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Dissolution and Lquidation of Joint Stock Companies in Iran

Guiding Principle

As a result of placing international sanctions against Iran, many foreign establishments have suspended their transaction with Iran and some of them proceed to close down their legal companies, branch or rep. offices in Iran. The request for dissolution and liquidation should be submitted before Corporate and Non-Commercial Institution Registration Bureau, the authority before which all legal commercial companies are required to be registered. Nevertheless, in some cases, the shareholders are required to submit their request before the court.

A. Introduction

The Commercial Code of Iran (IR-CC) contains four important topics whereas one of them is related to the business organizations. The IR-CC recognizes seven types of commercial companies which could be associated with the following types of business:

  • Public or Private Joint Stock Company or Corporation
  • Limited Liability Company
  • General Partnership
  • Limited Partnership
  • Joint Stock Partnership
  • Proportional Liability Partnership
  • Production and Consumption Cooperative Society

From the above types of companies, Private Joint Stock Company is the most common form of commercial enterprise in Iran and the one most frequently used by foreign investors in respect of the Joint Venture Company. The liability of shareholders is in principle limited to their capital subscription. The Private Joint Stock Company is an independent legal entity that can enter into contracts and can sue and be sued. Shares can be transferred (subject to certain restrictions) without affecting the continued existence of the company, though in principle they may not be offered for public subscription or trading.

As a result of placing international sanctions against Iran, many foreign establishments have suspended their transaction with Iran and some of them proceed to close down their legal companies. In this article, we decided to briefly explain about the legal formalities for dissolution and liquidation of joint stock companies in Iran.

B. General Rules for Dissolution of a Joint Stock Company

An Iranian joint stock company may be dissolved, if and when certain requirements are met. Art. 199 IR-CC provides that:

“A joint stock company must be dissolved:

  1. When the company has carried out the task for which it has been formed or if the carrying out of such a task becomes impossible; or
  2. When a company has been formed for a fixed period which has expired, unless the period has been extended before such expiry date; or
  3. When it becomes bankrupt; or
  4. When an extraordinary general meeting has passed, for any reason whatsoever, a resolution to this effect; or
  5. When a final judgment is issued by the courts of justice.”

Based on the above article and in practice, generally there are two options for dissolution of a joint stock company in Iran: (A) Request for dissolution through Corporate and Non-Commercial Registration Institution Bureau and (B) Request for dissolution through the Court.

I. Dissolution through Corporate and Non-Commercial Registration Bureau

Commercial companies are required to be registered before Corporate and Non-Commercial Institution Registration Bureau of Iran (CNCIRB). Therefore, in case the shareholders of such companies decide to close down their establishment, submission of their dissolution application before CNCIRB is the most comment and convenient way. The first step for dissolution before CNCIRB is passing a resolution in the extraordinary general meeting of the company. According to Articles 83, 84 and 85 IR-CC, any change in the manner of dissolution of the company shall fall under the exclusive jurisdiction of the extraordinary general meeting. At the extraordinary general meeting, the presence of the holders of more than fifty percent of the shares entitled to vote is required. Resolutions passed at an extraordinary general meeting are valid when they have been passed by the affirmative vote of two-third of those present at the meeting.

Moreover and based on Art. 101 IR-CC, the general meeting shall be managed by a directorate composed of a chairman, secretary, and two supervisors. The chairman and supervisors will be elected among the shareholders of the company, but it is not a requirement for the secretary of the meeting to be a shareholder of the company.
In case of meeting all requirements for holding the extraordinary meeting and approving the respective resolution, the resolution should be submitted before CNCIRB. The request will be studied by CNCIRB’s experts and if everything is fine, CNCIRB will announce the dissolution of the company and will publish the notice on dissolution of the company in the Official Gazette of Iran. Thereafter, the formalities for liquidation of the company will commence.

By taking into consideration the above, a company could be dissolved through CNCIRB if the requirements on the manner of holding the general meeting and making decision in such meeting are fulfilled. Otherwise, the application for dissolution of the company shall be submitted to the court.

At this stage, we would like to bring one scenario as an example: In case a shareholder of a joint stock company holding the majority shares (e.g. 97% of shares) requests for dissolution solely, it is most likely that CNCIRB rejects the shareholder’s request as a result of not fulfilment of provisions of the Commercial Code. In such case the requirements of Articles 83, 84 and 85 IR-CC are met but provisions of Art. 101 IR-CC remains unfulfilled. Based on such Article, it is required to have at least three shareholders of a joint stock company be present in the extraordinary general meeting. Such requirement is mandatory. A shareholder holding 97% of the shares is only considered as one shareholder while for dissolution of such joint stock company, two more shareholders are required.

II. Dissolution through the Court

The application for dissolution could be submitted before the court based on the instances of Art. 202 IR-CC as follow:

“In the following cases, any interested person may apply to the court for the winding-up of a company:

  1. When no measures are taken with a view to carrying out the objectives of the company within one year after formation or, if there is a break in the activities of the company, for more than one year.
  2. When a general meeting of the company is not held for the purpose of approving the accounts of each of the previous fiscal years up to ten months after the period fixed in the articles of association.
  3. When the position of all or a number of directors of the company or that of the managing director of the company has remained vacant for a period exceeding six months.
  4. In the case of sections (1) and (2) of Article 199, when an extraordinary general meeting is not held or, if held, no resolution is passed for the purpose of winding up the company.”

It takes usually nine months to one year for the issuance of a verdict on dissolution of a joint stock company by the court. Subsequent, the verdict should be submitted to CNCIRB for fulfilment of requirement on liquidation of the company.

C. Liquidation of Joint Stock Company

Either the joint stock company may be dissolved through CNCIRB or through the court, a person as liquidator and the place of liquidation should be appointed and determined in the resolution or court verdict (as a case may be). The liquidator may be a person among the shareholders or someone outside the company. Upon publishing a notice of dissolution in the Official Gazette of Iran, the dissolved company should request CNCIRB to declare the commencement of liquidation and shall publish the respective notice in the Official Gazette and in one of the Iranian circular newspapers. Following that, the liquidator shall start liquidation. Based on the Commercial Code, no distribution of the assets, whether during the liquidation proceedings or thereafter, shall take place unless the notice stating the commencement of liquidation and the call for creditors have been published three times, with an interval of one month between each call, both in the Official Gazette and in the circular newspaper and at least six months have elapsed from the publication of the first notice.

During the liquidation, the liquidator shall settle all claims for and against third parties, Iranian authorities such as Tax Bureau and Social Security Organization. Upon completion of the liquidation, the liquidator is bound to notify CNCIRB of the completion of the liquidation proceedings within one month thereof in order to register the same and publish the case in the Official Gazette, in the circular newspaper and, in conclusion, to strike off the name of the company from the register of companies with CNCIRB.

October, 2012 Zahra Tahsili
Meyer-Reumann & Partners, Tehran Office
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