Companies Law No. 12 of 1991

Companies Law No. 12 of 1991

Note: The title of the fee schedule was changed to "Salary Schedule" and the word "Fees" was replaced with "Salaries" pursuant to Law No. 71 of 2017.

Basis Based on what the National Council has approved and the Revolutionary Leadership Council has concurred with, and relying on the provisions of Article 35 of the Constitution, We have issued the following Law:

Chapter One General Provisions

Article One Objectives, Principles, and Scope of Application

Article 1 This Law aims to:

1. Regulate companies.
2. Protect creditors from fraud.
3. Protect shareholders from conflicts of interest and from the mismanagement of company managers and majority shareholders acting therein, and those actually controlling their affairs.
4. Enhance the provision of complete information to owners regarding decisions that affect their investments and their companies. (7)

Article 2 Suspended. (9)

Article 3 This Law applies to mixed companies, private companies, and all investors. Its provisions apply to banks as long as they do not conflict with orders issued by the Interim Authority, including, by way of example and not limitation, Order No. 41 by which the Banking Law was issued, and Order No. 71 issued by the Interim Authority which determines the procedures ensuring the independence of the Central Bank of Iraq, and the regulatory regulations issued pursuant to those orders issued by the Interim Authority. This Law applies to share transactions, financial investment companies, and insurance and reinsurance companies to the extent that it does not conflict with the legislation applicable to those transactions and entities or with the jurisdiction of the state authorities concerned with those sectors. Decisions of the Companies Registrar (hereinafter referred to as "the Registrar") are based on this Law and are not taken on the basis of economic plans or development policy. In general, decisions taken by the Registrar shall not prevent a third party from claiming compensation from those responsible for breaching this Law for any damage suffered as a result of such breach. (3)

Chapter Two The Company in General

First Section The Company Contract and Joint Obligations of Owners

Article 4 First: A company is a contract by which two or more persons commit to each contributing to an economic project by providing a share of capital or labor, to share in any resulting profit or loss. Second: Subject to the provisions of the first paragraph of this Article:

1. A company may consist of a single natural person in accordance with the provisions of this Law, and such a company is hereinafter referred to as a Sole Project.
2. A limited liability company may be established by a single owner in accordance with the provisions of this Law. Third: The capital owners of a company shall not be permitted to exercise their powers in the company to vote or to exercise any other powers that lead to the company carrying out acts or consenting to acts that:
3. Cause harm or damage to the company to achieve their own interest or the interest of those cooperating with them at the expense of other company owners; or
4. Endanger the rights of creditors due to the withdrawal of the company's capital or the transfer of its assets when the company is insolvent or on the verge of insolvency, or when the law prohibits it. (4)

Article 5 The company acquires legal personality in accordance with the provisions of this Law.

Second Section Types of Companies

Article 6 First: A mixed or private joint stock company is a company consisting of no fewer than five persons, in which shareholders subscribe to shares in a public offering and are liable for the company's debts up to the nominal value of the shares they subscribed to. Second: The number of natural or legal persons in a mixed company or a private limited liability company shall not exceed twenty-five (25) persons. All of them contribute to its shares and bear liability for its debts up to the nominal value of the shares they contributed. Third: The number of natural persons forming a partnership company shall not be less than two persons and shall not exceed twenty-five (25) persons. Each shall have a share in the company's capital, and they bear joint and several unlimited personal liability for all the company's obligations. Fourth: A Sole Project is a company consisting of a single natural person who owns the single share in it and bears unlimited personal liability for all the company's obligations. (5)

Article 7 First: A mixed company is formed by the agreement of one or more persons from the state sector with one or more persons from outside the aforementioned sector, with mixed capital. The state sector's contribution in the capital shall initially not be less than twenty-five percent (25%). Two or more persons from the mixed sector may also form a mixed company. A mixed company in which the state sector's contribution falls below twenty-five percent (25%) is considered a private company and is treated as such, as permitted in Article 1, paragraph two, item 2. (6) Second: A mixed company is either joint stock or limited liability. Article 7bis First: A. A holding company is a joint stock or limited company that controls one or more joint stock or limited companies, referred to as subsidiary companies, in one of two cases:

