Iran company law Iran commercial code General Company, Limited Liability Company, and Mixed Company
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Iran Company Law (part one)

There are seven types of companies in Iran Commercial Code;

1- Joint Stock Company (Public and Private)

2- Limited Liability Company

3- General Company

4- Joint Mixed Company

5- Non-joint Mixed Company

6- Relative Company

7- Cooperative Company.

One of the main purposes of companies is to restrict liabilities to company but not every company has this nature.

General Company creates the most responsibility for shareholders and on the other side, public joint stock company requires the minimum responsibility for shareholders.

In this Article, I discuss types of companies in this hierarchy.

For general notions in Iran company law See Basic Type of Companies in Iran Law

For a quick explanation of these companies, read this article from the author: Types of Business Structures in Iran

1- General Company

Structure

General Company also known as “General Partnership” or “Unlimited Company” is a company consists of at least two partners.

Partners in this company have unlimited responsibility toward company’s debts. If company’s assets are not sufficient to meet its debts, each partner is liable for the payment of all the debts of the company.

Any stipulation among partners to the contrary is null and void so far as third parties are concerned.

In this type of company, partners can contribute through cash or non-cash obligations.

In other words a partner can give ownership of a property to the company.

According to Article No. 118 of Iran Commercial Code: “A general company is formed when all the capital in cash has been paid up, and when contributions other than in cash have been valued and delivered”.

If one or more partners make a contribution not in cash, the valuation of such contribution must be made with the consent of all the partners.

Liabilities

Note that in this company, partners are only responsible for debts.

In the other words, fulfillment of contractual obligation and any obligation other than debts are on the company.

If third party has a contract with the company, he or she cannot ask partners to fulfill the contract unless it resulted into debts and the company could not pay off using its own assets.

As long as the general company is in existence, the liabilities must be claimed from the company itself.

After the dissolution, the company’s creditors may, in order to recover their claim, sue all the partners jointly or severally.

As it is clear from these requirements, this company is a high risk company therefore none of the partners may transfer his or her share to other persons without the consent of the other partners.

Whoever enters in an existing general company is liable with the other partners for existing company’s debts.

Any agreement between the partners which is contrary to this provision is null and void so far as third parties are concerned.

Relationship between company’s assets and partner’s assets

As mentioned above, this company is mostly like a partnership but it still is a company. This statement results in some legal restrictions:

one- As long as this company exists, the debts and obligations are on the company.

two- Company’s assets do not belong to partners. A partner’s personal creditors cannot secure or obtain payment of their claims from the assets of the company.

three- A partner’s personal creditor can secure or obtain payments from the profits to which their debtor is entitled, or to that payment which would be made to the partner in the event of dissolution.

four- Bankruptcy of the company does not necessarily result in bankruptcy of the partners. Similarly, the bankruptcy of one of the partners does not necessarily cause to the bankruptcy of the company.

five- When a partner’s personal creditors are unable to obtain payment from his or her properties, and when their debtor’s share in the company’s profits is not sufficient to meet the debts he or she owes to them, they may demand the dissolution of the company. In this case, the other partners can expel this partner by paying his or her shares in cash.

Dissolution

A general company will be dissolved in following cases:

one- When the company fulfill its purposes or when fulfillment of the purpose became impossible.

two- When the timeframe of company elapse.

three- In case of bankruptcy.

four- By unanimous consent of the partners.

five- When one of the partners asks the court for the dissolution of the company and the court accepts the request. In this case if the reasons for dissolution concern exclusively one or more partners, the court may, at the request of the other partners, decree the expulsion of the said partner or partners, instead of the dissolution of the company.

six- In case one of the partners terminates the partnership agreement: 1- If the statute of the company does not declare foreclosure of this right 2- If The termination is not prompted by a desire to cause damage 3- The request for termination must be notified to the partners in writing six months in advance.

seven- In case of bankruptcy of one of the partners if: 1- The Liquidator demands dissolution 2- After six month from this request, the company has not been able to dissuade the Liquidator from applying for dissolution. In this case, the other partners can expel this partner by paying his or her shares in cash.

eight- In case of death or incapacitation of one of the partners:

In case of death or incapacitation of one of the partners, the continuance of the company depends on the sanction of the remaining partners and the successors of the deceased or incapacitated partner. If the remaining partners decide to continue the company, the successors of the deceased or incapacitated partner must state in writing whether or not agree to the continuation within a month. If the successors of the deceased or incapacitated partner agree, they share in the profits and losses incurred during this interval. Otherwise, they will share the profits earned during the period but will not be liable for any losses. Silence up to the end of one month is considered as consent to continuation.

