How to Conduct Due Diligence on an Iranian Company | LegaMart Articles
Due diligence on an Iranian company

How to Conduct Due Diligence on an Iranian Company

The untapped Iranian market has always been a desirable destination for foreign traders and investors. Located in the heart of the Middle East and Asia’s main pathway to Europe, Iran is the second-largest economy in the Middle East and North Africa. In addition, a significant part of Iran’s population is comprised of young and educated people who provide a resourceful workforce. But how can we conduct due diligence on an Iranian company?

Due diligence on an Iranian company

Due Diligence Definition

As defined on Investopedia, due diligence is an investigation, audit, or review performed to confirm facts or details of a matter under consideration. In the financial world, this requires an examination of financial records before entering into a proposed transaction with another party.

However, as it might be the case for any country for a foreign investor, there are some risks involved in conducting business in Iran. Unfortunately, the current financial sanctions imposed on Iran have increased these risks. At the moment, more than seven hundred Iranian legal entities and individuals are listed by OFAC as SDN transactions or conducting business with who is prohibited. There are also, some restrictive measures against Iran in place by the European Union, which European companies interested in engaging with Iran must take into consideration. Moreover, several Iranian individuals and legal entities are included in the United Nations Security Council sanctions lists.

Although it could be argued that Due Diligence safeguards both parties to a transaction, however, by uncovering potential risk or making sure that no critical issue is omitted, it mainly protects the interests of the investor or purchaser.

These sanctions, together with other considerations, make an evaluation of the Iranian partner from all aspects before conducting any transaction, especially vital. Such an evaluation is commonly known as Due Diligence.
Read more about Sanctions in:
Sanctions: What It Really Means

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Different Kinds of Due Diligence

Due diligence is a pre-acquisition investigation of a potential target by an acquirer. Below are the common types of this act and tasks that are associated with each type:

Financial Due Diligence

Financial due diligence is an investigative analysis of the financial performance of a company. Similar to an audit, financial due diligence is conducted by outsiders looking to gain a better understanding of the financial situation that the company finds itself in, and its prospects for the future. Financial kind also sets out to uncover issues that might not be readily apparent in the financial statements.

Accounting Due Diligence

Accounting due diligence is to investigate and review a company’s various financial or business processes. This kind is commonly used during an external audit. Small businesses may also go through a due diligence process with banks, lenders, or investors during the finance process.

Tax Due Diligence

Tax due diligence or tax diligence is a comprehensive examination of the different types of taxes that may be imposed upon a particular business, as well as the various taxing jurisdictions in which it may have sufficient connection to be subject to such taxes. Tax diligence covers not only income taxes, but also sales and use taxes, payroll and employment taxes, property taxes, unclaimed and abandoned property (escheatment), and an independent contractor vs. employee classification.

Legal due diligence is the process of collecting and assessing all of the legal documents and information relating to the target company. It gives both the buyer and seller the chance to scrutinize any legal risks, such as lawsuits or intellectual property details, before closing the deal.

Due diligence is one of those words that usually get to be used a lot in business settings, most of the time even without knowing what exactly does it means or concerns. In literal meaning, This term is defined as “the care that a reasonable person exercises under the circumstances to avoid harm to other persons or their property”. However, in the business world, Due Diligence entails research and analysis of a company or organization done in preparation for a business transaction, for example, the merger or acquisition of companies or assets. In other words, Due Diligence is a precaution for the purpose of leading the investments in a gainful direction.

Legamart Due Diligence Services on Iranian Companies

You can try LegaMart’s Due diligence on an Iranian company as an investigation of a business opportunity through reviewing documents and interviewing employees. Our legal advisors offer processes that vary based on your preferences. This may involve assessing the financial, risk, and strategic profile of the potential investor/financial partner and validating the information used in investment decisions.

LegaMart’s legal Due Diligence service includes, but is not limited to:

  • Shareholder and ownership Structure
  • Business reputation
  • Financial credibility
  • Corporate Governance
  • Business Structure
  • Financial Auditing

While there is much practical information about this fact, I start your business with an Iranian company, there are other types of information that you need. Some of them are listed as follows:

  • A brief history of the company since setting up;
  • Identity of the shareholders and the number of shares held by each (Shareholder structure);
  • Description of the company managerial chart and identity of the directors;
  • Assessing the company’s physical assets and intellectual properties;
  • List of any subsidiary or affiliated company;
  • Examining the company documents including articles of association, bylaws, minutes of meetings, and other formation documents before the Corporate Registration Bureau (“CRB”);
  • List of contracts or agreements that bind the company;
  • List of the pending litigations to which the company is a party thereto, any pending case before the regulatory bodies, or pending arbitration case;
  • Review of company’s financial records;
  • The reputation of the Company in media;
  • List of the company’s employees and relevant information including employment terms, salary, and benefits.

Our Due diligence service can step in to obtain such information by accessing two main sources:

  1. The cooperation of the Iranian company in question; 
  2. Using the expertise of an experienced legal advisor in order to make sure about the authenticity of the provided documents and information.

Conclusion

Regardless of the region that you’re in, you can always use other LegaMart’s online legal services besides due diligence which is provided by legal professionals in different countries and jurisdictions.

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