Type of Responsibilities in Iranian Limited Liability Company

Type of Responsibilities in Iranian Limited Liability Company

The “Commercial Code of Iran” (CCI) in Articles 100 and 101 states that the “Limited Liability Company” (LLC), established contrary to rules of Articles 96 and 97 (regarding payment of entire capital in cash and delivering and valuation of non-cash contributions) of CCI is null and void. Moreover, the partners of the Company cannot, as far as third parties are concerned, avail themselves of this nullity and are responsible towards third parties for damages resulting from the invalidation. They, also, are not allowed by reliance on the issued decree on the nullity of the Company to eliminate their responsibility. After the issuance of the decree on the nullity of the Company, the following persons are jointly and severally responsible towards the other partners and third parties for damages resulting from the invalidation:

– The partners responsible for the nullity of the Company

– Board of Directors and Directors who were in charge and neglected their duties at the time of the nullity.

In the case that the founders of LLC in process of establishment of the Company violate any relevant regulation or the Company’s Articles of Association and such violations cause damages to the other partners or third parties, any beneficiary is able to by resorting to general rules of civil responsibility (Articles 328 and 331 onward of the “Civil Code of Iran” on destruction and causation and Article 1 of the “Civil Responsibility Act”) enjoy the right to persecute before the competent court.

According to Article 115 (a) of the CCI, founders, and directors who contrary to the truth, have stated in deeds and documents submitted for registration of the Company that the entire cash and non-cash contributions have been paid in, are considered as fraud and based on Article 1 of the “Aggravating the Punishment of Perpetrators of Bribery and Embezzlement and Fraud Act” will be punished to 1 to 7 years jail sentence and in the case of existence of aggravated circumstances, the punishment will be imprisonment from 2 to 10 years, in addition to the payment of pecuniary punishment.

According to Article 94 of the CCI, each of the partners of LLC is responsible for the obligations and liabilities of the Company to the extent of his nominal contributions. Therefore, if the Company dissolves and liquidates its properties, Company’s creditors won’t be able to, after ceasing payment by the Company for its debts and other liabilities, claim payment from the partners’ properties.

It should be noted that based on Article 95 of the CCI, in the Company’s title the phrase “Limited Liability” must appear, otherwise the partners of the Company, as far as third parties are concerned, will bear joint and several responsibilities. Furthermore, the title of the Company must not include the name of the partners, otherwise, the partner whose name appears in the title of the Company will be, by third parties, considered as the partner in the Partnership Company.

Moreover, according to Article 98 of the CCI, the partners of LLC are jointly and severally responsible towards third parties for the valuation placed on non-cash contributions when the Company is formed. In this case, the partners’ responsibility is to the extent of the difference between the real value and valuated value of non-cash contributions. And based on Article 155 (b) of the CCI, partners who fraudulently have placed a value on the non-cash contributions in excess of their real value are considered as fraud.

Directors Responsibilities in Iranian LLC

In LLCs, the General Assembly of Founders after convening appoints the initial Members of the Board of Directors. Moreover, in LLCs, a person who is not a member of the Board of Directors or is not the partner of the Company could be appointed as the Managing Director.

Duration of incumbency of the Managing Director of LLC is not in direct correlation of his membership in the Board of Directors, by default, Directors of the Company remain in position from the time of appointment until the subsequent decision of the partners in this respect. Although, the Assembly is able to determine the limit for the duration of incumbency of the Directors.

The above decisions must be notified to the Corporate Registration Bureau in order to be published as a notice in the Official Gazette to inform the public.

Restriction regarding appointing the Managing Director of LLC is the same as the Joint Stock Company. That means persons that are appointed as the Managing Director in other legal entities are not allowed to be appointed as the Managing Director of LLC. Also, criminals and convicts are not allowed to be appointed as the Managing Director of LLC. The following will discuss different types of responsibility of Directors in LLC.

1. 1. Civil Responsibility

Director or Directors of LLC act on behalf or in the name of the Company based on the law or Articles of Association. And since they are not considered as a merchant, in the case of ceasing payment by the Company for its debts or other liabilities, cannot declare bankruptcy against them. However, it is possible to prosecute them for compensation based on the general rules of civil responsibility by proving the Directors negligence, damage, and causality relation.

1. 1. Criminal Liability

According to Article 115 (c) of the CCI, the Directors who without a statement of assets or on the basis of a fraudulent statement of assets, distribute fictitious dividends among the partners, are considered as fraud and the damaged party is able to request reclamation of distributed fictitious dividends as compensation.

General Assemblies Responsibilities in Iranian LLC

If the General Assembly of LLC in its decision, violates regulations and causes damages to the partners or third parties, the damaged party is able to base on rules of the “Civil Code of Iran” by determination of damages and proving causality relation demand compensation. Also, in the cases where the partners, based on decisions of the Assembly, commit crimes such as fraud, are responsible according to the Islamic Penal Code.

Bayan Emrooz Law Firm renders services to foreign and Iranian natural and legal persons in the field of corporate law, including consulting and registration of a company, branch, and representative office. Having an experienced and specialized legal staff, Bayan Emrooz is ready to provide the needed legal services in respect to investment and the formation of a company in Iran.