Establishing a successful business in Iran requires a comprehensive understanding of the country’s corporate landscape. For foreign entrepreneurs, selecting the most appropriate legal structure for their operations is essential. This detailed guide aims to elucidate the various types of companies recognized under Iranian law, with a focus on their characteristics, legal frameworks, and suitability for different investment goals.
Overview of Company Types in Iran
According to Article 20 of the Commercial Code of Iran (hereinafter referred to as CCI), there are seven primary types of companies operating in Iran:
- Joint-Stock Companies (including Public and Private Joint-Stock Companies)
- Limited Liability Companies
- General Partnership Companies
- Limited Partnership Companies
- Joint-Stock Partnership Companies
- Proportional Liability Partnership Companies
- Cooperative Companies
Each type serves different purposes and operates under specific legal protocols. Understanding their distinctions is vital for foreign investors seeking efficient and compliant business operations.
- Joint-Stock Company
A joint-stock company is defined as a corporation whose capital is divided into equal shares, with the liability of shareholders limited to the par value of their shares. This structure imparts several distinct characteristics. First, the company’s capital is partitioned into equal shares, and each shareholder’s ownership is proportional to their contribution. Second, the limited liability of shareholders mitigates investment risk, as creditors cannot pursue shareholders’ personal assets if the company’s debts exceed its capital; they can only claim against the company’s assets.
It is important to note that regardless of whether the company’s activities are inherently commercial, a joint-stock company is always considered a trading corporation, even if engaged in non-commercial pursuits.
According to the CCI, joint-stock companies are categorized into two types: public and private joint-stock companies.
The minimum number of shareholders for a public joint-stock company is five, whereas for a private joint-stock company, it is three. The minimum capital requirement for a public joint-stock company is IRR 5,000,000, while for a private joint-stock company, it is IRR 1,000,000.
Founders of a public joint-stock company must commit to at least 20% of the company’s capital, with at least 35% of that committed amount deposited in cash in a bank account under the company’s name. The remaining 80% of the company’s capital must be raised from the public, exclusively in cash; non-cash contributions are not permitted for the public’s shareholding.
In private joint-stock companies, if the capital is contributed in cash, a minimum of 35% must be paid upon establishment, whereas if part of the capital is non-cash, its full value must be paid immediately.
The distinction between public and private joint-stock companies should always be explicitly indicated in official documentation by including the designation “public” or “private” before or after the company’s name.
Regarding share transfers, in a public joint-stock company, transfer of shares to a third party does not require the approval of other shareholders. Conversely, in a private joint-stock company, such transfers are subject to approval by existing shareholders.
Practically, public joint-stock companies are recommended for entities seeking substantial capital and aiming to raise funds from the public. Additionally, the law mandates that banks and insurance companies be established as public joint-stock companies.
- Limited Liability Company
A limited liability company (LLC) must be managed by one or more person. Unlike joint-stock companies, its capital is not divided into shares; instead, each member’s liability is limited to their respective contribution.
LLCs are exclusively established for commercial activities; they cannot undertake non-commercial pursuits such as legal services or educational activities.
When naming an LLC, it is mandatory that the name does not include the names of any members, and the phrase “Limited Liability” must be explicitly included in all official documents, either before or after the company name.
While the Commercial Code does not specify a minimum capital requirement for LLCs, in practice, a minimum of IRR 1,000,000 is typically observed.
- General Partnership Company
Unlike joint-stock and LLCs, each partner in a General Partnership bears full liability and is obligated to settle all debts of the partnership if its assets of the company are insufficient. A minimum of two partners is required to form such a partnership.
As stipulated in Article 117 of the CCI, the partnership’s name must include the phrase “General Partnership” and the name of at least one partner.
This entity is intended solely for commercial purposes and cannot be used for non-commercial activities. Transfer of ownership to a third party requires the unanimous consent of all partners.
For example, in Iran, formation of a general partnership is typically mandated for establishing currency exchange businesses.
- Limited Partnership Company (Mokhtalet Gheyr Sahami)
A limited partnership consists of one or more general partners and one or more limited liability partners, forming a hybrid structure combining elements of a general partnership and an LLC.
In this structure, liabilities are limited to each partner’s contribution for limited partners, whereas general partners are liable for all the company’s debts.
The company’s name must include the phrase “Limited Partnership” and the name of at least one general partner. The minimum number of partners is two, comprising at least one general partner and one limited liability partner.
- Joint-Stock Partnership Company (Mokhtalet Sahami)
This is a hybrid entity combining features of a general partnership and a private joint-stock company, where some partners act as general partners, and others as shareholders.
- Proportional Liability Partnership Company
This type involves two or more individuals engaged in commercial activities, where each partner’s liability is limited to their respective contribution. Unlike general partnerships, where partners are jointly liable, in a proportional liability partnership, each partner is responsible only in proportion to their invested capital, especially when the company’s assets are insufficient to cover debts (per Article 186).
For example, if a proportional liability partnership company consists of four partners, with contributions of 50%, 25%, and two sharing 12.5% each, their liability for debts will correspond proportionally to their respective stakes.
- Cooperative Company
There exists another type called a cooperative company; however, due to their relatively lesser significance in commerce, they are not further discussed here.
Conclusion
Choosing the right legal structure in Iran is crucial and depends on your specific investment goals, operational scope, and capital needs. Whether you are considering a private joint-stock company, limited liability company, or other options, navigating Iran’s complex legal regulations can be challenging. That’s why our team of expert corporate lawyers is here to provide personalized advice, answering all your questions in a way that aligns with your unique needs and maximizes your financial interests.
No matter the type, size, or scope of your investment, we offer tailored solutions and in-depth support on company formation, management structures, decision-making processes, and other corporate matters. Trust us to guide you through Iran’s legal landscape with your best interests in mind.
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