1. It owns more than half of the company's capital in addition to controlling its management.
2. It has control over its board of directors in joint stock companies. B. The name of the company must be accompanied by the word "Holding" in addition to its type, mentioned in all papers, advertisements, and correspondence issued by the company. Second: The holding company aims to support the national economy and may do the following: A. Own movable and immovable property within the scope of the company's activity. B. Establish its subsidiary companies and manage them, or participate in the management of other companies in which it invests. C. Invest its funds in shares, bonds, and financial instruments. D. Provide loans, guarantees, and financing to its subsidiary companies. E. Own patents, trademarks, concessions, and other intellectual property rights, and exploit, lease, or rent them to its subsidiary companies or others. Third: A. A subsidiary company is prohibited from owning shares in the holding company. Any act that transfers ownership of shares from the holding company to the subsidiary company is considered void. B. The holding company appoints its representatives in the board of directors of the subsidiary company in proportion to its shareholding, and it has no right to participate in the election of the remaining members of the board. Fourth: The holding company prepares a consolidated balance sheet and profit and loss statements for itself and all its subsidiary companies at the end of each financial year, accompanied by the explanations and data required according to International Accounting Standards. Fifth: The holding company is subject to the provisions mentioned in Companies Law No. 97 of 2010 according to the type of company it has adopted, unless there is a provision in this Law to the contrary. (1)

Article 8 First: A private company is formed by an agreement between two or more persons from outside the state sector, with private capital. Second: As an exception to the ruling of the first paragraph of this Article:

1. A Sole Project may consist of a single natural person or a limited liability company owned by a single natural or legal person.
2. The state sector may participate in a private joint stock or limited company in a percentage less than twenty-five percent (25%) of the capital. This percentage excludes government insurance and reinsurance companies, the Department of Labor and Social Security, and any other investment entity that the Council of Ministers decides to add to this paragraph. Or a simple company. Third: A private company may be joint stock, limited, partnership, or a Sole Project.

Article 9 First: A financial investment company is an organized company in Iraq, whose main activity is directing savings towards investment in Iraqi financial instruments, including shares, bonds, treasury bills, and fixed deposits. (1) Second: The investment company is considered an intermediary financial institution under the Central Bank of Iraq Law No. 64 of 2016, and the Bank is considered the competent sectoral authority for its activity. It exercises supervision and oversight authority over it, according to a system issued for this purpose within a period of 180 days from the date of publication of this Law in the Official Gazette.

Article 11 First: Suspended. Second: Companies engaging in any of the following activities must be joint stock companies:

1. Insurance and reinsurance.
2. Financial investment. (2)

Article 11 (Duplicate Numbering in Source, likely Art 12) Any economic project not covered by the provisions of Article 71 of this Law may take the form of a company specified in this Law.

Chapter Three Membership in the Company

Article 12 First: A natural or legal Iraqi person has the right to acquire membership in the companies specified in this Law, whether as a founder, shareholder, or partner, unless prohibited by law or a decision issued by a court or competent government authority regarding their person or status. Second: A natural or legal foreign person may acquire membership as a founder or shareholder in joint stock and limited liability companies, provided that the percentage of Iraqi ownership does not fall below fifty-one percent (51%) of its capital. (10)

Chapter Two Establishment of the Company

First Section Establishment Requirements

Article 13 The founders draw up a company contract signed by them or by their legal representatives. The contract must include at a minimum: First: The name and type of the company. The word "Mixed" must be added to the name if it is a mixed sector company, and other acceptable elements may also be added. Second: The company's headquarters, which must be in Iraq. Third: The purpose for which the company was established and the general nature of the work it will perform. Fourth: Suspended. Fifth: The company's capital and its division into shares or units. Sixth: The method of distributing profits and losses in partnership companies. Seventh: The number of members elected to the board of directors of a private joint stock company. Eighth: The names, nationalities, professions, and permanent addresses of the founders, and the number of shares held by each or the value of their share. (11)

