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Setting up Business Establishment in the Islamic Republic of Iran

Guiding Principle

Foreign companies, entering the Iranian market and setting up an establishment in Iran, may choose between a joint venture company with an Iranian partner, or a company in the mainland with 100% foreign shareholding or a branch or representative office in Iran.

A.  Introduction

Foreign companies, who enter the Iranian market and set up an establishment in Iran, may choose between different alternatives dependent on their intended activities: They may form a joint venture company with an Iranian partner, or a company in the mainland with 100% foreign shareholding or a branch or representative office in Iran.

B.  Commercial Companies

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

  1. Joint Stock Company or Corporation (Sherkat Sahami)
  2. Limited Liability Company (Sherkat ba Masouliyat Mahdoud)
  3. General Partnership (Sherkat Tazamoni)
  4. Limited Partnership (Sherkat Mokhtalet Gheyr Sahami)
  5. Joint Stock Partnership (Sherkat Mokhtalet Sahami)
  6. Proportional Liability Partnership (Sherkat Nesbi)
  7. Production and Consumption Cooperative Society (Sherkat Ta’avoni Towlid va Masraf)

From the above companies, three types of companies are of significant importance and are more common in Iran, which are Private Joint Stock Company, Public Joint Stock Company, and Limited Liability Company.

I.  Joint Stock Company (Public and Private)

The Joint Stock Company by law is defined as a company whose capital is divided into shares and the liability of the shareholders is limited to the par value of their shares. It is an independent legal entity, which may enter into contracts, may sue and may be sued. Therefore, shareholders’ personal properties are separate from their contributions and the creditors of the company should pursue the properties belonging to the company. A managing board chosen from shareholders, by an ordinary general assembly, directs the company. The joint stock company may be either a public or a private company. The main difference between the two is that the public company may offer its shares and debt securities to the public while a private company may not. The form of a pPublic joint stock company is generally adopted by entities who wish to raise capital publicly, regardless of the fact that the company is listed on the board of stock exchange or not. The number of shareholders in the public one must be at least five persons and a private company may operate with at least three persons. Shares can be transferred, although this issue is subject to the certain restrictions in the private company and is subject to the approval of managing board or shareholders. The private joint stock company is the most common form of commercial enterprises in Iran and the one most frequently used by foreign investors in forming joint venture companies. Articles 1-300 of the amended IR-CC dated 1969 define the procedures, rights and obligations that govern the joint stock company and its shareholders.

II.  Limited Liability Company

Two or more partners, who are only liable for the company’s debts to the extent of their contribution, whereas, the capital is not divided into shares, may establish this type of company. Transfer of partnership share is very difficult, where a three quarters majority of partners is required to authorize this deal and share transfer should be notarized in the Notary Public. This company is managed by one or more directors, salaried or not, chosen from among the partners or outside, for a limited or unlimited period. Where a limited liability company consists of more than twelve partners a board of supervisors must control them. Articles 94-115 IR-CC define the procedures, rights and obligations that govern the limited liability company and its partners.

C.  Joint Venture Companies

Depending on the size and nature of commercial activities and business plan of foreign companies, they may enter into joint venture agreement with Iranian companies and establish a joint venture company. Based on Iranian law, the amount of contribution imported by foreign party is not subject to any limitation and it could be approved even up to 100% of equity share. A joint venture company is a registered company in Iran and these types of companies may take either the form of a private joint stock company or in some cases a limited liability company.

D.  Foreign Companies’ Branch / Representative Office

One of the simplest and most common means for commercial transactions and investment could be an establishment of a branch or representative office of a foreign company in Iran.
According to Iranian Law the branch office of a foreign company is the subordinate local unit of the principal company, which carries out the objectives, and functions of the principal company in that location. The activity of the branch in the location must be conducted under the name and responsibility of the principal company. The representative of the foreign company, is the natural person or legal entity who is in charge according to the representation (agency) contract, with carrying out a certain part of the object and functions of the principal company. The representative of the foreign company shall be responsible with respect to the activities carried out in the location under the agency granted by the principal company.

The foreign representatives and branch offices are presently registered in Iran according to the stipulations of the Act Permitting the Registration of Branch or Representative Offices of Foreign Companies, ratified on November 12, 1997, and it’s Executive By-Laws of May 02, 1999.

According to Article 1 of Executive By-Laws, foreign companies, which are recognized as a legal company in their country of origin, may register their branch or representative in Iran, for activities listed below, in conformity with the country’s laws and regulations and by observing the principle of reciprocal action:

  1. Offering after-sale services for the goods or services of the foreign company;
  2. Carrying out the executive operations of the contracts concluded between Iranian persons and foreign companies;
  3. Studying and laying grounds for the foreign company’s investment in Iran;
  4. Cooperation with Iranian technical and engineering companies for undertaking activities in third countries;
  5. Increasing the non-oil exports of the Islamic Republic of Iran;
  6. Offering technical and engineering services and transfer of know-how and technology;
  7. Engaging in activities permitted by the governmental agencies legally authorized to issue such permits, in areas such as offering services in transportation, insurance and surveying, banking, marketing, etc.

One or a number of natural persons residing in Iran or having a residence permit as to allow him to travel to and from Iran at any time should manage the branch or representative office.


[1] The present Iranian Commercial Code, consisting of 600 articles, was approved by the National Consultative Assembly on April 03, 1932 and amended on March 04, 1969. Most of this law was taken from the 1807 French Trade Law.

 

August, 2015 Zahra Tahsili
Meyer-Reumann & Partners, Tehran Office
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