The Joint Stock company is defined by the law as a company whose capital is divided into shares and the liability of whose shareholders is limited to the par value of their shares. As mentioned in the Foreword, the Joint Stock company may be either a public company (Sherkat Sahami Am) or a private company (Sherkat Sahami Khass). The main 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. See Annex A for additional differences between the public and private companies.
1.2. Other Forms of Business Association
In addition to the Joint stock company, the Iranian Commercial Code provides for the following types of business association:
(a) Limited liability company (Sherkat ba Masouliyat Mahdoud)
(b) General partnership (Sherkat Tazamoni)
(c) Limited partnership (Sherkat Mokhtalet Gheyr Sahami)
(d) Mixed joint stock partnership (Sherkat Mokhtalet Sahami)
(e) Proportional liability partnership (Sherkat Nesbi)
(f) Production and consumption cooperative (Sherkat Ta'avoni Towlid va Masraf)
Of the mentioned listed companies, the limited liability company and the joint stock partnership provide for a limitation of shareholders' liability to the value of their shares. In the case of the mixed joint stock partnership, the law provides for both shareholders and unlimited liability partners. The principal difference between the joint stock and the limited liability company is that with the latter, the capital may not be divided into shares and the participants may not transfer their interests therein without the approval of a majority of the participants representing three-fourth (3/4) of the company capital.
1.3. General Features
The shareholders of a joint stock company participate in the ownership, profit and losses, and distribution of assets in liquidation, in proportion to the shares held. As indicated above, the liability of each shareholder is limited to the par value of his shares and in the absence of fraud or other deceptive practices, there should be no recourse to shareholders for the
liabilities of the company. The company has a separate juridical PDF created with pdfFactory Pro trial version www.softwarelabs.com personality by the law and can sue or be sued in its own name. The shareholders possess the usual shareholder rights including, in general, the right to attend shareholders meetings, receive financial reports, elect
and replace the board of directors, and vote on major decisions of the company.
1.4. Number of Shareholders
The law specifies that a joint stock company must have a minimum of three shareholders.
1.5. Nationality of Shareholders
There are no legal restrictions with respect to the nationality of persons who may form joint stock companies. As a matter of policy, however, the Iranian Government generally requires Iranian shareholder participation in fields of activity deemed important to the nation's development programs.
A Joint Stock company may issue both ordinary and preferred. shares in either bearer or registered form. While the law does not specifically state what privileges may be accorded to preferred shares, it is understood that priorities as to dividends and distribution of assets in liquidation, and multiple voting powers will be honored under the law. The principal differences between registered and bearer shares relate to the manner of transfer and tax implications. See Section 2.6. below.
Management of a joint stock company is made the responsibility of board of directors which must be elected by cumulative voting of the shareholders at least once every two years. See Pan IV below for additional information concerning the board of directors. 1.8. Dissolution and Liquidation General provisions governing the dissolution and liquidation of a joint
stock company are provided in the law and companies are authorized to specify in their Articles of Association any particular provisions they may desire so long as they are not inconsistent with the law. Since the provisions of the law on this subject are general in nature, it is advisable, when drafting Articles of Association, to include procedures for
dissolution and liquidation.
Formation of A Company
3.1. Articles of Association
The constitutional document of a joint stock company is called the Articles of Association which is roughly equivalent to a combination of the charter and by-laws of a corporation formed in other countries. The subscribing shareholders, or founders must approve the Articles of Association and affix their signatures thereto before the company formation may be registered. See Annex B for a checklist of matters- to be covered in the Articles of Association. 3.2 Payment of Subscriptions Subscriptions in the required amount must be paid in to a bank account opened in the name of the company before the company may be formed. A receipt of the bank is required as one of the documents to be filed with the Companies Registration Office when the company is registered. 3.3 Founders Meeting A meeting of the subscribing shareholders, or founders is required by law for the public company but not for the private company. Even with the private company, however, it is advisable to hold such a meeting as the simplest means for accomplishing all of the actions required in connection with the company formation. All of the founding shareholders must :
(a) Approve and sign the Articles of Association
(b)Confirm the required subscriptions and payments thereon have been made
(c) Elect directors and inspectors
(d) Receive acceptances of directors and inspectors
(e) Designate a general circulation newspaper for publication of the company's legal notices.