Article 14 The founder of a limited liability company, when there are no other founders, or the founder of a Sole Project, prepares a statement that serves as the company contract. The provisions applicable to the contract apply to it wherever mentioned in this Law. (10)

Article 15 The founders of the company subscribe to the company's capital according to the amount agreed upon. (13)

Article 16 First: The founders of the company deposit the company's capital specified in Article 91, paragraph one of this Law, with one of the banks authorized to operate in Iraq or with several of them. The company's capital may include in-kind shares as specified in Article 92 of this Law. Second: Suspended. Third: 1. The founders of a joint stock company, who must not exceed one hundred (100) founders, elect a committee among them called the "Founders' Committee," consisting of no fewer than three and no more than seven members. This committee undertakes the following tasks and actions: A. Contract with specialized and expert entities to study the economic and technical feasibility of the work the company will perform. B. Follow up on the procedures for establishing the company and submit the establishment contract and subscription document to the Companies Registrar (hereinafter referred to as "the Registrar"), and record in the documents the names, signatures, addresses, and nationalities of the founders and other requirements. C. Conduct exchange operations until the establishment procedures are completed. D. Open a joint account in the name of the Committee with one of the banks authorized to operate in Iraq or with several of them. E. Keep records in which the decisions taken and other tasks and duties completed are entered. F. Obtain a project license, if required, and conclude the necessary contracts for its establishment after the approval decision for its establishment is issued. G. Prepare the founders' report, determine establishment expenses, and call the General Assembly to meet. 2. The tasks of the Founders' Committee end after the election of the Board of Directors. 3. The members of the Founders' Committee are jointly and severally liable towards the founders. (14)

Second Section Establishment Procedures

Article 17 The establishment request is submitted to the Registrar accompanied by the following:

1. The company contract.
2. A certificate from the bank or banks proving that the capital required in Article 91 has been deposited.
3. The economic and technical feasibility study in a joint stock company. (15)

Article 18 Suspended. (16)

Article 19 The Registrar approves the company establishment request unless he finds that the request contradicts a specific provision in this Law. The Registrar announces his approval or rejection of the request within ten days from the date of receiving the request. Except for joint stock companies, the company establishment certificate is issued upon the issuance of the approval decision for its establishment, serving as proof of its establishment. If the Registrar rejects the company establishment request, he issues a written decision explaining the reasons for the rejection. In the case of a request to establish a joint stock company, the Registrar issues a written notice of his decision approving or rejecting the establishment request on the date of its issuance. The establishment certificate shall not be issued without payment of the fees. (17)

Article 21 Suspended. (18)

Article 21 (Duplicate Numbering in Source, likely Art 22) First: 1. The Registrar publishes the approval decision for the company's establishment in the Special Bulletin published pursuant to the provisions of Article 116 of this Law, referred to hereinafter as "the Bulletin." 2. In the case of a joint stock company, the establishment certificate is issued after the public subscription for shares, within fifteen (15) days from the date the founders submit the information mentioned in Article 46 of this Law. Second: Suspended. (19)

Article 22 The company acquires legal personality from the date of issuance of its establishment certificate, and this certificate is considered proof of its legal personality. (20)

Article 23 The company established in Iraq in accordance with the provisions of this Law is Iraqi.

Article 24 If the Registrar rejects the company establishment request, he must state the reason for the rejection in writing and must mention in this statement the legal provisions violated and the facts related to each violation. The person requesting the company establishment has the right to object to the Registrar's rejection decision before the Minister of Trade within thirty (30) days from the date of notification. The Minister of Trade must rule on this objection within thirty (30) days from the date of its submission. If the Minister rejects the company founder's request, the person submitting the company establishment request has the right to appeal the Minister's decision before a competent court within thirty (30) days. (21)

Article 25 The founders may submit a new request to establish the company whose establishment was rejected if the reason for rejection no longer exists.

Chapter Three Company Assets

First Section Capital

Article 26 The company's capital is determined in Iraqi Dinars.

Article 27 The company's capital is dedicated to practicing its activity specified in its contract and fulfilling its obligations. It shall not be disposed of otherwise.

