However, where the company involves foreign investors, non-cash capital contributions, translated or legalized foreign documents, or applications under frameworks such as the Foreign Investment Promotion and Protection Act (FIPPA), the process may take considerably longer—ranging from several weeks to a few months—depending on governmental approvals and administrative procedures.
From a cost perspective, the formation of an LLC in Iran is generally considered relatively affordable compared to many other jurisdictions, although actual expenses depend on factors such as the company’s declared capital, the type of services required, and the legal or administrative complexities involved. The principal costs and charges generally include:
(a) A registration fee payable to the Companies Registration Office, which is calculated in part based on the company’s capitalization;
(b) Publication fees for the notice of registration in the Official Gazette, payable according to current official rates;
(c) Costs associated with publication in a widely circulated newspaper, where required under applicable regulations;
(d) Applicable stamp duties or taxes related to issued share certificates or corporate instruments; and
(e) Additional expenses that may arise in more complex cases, including notarial fees, certified translations, embassy authentication or legalization of foreign documents, and specialized legal or administrative services.
Because fee schedules may change over time and vary according to the nature of the filing, applicants should confirm the precise costs directly with the Companies Registration Office or through qualified legal counsel at the time of registration. Proper budgeting for both statutory fees and ancillary administrative expenses is essential to avoid delays in the incorporation process.
Conclusion
Within Iran’s legal system, the Limited Liability Company is an efficient and practical corporate form for individuals seeking to commence commercial activities with fewer formalities and a simpler structure than joint-stock companies while benefiting from the crucial advantage of limited liability. Nevertheless, successful use of this legal structure requires precise understanding of the legal rules governing formation, management, liability, transfer of capital shares, and dissolution. Failure to comply with legal requirements—particularly regarding company naming, valuation of non-cash contributions, or official registration procedures—may lead to substantial legal and financial consequences for the partners.
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