3.4 First Meeting of the Board of Directors
Before a joint stock company may begin doing business, the Board of Directors must hold. a meeting to:
(a) Elect a Chairman and a Vice Chairman
(b) Appoint the Managing Director and specify his duties
(c) Approve the form of share certificates and designate the company officers to sign them
(d) Designate the officers authorized to sign on behallf of the company
In addition, it is advisable in the first meeting of the Board of Directors to designate the bank or banks to serve as depository of the company funds.
In forming a private company the following documents are required to be filed with the Companies Registration Office:
(a) Draft Articles of Association signed by all shareholders
(b) Statement that the shares have been subscribed together with a bank certification that the required amounts have been paid in
(c) A document signed by all shareholders evidencing the election of directors and inspectors
(d) Signed acceptances of the directors and inspectors
(e) Statement designating the general circulation newspaper in which the legal notices of the company will be published
(f) A declaration (on a form furnished by the Companies Registration Office).
A public company is formed when its Articles of Association has been approved by the shareholders at a founders (or statutory) meeting and filed with the Companies Registration Office together with a minute showing the election of directors and inspectors and their signed acceptances of their positions. The public company's promoters, who
must subscribe to at least 20% of the company's capital, begin the process of formation by submitting to the Companies Registration Office in Tehran draft Articles, a draft prospectus and a declaration which must state:
(a) Name of the company
(b) Identity and domicile of promoters
(c) Objectives of the company
(d) Capitalization, including separate identification of stock paid in kind and in cash.
(e) Number of registered and bearer shares together with their par value and the number of preferred shares together with a description of the rights of preferred shareholders.
(f) Contributions, cash and kind, of the promoters
(g) Principal office, and
When the Companies Registration Office is satisfied with the information furnished by the promoters, it will permit publication of the prospectus which must include information and instructions regarding how and where interested investors may subscribe for shares of the company's stock. When the total capital of the company has been subscribed and at
least 35% has been paid in, the promoters are required to allot the shares to the subscribing shareholders and then call the founders (or statutory) meeting. At this meeting the subscribing shareholders are to review the Articles of Association, elect the first directors and inspectors and designate a newspaper for publication of the company's legal notices.
Upon approval of the Articles by the subscribing shareholders, they must be submitted to the Companies Registration Office together with the minute of the meeting.
A notice of the company formation is required to be published both in the Official Gazette and the general circulation newspaper designated by the founding shareholders. Publication of this notice is paid for by company and usually contains the following information:
(1) Name and style
(3) Location of the head office
(4) Duration and date of formation
(6) Share capital, par value of shares and type of shares
(7) Paid-up portion of the share capital and number of bank receipt or receipts evidencing the payments.
(8) Identity of founders and number of shares held by them
(9) Names of first board members and managing director
(10) Managing director's authorities
(11) Persons authorized to sign on behalf of the company
(12) General circulation newspaper in which legal notices will be published
(13) Names of the first statutory inspector and alternate inspector.
(14) Manner of liquidation
3.7. Commencement of Legal Existence
Although the registration and publication requirements must be met to complete the formation process, the legal existence of the company commences on the date the directors and inspectors accept their positions in writing.
The following charges and fees will be incurred in connection with the formation of the Company:
(a) Registration fee based on the capitalization of the company payable to the Companies Registration Office.
(b) Charges for publication in the Official Gazette of the notice of registration payable to the Official Gazette at current rates.
(c) Charges for publication in a general circulation newspaper at current rates.
(d) Stamp taxes on share certificates.
3.9. Liability of Promoters
The law provides that the promoters of the company are jointly liable for all acts and functions which they perform in connection with formation of the company.