Article 28 First: The minimum limit for the capital of a joint stock company shall not be less than one million (1,000,000) dinars, and the minimum limit for the capital of a limited company shall not be less than one million (1,000,000) dinars, and the minimum limit for the capital of other companies shall not be less than five hundred thousand (500,000) dinars. Second: The ratio of liabilities to the sum of the company's capital and other owners' equity shall not exceed three hundred percent (300%). Third: The Council of Ministers, upon the proposal of the Minister of Trade, may amend the amounts and ratios specified in the first and second paragraphs of this Article to ensure the achievement of its activity. (23)

Second Section Division of Capital

First Section Division of Capital in Joint Stock and Limited Companies

Article 29 First: The capital in a joint stock and limited company is divided into equal nominal cash shares that are indivisible. Second: The capital of one of the joint stock companies or one of the limited liability companies may consist of shares offered in exchange for tangible or intangible property contributed by one or more of the company's founders.

1. In the case of a joint stock company, a committee whose expertise and objectivity are approved by the Registrar evaluates the properties forming in-kind shares. This committee consists of experts in law, accounting, and the company's field of work.
2. In the case of one of the mixed joint stock companies, the committee mentioned in paragraph 1 of this item submits its report to the Registrar within sixty (60) days from the date of its formation. The Registrar submits the report to the Office of Financial Control for approval within thirty (30) days from the date of receipt of the committee's report. In case of non-approval, the Registrar returns the report to the committee for reconsideration.
3. In the case of private joint stock companies, all founders agree on the value of the in-kind property shares according to the evaluation method specified in sub-paragraph 1 of this paragraph. The joint stock company contract or the limited liability company contract must specify the type of in-kind property and its determined value agreed upon by the remaining founders. The contract must also mention the name of the company founder who offered the share and his percentage of contribution to the capital represented by this share. The founder who provides the in-kind share is liable to any person regarding the value of the assets accepted and approved. If it is proven that the agreed value is less than the actual value of the property, the founder who provided the in-kind share must pay the difference in cash to the company. Other shareholders may be required to participate in paying the difference.
4. In a joint stock company, the committee's report is presented at the founding meeting to the General Assembly. The founders must deposit the mentioned report with the entity conducting the subscription to enable subscribers to review it. In case of an increase in the evaluation, the provider of the in-kind share must pay the difference in cash, and the other founders are jointly and severally liable for paying this difference. (24)

Article 31 The nominal value of each share is one dinar. Shares with a value less or more than this cannot be issued, except as provided in Articles 54 to 56. (25)

Article 31 (Duplicate Numbering in Source, likely Art 32) Suspended. (26)

Article 32 First: Suspended. Second: Suspended. Third: An investment company shall not invest more than five percent (5%) of its capital in the shares of one company, nor shall it own more than ten percent (10%) of the capital of one company, subject to the previous ratio, and the cash liquidity ratio at any time shall not be less than ten percent (10%) of its paid-up capital. (27)

Article 33 A shareholder is not liable for the company's debts except up to the nominal value of the shares he owns.

Second Section Division of Capital in Partnership Companies and Sole Projects

Article 34 The capital in a partnership company is divided into shares among the partners according to the company contract, and in a Sole Project, it consists of a single share.

Article 35 Each holder of a share in a partnership company and a Sole Project bears unlimited personal liability for the company's debts, and his liability is also joint and several in a partnership company.

Article 36 If the company becomes insolvent, each partner in it is considered insolvent.

Article 37 First: Creditors of a partnership company may sue it or sue any partner who was a member at the time the obligation arose. The partners are obliged to fulfill their obligations jointly and severally, and execution against a partner's assets is not permitted before notifying the company. Second: Creditors of a Sole Project may sue the owner of the project or the owner of the share in it. His assets or their assets are considered security for the project's debts, and they are allowed to seize his assets without notifying the project according to the applicable legal procedures. (28)

Third Section Public Subscription for Capital

Article 38 Public subscription for capital is only in a joint stock company.