2- Relative Company

Structure

Relative company exclusively belongs to Iran legal system.

Relative company in nature is a General Company; every rule we discussed about General Company also applies to Relative Company.

There is only one difference between General Company and Relative Company:

In a General Company, If company’s assets are not sufficient to meet its debts, each partner is liable for the payment of all the debts of the company.

In Relative Company, If company’s assets are not sufficient to meet its debts, each partner is liable for the payment of debts in proportion to his or her contribution to the company’s capital.

For example a Relative Company has four partners and each partner has 25 percent of company’s shares.

In this company, after dissolution, each partner is liable for 25 percent of company’s debt. The title of this company (Relative Company) refers to this relativity.

3- Limited Liability Company

Structure

A limited liability company consists of at least two partners.

Responsibility of partners is limited to their contribution in company’s capital.

This company comes into exist when the capital in cash has been fully paid up and also non-cash contributions have been valued and delivered to the company otherwise the company will be considered as null.

Contribution of partners can be in non-cash such as properties including actual or intellectual, land, building, or any valuable thing.

Since responsibility of the partners is limited to their contribution, these non-cash contributions has to be evaluated and delivered to the company and partners are jointly and severally responsible towards third parties for the valuation of on non-cash contributions.

The price of non-cash contributions should be expressed in memorandum of the company otherwise the company will be considered as null. Among all companies in Iran legal system, only this company needs a memorandum.

Fiscal conditions

Contribution of the partners including cash or non-cash contributions (company’s capital) cannot represented by shares or bonds or any transferable commercial instruments whether bearer or registered.

Partnership in this company cannot be transferred to third parties without the consent of a majority of partners, representing at least three quarters of the company’s capital and in this case, transfer has to be done only by deed.

Majority of partners cannot compel a partner to increase his or her contribution. Unless a special provision has been made in company’s statute, profits and losses will be divided in proportion to the contributions of the partners to the capital.

For each year at least One twentieth of net profit of the company should be allocated to reserve fund.

When the reserve fund reached to one tenth of the company’s capital it is optional to allocate any amount of net profit to reserve fund.

Management system

A limited liability company is managed by one or more directors, salaried or not, chosen from among the partners or outside, for a limited or unlimited period.

The directors of the company will have all the necessary powers to represent and manage the company.

Any arrangement limiting the powers of directors which is not expressly mentioned in the statute is null and void so far as third parties are concerned.

Resolutions concerning the company must be passed by a majority representing at least half the company’s capital.

If at a first meeting the majority has not been obtained, all partners must be called to a new meeting. In this case, resolutions will be passed by a numerical majority, even if this majority does not represent one half of the company’s capital.

This decision making process is applicable when statute of the company does not declare different process.

Each partner shall have a number of votes in proportion to the amount of his or her contribution to the capital unless the statute expresses differently.

Any limited liability company with more than twelve partners must have a Board of Supervisors who will call a general meeting of partners at least once a year.

Dissolution

A limited liability company will be dissolved in following cases:

one- When the company fulfill its purposes or when fulfillment of the purpose became impossible.

two- When the timeframe of company elapse.

three- In case of bankruptcy.

four- By decision of a number of partners representing more than half the company’s capital.

five- When, because of losses, more than half the company’s capital has been wasted and one of the partners asked for the dissolution of the company and the court finds his or her reasons adequate, but the other members fail to agree to pay him or her the share which would be paid to him or her in the event of dissolution.

six- In the case of one of the partners dies, if such is provided for by the statute of the company.

For part two, See Iran Company Law (part two)

See Also How to find out about actual amount of company’s capital?

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