Establishing a physical presence in Iran may be on many investors’ minds, but how to go about it is the key question. Whether an entity wishes to establish a company and have on-site forces, or trying to pair up with a local or existing partner, it is important to know the details of each option in order to make an educated decision.
According to the Iranian Commercial Code, a foreign entity, just like a local one can incorporate the following types of company in Iran:
- A Joint Stock Company (JSC);
- A Limited Liability Company (LLC);
- General Partnership (PG);
- Limited Partnership (LP);
- Mixed Joint Stock Partnership (MJSP);
- Proportional Liability Partnership (PLP); and
- Production and Consumption Cooperative entity (PCC).
The JSC can either be a public company or a private company. The key difference between the two is that the public company may offer its shares and debt securities to the public while the private company may not. The LLC and JSP limit the shareholders’ liabilities based on the value of their shares. The main difference between a JSC and a LLC is that the latter will not divide the capital into shares and shares cannot be transferred without the approval of the majority of the shareholders.
It is important to note that there is no legal restrictions on the nationality of the shareholders in a JSC. It is however a matter of policy that the Iranian Government generally requires Local shareholders to be engaged in fields deemed to be significant to the nation’s development programs.
Regardless of the type of business and its structure, it is highly recommended to include a clause addressing procedures for dissolution and liquidation when drafting the Articles of Association.
Other important factors, such as the number of shareholders forming the company, number of issued shares, number of directors, the minimum share capital, must seriously be considered prior to making a decision on the type of association and subsequently formation of the company.