Article 39 First: Founders of a mixed joint stock company subscribe to a percentage not less than thirty percent (30%) and not exceeding fifty-five percent (55%) of its nominal capital, which must include the minimum limit determined for the state sector, which is twenty-five percent (25%). Second: When establishing a private joint stock company, the company's founders contribute no less than ten percent (10%) of its nominal capital. Third: The remaining shares are offered for public subscription within thirty (30) days from the date of approval of the company's establishment, by a statement issued by the founders and published in the Bulletin and at least two daily newspapers, after the Registrar's approval. The Registrar's approval is issued within that time period unless the Registrar finds that the registration documents mislead investors. In case the Registrar rejects offering the shares for subscription, he refers the matter falling within his jurisdiction to the state authority concerned with stock and securities markets. The statement includes the following: -1 The text of the company contract. -2 The number of shares offered for subscription, the value of the share, and the amount to be paid for each share. -3 The minimum and maximum limits for the number of shares that may be subscribed to. -4 The place and duration of the subscription. -5 The company's establishment expenses. -6 The contracts and agreements the founders committed to for the benefit of the company. -7 Any other information the founders wish to add. -8 The report of the committee formed pursuant to the second paragraph of Article 92 of this Law, in case of an in-kind share. Fourth: Founders of the company do not subscribe to its shares during the period the shares are offered for public subscription, except after the expiration of thirty (30) days from the beginning of the subscription or during the extension period specified in Article 49 of this Law. (29)

Article 41 Founders are jointly and severally liable for any damage suffered by a subscriber if it results from an error or omission in the subscription statement.

Article 41 (Duplicate Numbering in Source, likely Art 42) First: Subscription is conducted in one of the Iraqi banks authorized to practice banking operations in Iraq according to a printed form bearing the company's name and including the following: -1 The subscription request for a specific number of shares. -2 The subscriber's acceptance of the company contract. -3 The subscriber's name, address, profession, and nationality. -4 Any other information the founders may wish to add. Second: The subscription form signed by the subscriber or his legal representative is delivered to the party responsible for executing subscription transactions, and the amount to be paid is settled against a receipt. Third: The subscriber is given a copy of the company contract and a copy of the economic and technical feasibility study specific to it, pursuant to Article 41, paragraph three of this Law. (30)

Article 42 The subscription period shall not be less than thirty (30) days and shall not exceed sixty (60) days. If the subscription period ends without the subscribers subscribing to seventy-five percent (75%) of the nominal capital, including the founders' shares, the subscription period may be extended for another period not exceeding sixty (60) days, provided that the founders republish the subscription statement with the extension announcement. (31)

Article 43 First: If the subscription extension period ends without the value of subscriptions in the company's shares reaching seventy-five percent (75%) of the nominal capital, the founders must reduce the company's capital so that the value of subscriptions in its shares equals seventy-five percent (75%) of the capital value after reduction, unless the founders decide to withdraw from establishing the company. The founders notify the Registrar of this decision. Second: Suspended. Third: In case of withdrawal from establishing the company according to the provisions of the first paragraph of this Article, the founders notify the bank of their decision and are jointly and severally liable for the expenses incurred for its establishment. The bank that managed the subscription operation returns the amounts received from all subscribers in full after being notified of the founders' decision within a period not exceeding thirty (30) days. (32)

Article 44 First: The bank is responsible for the validity of the subscription conducted in it and must do the following: -1 Seal it upon the expiration of its period and announce this in two daily newspapers and notify the Founders' Committee. -2 Retain all funds received from subscribers and not deliver them to the founders. -3 Return the surplus amounts to the subscribers after fifteen (15) days from conducting the distribution of shares among subscribers according to the second paragraph of this Article. Second: If it becomes apparent after the expiration of the subscription period and its closure that the subscription in the company's shares exceeded the number of shares offered, the shares must be distributed among subscribers in proportion to each of their contributions. (33)

