In this article, you will be given an overview of joint venture law in Iran, including regulation of JVs, types of joint ventures permitted in the jurisdiction, whether corporate joint ventures are subject to the corporate law, formalities for formation and registration of joint ventures, statutory limits on duration, anti-trust rules, termination, rules relating to joint ventures with foreign members, and incentives.
If you are interested to know more about Joint Venture law, you can read the articles below:
What is a Joint Venture?
As it is defined in Investopedia, a Joint Venture [Agreement], JV or JVA, is a business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. This task can be a new project or any other business activity. In a JV, each of the participants is responsible for profits, losses, and costs associated with it. However, the venture is its own entity, separate from the participants’ other business interests.
Types of Foreign Investment in Iran
To vast the later argument, first, we should determine what laws and regulations are applicable to investing in Iran and you should know:
- Trades Law for Joint Stock Company
- Export and Import Laws
- Direct Tax Act
- Customs regulations
- Labor Law for information on the procedure of using services of foreign nationals
- Patents and registry of trademarks and inventions for information on industrial and intellectual rights
Foreign Direct Investment (FDI) in Iran has been hindered by unfavorable or complex operating requirements and by international sanctions, although in the early 2000s the Ismalic Republic of Iran’s government liberalized investment regulations.
Iran ranks 62nd of 142 countries in the World Economic Forum’s 2011 analysis. In 2010, Iran ranked sixth globally in attracting foreign investments.
Foreign investors have concentrated their activity in a few sectors of the economy: the oil and gas industries, vehicle manufacture, copper mining, petrochemicals, foods, and pharmaceuticals. Iran absorbed US$24.3 billion of foreign investment from 1993 to 2007 and US$34.6 billion for 485 projects from 1992 to 2009.
Iran has two types of laws concerning foreign companies as a whole;
The first are laws that address issues concerning foreign companies directly such as the Foreign Investment Promotion and Protection Act (FIPPA),
and the second are general laws of which certain articles or by-laws address foreign companies, for instance, the Taxation Law and the Labor Law. Iran’s environment is protected by strict laws and the Department of the Environment is in charge of evaluating the impact of the projects and their monitoring.
Joint Venture Law in Iran
Iranian law allows provides for both registered contractual JVs (Art. 107, Law on the Fifth Five-Year Development Plan of Iran) as well as unregistered contractual JVs in the form of a partnership (Art. 10 and 573, ICC). Parties can also use corporate JVs for the purposes of their venture. In this case, the corporate form chosen by the parties is regulated by the Iranian Commercial Code (BACC). Iranian corporate forms are as follows:
- Joint-stock company (JSC)
- Limited liability company (LLC)
- Limited partnership
- General partnership
- Joint-stock partnership
- Proportional liability partnership
- Consumer co-operative company
Corporate Joint Ventures in Iran
The most common corporate structures used for the establishment of equity JVs in Iran are the two first mentioned corporations which are LLCs and JSCs and both provide limited liability to their members and organized rules governing these two structures. JSCs are divided into private joint-stock companies (PJSC) and public joint-stock companies, with the latter being used for listing purposes only. As such, a PJSC is nearly always the preferred choice between the two.
Establishing a Branch Office Law in Iran
What is defined as a branch office?
A branch office is being considered as an extension of the parent company and it is not considered a separate legal entity. Given that it is only a part of the parent company, carries out the same activities within the market.
But considering that the registration procedures of a subsidiary and a branch in Iran are similar, their purposes are completely different! That being said, it is important to first establish the type of presence that you wish to have in Iran before deciding between a subsidiary setup or establishing a branch.
The Act “Permission to Register a Branch or Representative of Foreign Companies” was issued in 1997 and the executive by law “of the Act” approved in 1999 are the main rules about foreign branches in Iran.
According to this Act:
“Foreign companies registered legally in their own country may submit an application to register branch or representative under Iran legal framework in activities determined by Government of the Islamic Republic of Iran. This is permitted if this action could be done mutually for Iranians in that country”.
Do You Need a Lawyer for a Joint Venture?
Like any legal action that you need legal consultantancy, running a joint venture is no exception. So, to prevent the harms or additional costs in the future, it is highly recommended that consult or get an advice for this issue.
Dr. Mirshahbiz Shafee is a Senior Consultant at GARSHA Law Group. Since 2000 he has been involved in court or arbitration proceedings and has a practical and accurate insight on Iranian judicial system.
Dr. Shafee has worked with many reputable companies as contract manager, senior legal advisor and head of legal departments enabling him to be fully aware of corporate and business law in such a position as well.
He has studied in the most reputable law schools of Iran. Also, as a professor at Shahid Beheshti University, teaching legal-commercial subjects, Dr. Shafee is an updated lawyer who is involved with new legal topics. Dr. Shafee is a creative lawyer and keen on solving legal issues. The Law firm he works with, GARSHA Law Group, is a well know law firm based on its successful cases.
Oveis is an Attorney at Law in Iran, an Associate Professor of Arbitration Law, Director of Tehran Regional Arbitration Centre (TRAC) and a Member of the Court of Arbitration at the Arbitration Center of Iran Chamber of Commerce (ACIC).
He has a PhD in International Law from the University of Geneva and an LLM in International Commercial Arbitration Law from the Stockholm University. In addition to a bachelor of Law, he also holds a bachelor of Industrial Engineering and a Master of Business Administration (MBA) from the Iran University of Science and Technology.
He is admitted to Iran Central Bar and has served in several domestic and international arbitration and litigation cases, either as counsel or arbitrator or expert.
Ali Sahraiian is the Managing Partner at Aras-Pars Law Firm. He is a member of the Iran Central Bar Association (ICBA). He has excellent experience in advising both private and state-owned entities.
He is also well-skilled in arbitration cases held under the ICC, ACIC and TRAC Rules, and ad hoc arbitrations under the UNCITRAL Rules.More importantly, he has been involved in legal proceedings to recognise and enforce arbitral awards before the Iranian courts.
He is capable of giving legal advice in many different industries based on companies he has been working with (automotive, oil & gas, energy and pharmaceutical companies). He has successfully represented international clients in different legal areas before both national and international courts and tribunals.