Article 45 First: The Registrar and the competent authority in the state regarding stock and securities markets have the right to challenge the validity of the subscription before the competent court in case of infringement of the legitimate rights of a person resulting from a violation of subscription rules. Neither of them may request the court to annul the subscription within fifteen (15) days from the date of closing the subscription. The court must hear such cases expeditiously. The decision of this court is appealable to the Court of Cassation, and the decision of the Court of Cassation is final. Second: If the court decides to annul the subscription due to its violation of the law, the founders must carry out the procedures again. (34)

Article 46 The founders must, within thirty (30) days from the expiration of the objection period to the subscription or its rejection, provide the Registrar with all information about the subscription operation, including the names of subscribers, the number of shares each subscribed to, their addresses, professions, nationalities, and the amounts paid for the value of the shares.

Article 47 First: The company's board of directors may, after the company's establishment, in case of non-subscription to some of its shares, follow one of two paths after six (6) months from the issuance of the establishment certificate:

1. Sell those shares in the Baghdad Stock Exchange for financial markets; or
2. Offer those shares for public subscription according to the establishment subscription procedures. Second: If the shares are not sold in the market or by public subscription, the company's nominal capital is reduced by the value of the unsold shares. The company, its board of directors members, employees, and agents are liable for misleading data or data that omits material information about sales or subscriptions. (35)

Fourth Section Payment of Capital

Article 48 First: Subscription in the shares of one of the joint stock companies requires full payment of the value of the issued shares. The provisions of this Article apply to shares whose value has not been paid and those whose value has not been paid and are being decided upon under the previous law. Second: Suspended. Third: The installments due are a preferred debt payable to the company. A late payment interest not less than five percent (5%) and not exceeding seven percent (7%) per annum is imposed on the debtor in case of delay in payment at the time specified by the Board of Directors. No profits accrue on it. Fourth: The company retains the profits due to the shareholder to the extent sufficient to pay the unpaid installments and the interest due on them until the full payment of those installments and their late payment interest. (36)

Article 49 If the shareholder does not pay the installment due on the value of his shares at the specified time without a legitimate excuse, the Board of Directors must take procedures to sell those shares as follows: First: The company addresses an announcement to the shareholder, published in two daily newspapers, in the Bulletin, and in the Baghdad Stock Exchange for Securities, demanding that he pay the installment due within thirty (30) days from the date of the last publication. It must mention the number of shares he owns, the amount of the installment to be paid, and the due date. Second: If the shareholder does not pay the demanded installment within the specified period, the company exposes his shares for sale through public auction in the Baghdad Stock Exchange for Securities. Third: The company announces the sale, its date, and its place in the Bulletin, a daily newspaper, and the Baghdad Stock Exchange for Securities, provided that the period does not be less than fifteen (15) days between the date of the last announcement and the date of the sale. Fourth: The owner of the shares announced for sale must pay the debt amount to one day before the start of the auction date, at which point the sale is declared void, and the owner of the shares bears all the expenses the company incurred on the sale procedures. Fifth: The shares are sold at the highest price reached in the auction, and the company's debt of installments, interest, and expenses is collected from it, and the remainder is returned to the shareholder. If the price at which the shares were sold is insufficient to cover the debt, the company recourse for the remainder from the shareholder. Sixth: The company's records regarding the sale are considered valid unless the contrary is proven.

Article 51 The subscriber of the shares of the joint stock company, after paying the due installments and presenting the receipts proving this, is given a temporary certificate with a serial number and signed by a person authorized by the company. It includes the name of the shareholder, the number of his shares, what has been paid of their value, what remains of the installments, their due dates, and what is paid of these installments is noted on it.

Article 51 (Duplicate Numbering in Source, likely Art 52) Each shareholder in a limited liability company and each shareholder in a joint stock company who has fully paid the value of his shares receives a permanent certificate including the data mentioned in the temporary certificate and a statement that the value of the shares has been paid. At that time, any temporary certificate must be voided. (37)

Article 52 The shareholder may pay one or more installments of the value of his shares before the due date. In that case, he is considered to have paid from other shareholders. No profits are paid on installments paid before their due date.

Article 53 In limited partnership companies and Sole Projects, the capital must be paid before the issuance of...